Last updated: March 16. 2013 6:24PM - 81 Views

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(AP) The European Union predicted Friday that the economy of the 17 countries that use the euro will be growing solidly by the end of this year even though it expects the recession to last longer than it did just three months ago.

In its winter forecast, the EU Commission, the EU's executive arm, said the eurozone is likely to contract a further 0.3 percent this year, in contrast to its previous prediction of 0.1 percent growth.

Across the eurozone, the Commission said the debt crisis and the associated budget tightening continue to weigh on activity figures last week showed the eurozone contracted by 0.6 percent in the final quarter of 2012 from the previous three-month period.

Many countries are in deep recessions, such as Greece and Spain, as they push spending cuts and tax increases in order to get a grip on their public finances. Others are suffering in the fallout, such as Germany, Europe's largest economy, which contracted by a quarterly rate of 0.6 percent in the final quarter of 2012.

Despite what it terms headwinds, the Commission anticipates that the eurozone recession will bottom out over the first half of this year, and that output should start expanding gradually in mid-2013. By the fourth quarter of 2013, it is forecasting that the eurozone economy should be 0.7 percent bigger than the same period in 2012 and that there will be 1.4 percent growth in 2014.

A number of recent economic confidence indicators have pointed to an improving outlook, particularly in Germany. Much of the recent calm in financial markets has been credited to the debt-reduction measures taken by many countries and a commitment by the European Central Bank's president Mario Draghi to do whatever it takes to save the euro.

The decisive policy action undertaken recently is paving the way for a return to recovery, said Olli Rehn, the Commission's top economic official.

The wider economy of the 27-nation EU, which includes non-euro members such as Britain and Poland, is also bottoming out, according to the Commission. Here too, the Commission lowered its 2013 growth forecast from 0.4 percent to 0.1 percent. In 2014, it expects the world's largest economic bloc with 500 million people to grow by 1.6 percent.

One of the key problems afflicting Europe at the moment is unemployment, and the Commission said a marked improvement was unlikely anytime soon. It expects the EU unemployment to rise to 11 percent and the eurozone rate to swell to a record 12 percent.

While unemployment is high overall, the trend is not uniform: Germany has seen unemployment falling as its exporters have benefited from the pick-up in global trade. However, those countries, mostly in southern Europe, where market concerns over excessive public debt have pushed governments to make the toughest budget cuts, are recording sky-high levels. In the case of Greece and Spain, unemployment is over 25 percent and expected to rise to around 27 percent.

The Commission forecast that Germany's economy will grow by 0.5 percent this year, but France, Europe's second-largest economy, will record only 0.1 percent growth. Italy and Spain, are expected to decline 1 percent and 1.4 percent respectively.

Meager growth, in turn, means that some governments might have to tighten their belts even further possibly in France, where the government's 2013 budget is predicated on a growth rate of 0.8 percent.

Associated Press
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