By Nick Mann | 23 February 2012

The European Commission has slashed its 2012 growth forecasts for both the European Union and eurozone and said it now expects the 17 countries using the single currency to experience a ‘mild recession’ in the first half of this year.

Publishing its latest quarterly economic forecast today, the commission also said real gross domestic product in the EU was now expected to remain unchanged this year. This compares to the 0.6% growth it forecast for 2012 in November, when it also said it expected the eurozone economy to grow by 0.8%.

A combination of a weaker global economy, ‘sharply deteriorating’ market confidence and the sovereign debt crisis all contributed to a stronger than expected loss in confidence in the EU economy in late 2011, the commission explained.

However, ‘modest growth’ is expected to return in the second half of 2012, and the commission’s vice-president for economic and monetary affairs, Olli Rehn, said there were ‘signs of stabilisation’ in the European economy.

‘Economic sentiment is still at low levels, but stress in financial markets is easing,’ he said. ‘Many of the steps that were essential to deliver financial stability and to establish the conditions for more sustainable growth and job creation have now been taken.

‘With decisive action, we can now turn the corner and move from stabilisation to boosting growth and jobs.’

Of the 27 member states, the economies of nine are expected to contract this year, with one – the Czech Republic – stagnant, and the remaining 17 forecast to report a growth in GDP.

Of those expected to shrink, Greece (–4.4%) and Portugal (–3.3%) are set for the most significant contractions. Latvia (2.1%), Lithuania (2.3%) and Poland (2.5%) will experience the most significant growth, the commission said.

Both Germany and the UK are forecast to record 0.6% GDP growth this year and France 0.4%. In November 2011, the commission forecast 0.8% growth for Germany in 2012, and 0.6% for the UK and France.