Euro currency zone economy to shrink in 2012

The EU executive warned that the EU zone economy will decline for the second time in three years. The executive warned that the euro currency area has yet to break the debt cycle in some countries.

Oli Rehn the EU Economic and Monetary Affairs Commission said however:"Recent developments in survey data suggest that the expected slowdown will be rather mild and temporary," "But the turnaround of the trend still needs to be confirmed in the coming months and it essentially depends on the policy decisions to be taken,"

The Commission report predicted that output in the 17 countries sharing the euro currency is likely to contract .3 per cent in 2012. Earlier growth was predicted of .5 per cent. Economic growth in the larger 27 member EU is expected to be flat this year.

The Euro zone's last recession was much more severe with the economy contracting by 4.3 per cent in 2009. High debts, reduced investor confidence and a rise in unemployment have killed off the recovery. Many economists predict growth only in 2013.

The IMF view is slightly more pessimistic than the Commission report. The IMF predicts production will decline by .5 per cent this year with a modest recovery in the last few months of 2012. If debt issues are not resolved the situation could be even worse. For more see this BNN article.