Eurozone economy to contract 0.3 pct in 2012: EU forecast

If the EU's forecast materializes, this would be second time that the eurozone has suffered recession since 2009 when it was dragged into recession by global financial crisis.

According to Xinhua, the economy of the 27-nation European Union (EU) is set to stagnate this year, the Commission said in its interim report on the EU economy.

"The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession," said the report. Last November, the EU forecast the eurozone's gross domestic product (GDP) up 0.5 percent this year and EU up 06 percent.

"Recent developments in survey data suggest that the expected slowdown will be rather mild and temporary," EU Economic and Monetary Affairs Commissioner Olli Rehn said at a press conference after the release of the report.

"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," he added.

The Commission also said that after an early recession in 2012, a gradual return of business and consumer confidence will come in the second half of the year.

The economy of the debt-laden Greece is forecast to contract at an annual pace of 4.3 percent in 2012, compared with a previous estimate of 2.8-percent contraction. The Commission attributed its prediction to the substantial downside risks to the country's economy and very low consumer and business confidence.

The interim report also said stronger domestic demand and a resilient labor market would drive EU's largest economy Germany to grow by 0.6 percent in 2012.

The Commission expected Italy's GDP to contract by 1.3 percent this year, a sharp contrast with a 0.1-percent growth it forecast last year. Spain's economy is expected to shrink 1 percent this year compared with the 0.7 percent growth forecast the Commission made last year.

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