Forex News – Growth forecasts for euro-zone cut to 0.5 percent in 2012

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The European Commission released its growth forecast for the euro zone for 2012, trimming the growth rate to 0.5 percent. This year’s forecast was revised down to 1.5 percent from the expected 1.6 percent. The Commission expects a contraction in the 17-member region as tighter fiscal policies and weak consumer confidence, high unemployment all undermine investment and consumption.

Vice-President for Economic and Monetary Affairs, Olli Rehn, stated that “Growth has stalled in Europe, and there is a risk of a new recession,”

“While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole,” Rehn added.

The Commissioner believes that “The key for the resumption of growth and job-creation is restoring confidence in fiscal sustainability and in the financial system and speeding up reforms to enhance Europe’s growth potential.”

Markets are concerned that public finances in Greece, Portugal, Ireland are unsustainable and will worsen. Recent developments in Greece and Italy have further deepened debt concerns, especially as Italy’s bond yields reached record highs and surged to unsustainable levels on Wednesday.