Irish growth forecast trimmed again by Commission

The Commission said the country's risks remained broadly balanced.

"Downside risks stem from the uncertain external outlook, especially trading partner demand, although the Irish export sector decoupled successfully during the first years of the crisis," it said in its autumn forecast.

It noted that expiring patents could reduce growth in chemical exports and warned that consumer spending could be hit if house prices fall further.

The Commission also cut its GDP forecast for Ireland for 2013 - the third downward revision in six months. 

It now predicts a rise of 1.1% compared to earlier forecasts of 1.4%. The new predication for next year matches the level the IMF cut its estimate to last month.

But the commission sees growth accelerating to 2.2% in 2014, meaning Ireland's economy would grow at a faster pace than Germany's for the second successive year. 

This is still less than the 3% the Government has factored in.

The Commission said it believes the Government will be able to trim the budget deficit to a better than targeted 8.4% of GDP this year and remain on course to lower it to 5% by 2014.

It also said today that Government debt will rise above 122% of gross domestic product next year although the country's deficit cutting remains on track.

This has allowed Ireland to make a tentative return to capital markets. Ireland has avoided the recession seen in much of the euro zone thanks to robust exports but it is struggling to grow fast enough to start reducing the national debt.

That debt will peak at 122.5% of GDP next year before dropping in 2014.

Europe's recession worse than earlier predictions

Europe's economy is still reeling and unemployment could remain high for years in spite of the progress made in solving the debt crisis, the European Union warned today as it downgraded its forecasts for the 27-country bloc.

The European Commission, the executive arm of the EU, today revised its forecast for the economy of the entire region, saying that it now expected the region's gross domestic product to contract by 0.3% on an annual basis this year, rather than remaining flat as it predicted in the spring.

It also said that the 17 countries that use the euro will contract, with GDP falling 0.4%, compared to a previous expectation of a 0.3% fall.

But the most significant downgrade is for next year's forecast. The commission had expected the euro zone to find its footing in 2013, with 1% growth. Now it predicts only a 0.1% growth rate.

For all 27 countries in the EU, it forecasts 0.4% growth, compared with 1.3% last spring. The report also suggests that unemployment will not start falling until 2014 - and then only slightly.

"The ongoing post-financial crisis correction continues to weigh heavily on economic activity and employment in the EU," the report said. "Yet, compared to the situation before the summer, over the last few months financial tensions have somewhat abated,'' it added.

Official third-quarter GDP figures for the EU and the euro zone, which will show whether the region has entered recession, are due to be released on November 15. A recession is defined as two quarters in a row with negative growth.

The euro zone has made progress this year toward resolving its debt crisis, which has been dragging down economies throughout the EU and beyond. Countries that use the euro have slashed spending and promised to keep their deficits in check.

They have vowed to better protect their banks by improving how they are regulated and supervised; and the European Central Bank has put in place a plan to help countries struggling with high borrowing costs, the hallmark of the crisis and the reason some have sought bailouts.

But those measures are still to be felt in the real economy. The unemployment rate across the euro zone is at a record high of 11.6%, and it is 10.6% in the wider EU.

In the latest in a steady stream of job cuts, Danish wind turbine maker Vestas, Swedish wireless equipment group Ericsson, and Dutch bank ING announced a total of almost 7,000 layoffs today.

Eurostat, the EU's statistics agency, also said retail sales in the euro zone shrank 0.2% in September.

Many economists have argued that, in solving one crisis by cutting government spending and raising taxes, politicians have exacerbated another - slow or negative growth. Meanwhile, tighter banking rules have hurt lending, the fuel economies need to grow.

Greece has suffered the most from this vicious cycle and is now in its fifth year of recession. Many say it is unclear how the country will ever manage to reduce its debts, spark growth and break the cycle.

The new forecast expects Greece's economy to contract 6% this year and another 4.2% next year. In the spring, the commission had hoped growth would be flat in 2013.

A similar story is played out across the EU, with the 2013 forecasts for most countries significantly worse than they had been just a few months ago. Even powerhouse Germany is expected to eke out just 0.8% growth now, compared with 1.7% in the spring.

EU less optimistic on growth than European governments

''Europe is going through a difficult process of macroeconomic rebalancing, which will still last for some time," EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference today after the release of the Autumn forecasts.

"Europe must continue to combine sound fiscal policies with structural reforms to create the conditions for sustainable growth to bring unemployment down from the current unacceptably high levels," he said.

The Commission made less optimistic growth forecasts for all the biggest euro zone countries than their governments have.

Germany, the biggest in Europe, would grow 0.8% in 2012 as Berlin expects, but only 0.8% in 2013, rather than 1% forecast by the government, the Commission said.

The bloc's number two economy France would grow only 0.2% this year, 0.4% in 2013 and 1.2% percent in 2014, rather than the 0.3%, 0.8% and 2% respectively forecast by Paris.

The Commission said that Italy will contract 0.5% next year after a 2.3% recession in 2012, more than twice the 0.2% fall which Rome sees next year. Italy's budget deficit will ease only to 2.1% next year, without a policy shift, rather than to the 1.8% expected by Italy.

Spain, under market pressure to seek help from the euro zone rescue fund, will suffer a recession almost three times deeper at 1.4% in 2013 than the 0.5% contraction predicted by Madrid, unless it takes additional steps. Its budget deficit will miss the agreed targets easing to 6% in 2013 from 8% seen this year and rising to 6.4% in 2014, the EU executive said.

Bucking the trend, the Commission said that Greece, which is struggling to clinch a deal with international lenders to unfreeze emergency loans without which it will default, will enjoy stronger economic growth than Athens itself expects.

The EU executive believes the Greek economy would contract 4.2% next year after shrinking 6% in 2012 and grow 0.6% in 2014. The Greek government is assuming a contraction this year of 6.5%, 4.5% next year and that growth in 2014 would only be 0.2%.

The Commission and Athens also differ on the budget deficit outlook with the Commission forecasting a gap of 5.5% of GDP in 2013 and 4.6% in 2014, while Greece hopes for 3.8% in two years.

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