EU sees deeper recession in gloomy outlook

(BRUSSELS) - Recession in the crisis-hit eurozone will be deeper than expected for the rest of the year, hitting even Europe's biggest economies and leaving unemployment at record levels, the EU warned Friday.

Though signs of recovery could emerge in 2014, four of the eurozone's biggest economies -- France, Italy, Spain and the Netherlands -- will see negative growth, the European Commission said in its spring forecast.

Economic output in the 17-nation area -- home to 340 million people and a global rival to the United States, Japan and emerging giants -- will shrink by 0.4 percent this year, worse than the 0.3 percent forecast in February and after a 0.6 contraction last year.

The failure of Europe's economies to emerge from the debt crisis means record unemployment that last month saw 19 million people on the dole will endure, though differences are wide between richer eurozone states to the north and those to the south.

"In view of the protracted recession we must do whatever it takes to overcome the umeployment crisis in Europe," said the EU's commissioner for economic affairs Olli Rehn.

Eurozone joblessness this year would hit a record 12 percent and 11 percent across the whole 27-member EU. The rates vary hugely, with an alarming 27 percent in Spain and Greece, which Rehn said was "unbearably high", but a low 4.7 percent in Austria and 5.4 percent in Germany.

France, the euro-currency area's second economy, will shrink by 0.1 percent in 2013 as weakness in household demand, a key economic driver, finally takes its toll. France will then rebound to 1.1 percent growth in 2014, the data said.

But France, along with Spain and the Netherlands, will miss commitments to meet the EU's 3 percent of GDP deficit ceiling.

France will post a 3.9 percent deficit this year and a 4.2 percent shortfall next year.

Rehn said it would be "reasonable" to provide Paris with an extra two years to meet the target -- an offer also already made to Spain -- but appeared to chide the country's Socialist government, calling for "more important and urgent efforts" to trim spending.

Spain will continue a hard slog from its crisis, brought on by the 2008 implosion of a decade-long housing boom, and should contract by 1.5 percent in 2013 before reversing to 1.4 percent growth in 2014.

But Spanish public finances will remain dire well into next year with a government deficit of 6.5 percent in 2013 expected to worsen in 2014 to 7.0 percent as certain measures expire.

The crisis will be hugely felt in recently bailed out Cyprus where output is expected to contract by 8.7 percent this year in the wake of a severe restructuring of the island nation's key banking sector, including a controversial "haircut" on deposits.

The Cypriot recession will prolong into 2014 and beyond, the Commision said, with the economy expected to contract by an overall 15 percent between 2012 and 2015.

In a rare glimpse of encouragement, the Commission saw recovery in Greece by the end of the year after six consecutive years of recession. Athens is forecast to eke out 0.6 percent growth in 2014, after contracting sharply by 4.2 percent this year.

With signs of recovery still wanting, eurozone members are caught in a fierce debate over the way out of the crisis, with hard-hit countries to the south clamouring for an end to austerity policies championed by Germany and like-minded states to the north.

The latest raft of grim data comes a day after the European Central Bank cut interest rates to a new record low in an effort to do its part to unwind a crisis now in its third year.

EU economic forecasts