Eurozone 'back in recession this year'

IMF poised to forecast 0.5 per cent contraction and pass the hat for more funds from governments

The International Monetary Fund will next week forecast a return to recession for the eurozone in 2012, a move likely to increase the pressure on governments to contribute to its latest $600bn (£388bn) fundraising drive.

The IMF is scheduled to release its revised World Economic Outlook (WEO) estimates on Monday, with analysts expecting a sharp reduction because of the ongoing eurozone crisis. According to the Italian agency, Ansa, citing a leaked draft of the WEO, the IMF will forecast that the eurozone economy will contract by 0.5 per cent over the course of this year, with Italy shrinking by 2.2 per cent and Spain by 1.7 per cent. At the IMF's meeting in September 2011, it forecast eurozone growth in 2012 of a comparatively healthy 1.1 per cent.

The eurozone's economic engine, Germany, is projected to grow by just 0.3 per cent this year while France is pencilled in for growth of just 0.2 per cent. Global growth estimates are also likely to be slashed by the IMF on the back of a eurozone recession. According to Ansa, the IMF now estimates that 2012 global GDP will rise 3.3 per cent, rather than the previous forecast of 4 per cent. The estimates for 2013 are also predicted to show GDP growth of 4 per cent, compared with a previous forecast of 4.5 per cent growth.

In its review of Ireland's public finances the Troika – made up of the European Union, the European Central Bank and the IMF – cuts its growth forecasts for Ireland to just 0.5 per cent in 2012, down from 1 per cent in October.

The IMF this week said that it anticipated calls on its resources over the next two years by distressed member states of up to $1 trillion, and that it would require a $600bn increase in its funding resources to meet this demand. The sharp increase has been interpreted as an indication that it expects large eurozone economies such as Italy and Spain to lose market access over the coming years.

There was, however, an encouraging sign on this front yesterday as Spain successfully raised €3bn in 10-year bonds at a lower interest rate of 5.4 per cent. The European Commission welcomed the IMF's fundraising push. "This would send a very clear signal to the market," said European Commission spokesman Amadeu Altafaj.

But some other large potential donors, including the United States, warned that the IMF could not be expected to rescue the euro. "We continue to believe that the IMF can play an important role in Europe, but only as a supplement to Europe's own efforts", said a US Treasury spokesperson. "The IMF cannot substitute for a robust euro area firewall."

Meanwhile, the new German representative on the board of the European Central Bank, Jörg Asmussen, warned that the Frankfurt central bank's sovereign bond buying programme, known as the Securities and Markets Programme, must come to an end at some stage, something that could potentially increase the pressure on struggling European governments.

"The SMP is neither unlimited nor can it last forever," Mr Asmussen said in an interview on German radio. The ECB is reported to have been a heavy buyer of Italian bonds in recent weeks.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness