Eurozone still stuck in reverse thanks to austerity

Deficit-busting targets for a trio of eurozone strugglers have been torpedoed by austerity and the region will not return to growth until next year, worrying new forecasts revealed today.

The European Commission’s latest forecasts predict the  17-member single currency bloc, the UK’s biggest trading partner, is on course for another year stuck in reverse, with a 0.3% decline in 2013 following a 0.6% fall last year.

Spain, where unemployment is set to hit a record 26.9% this year, is the worst offender on deficits as the economy buckles under Mariano Rajoy’s austerity programme.

This year the nation’s deficit will stand at 6.7%, well above its 4.5% target, and could swell to 7.2% next year, the commission said. France will also miss the mark with a 3.7% deficit this year while bailed-out Portugal is on course for a higher-than-expected 4.9% shortfall, raising the prospect of fines under the fiscal compact agreed by the European Union in December 2011.

Chris Williamson, chief economist with financial data provider Markit, said the poor performance opened up the possibility of more leeway on deficits from Brussels later this year, allowing them to ease the pace of austerity measures.

“This will clearly help to ease some of the political and social tensions that are apparent in the peripheral countries of Italy, Spain, Portugal and Greece,” he said.

“Also, the lowering of the growth forecasts will inevitably put further pressure on the ECB to do more in terms of stimulus, lowering the bar to a cut in interest rates.”

The forecasts also underline a polarised eurozone with Germany forecast to grow 0.5% this year while France manages an expansion of just 0.1%.

Spain in contrast will slump 1.4% and Italy 1%, with Greece on course for its sixth year of recession.