The economies of the 17 nations that use the euro are expected to contract slightly this year, the executive arm of the European Union said Thursday.
In its latest projection, the European Commission forecasted a 0.3 per cent contraction in the eurozone in 2012. That's a departure from the modest 0.5 per cent gain the agency was expecting when they last issued their forecast in November.
Greece is expected to lead the way with a 4.4 per cent contraction. While many European nations have oscillated between growth and contraction for several years, the Greek economy has been in almost constant contraction mode since 2007.
Greek legislators are currently pushing another punishing round of austerity measures through parliament. If they are successful, they may reduce the country's debt burden, but are likely to eat even further into the economy as services are cut and people spend less.
The EU was always expecting the debt-laden economies of Greece and Portugal to contract, but was counting on other euro-using nations to pick up the slack with modest gains on the back of a turnaround in the continent's manufacturing and financial sectors.
But the Commission now expects Belgium, Spain, Italy, Cyprus, the Netherlands and Slovenia to suffer economic contraction too.
Indeed, the continent's two largest economies, Germany and France are now largely responsible for keeping the entire eurozone afloat. The EC expects growth of 0.6 per cent in Germany and 0.4 per cent in France this year.
"Although growth has stalled, we are seeing signs of stabilisation in the European economy," the EC's finance chief Olli Rehn said in a statement. "Economic sentiment is still at low levels, but stress in financial markets is easing."
The situation has gotten worse in many countries, however. Spain is now expected to contract by 1 per cent in 2012, down from 0.7 per cent in November. And Italy's economy is forecast to shrink by 1.3 per cent, well off the 0.3 per cent gain the EC was expecting only a few months ago.
The economy of the wider 27-nation European Union — which includes non-euro countries like Britain, Sweden, Romania and Denmark — is expected to do marginally better, and post a flat economic performance for the year. Britain's economy is forecast to expand by 0.6 per cent, while Poland is expected to lead Europe with a 2.5 per cent expansion pace, the EC said.
"With decisive action, we can turn the corner and move from stabilisation to boosting growth and jobs," Rehn said.