The European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs. The European Commission, the executive arm of the EU, forecasts that the eurozone economy will contract by 0.3 percent in 2012 and grow by 1 percent next year. Its prediction for 2012 is far weaker than the one it gave last November, when it predicted growth of 0.5 percent. A year ago it was predicting growth of 1.8 percent. Friday's forecasts provide clear evidence of the impact of Europe's debt crisis on the eurozone economy over the past year as governments have struggled to introduce deficit-reduction measures and business and consumer confidence has taken a dive. Olli Rehn, the EU's monetary affairs chief, said the recession is likely to be "mild" and "short-lived". A recession is commonly defined as two consecutive quarters of negative growth and figures next week are expected to show that the eurozone contracted by a quarterly rate of 0.2 percent for the second quarter running. Rehn insisted a "recovery is in sight" but urged member countries not to give up on their efforts to get their public finances back into shape. However, he did indicate that more could be done to give growth a boost. "Sound public finances are the condition for lasting growth, and building on the new strong framework for economic governance, we must support the adjustment by accelerating stability and growth-enhancing policies," said Rehn.
