The European Commission cut its growth outlook for the euro area for the rest of this year and predicted a recession for Germany, the region's largest economy. The 15-nation euro region's economy will probably stagnate this quarter after shrinking in the previous three months for the first time since the euro was introduced in 1999, the Brussels-based commission said today. The commission lowered its full-year growth forecast to 1.3 percent, from 1.7 percent earlier, and signaled the 2009 outlook may also be cut. With recessions forecast for Germany and Spain, Jean-Claude Juncker, who leads a group of euro-area finance ministers, today said there is a “risk of a technical recession'' for the euro area as a whole. The region's manufacturing and services industries contracted in August and confidence fell to the lowest in more than five years. The EU also forecast a recession in the UK, which is outside the euro area. “We expect economic activity to be essentially stagnant across the region in the second half of 2008,'' said Howard Archer, chief European economist at Global Insight in London. He sees growth slowing to 0.8 percent next year from 1.2 percent this year. The EU forecast the euro-area economy will expand 0.1 percent in the final three months of 2008 after an estimate of no growth this quarter. Both projections are down from earlier forecasts of 0.4 percent growth for both periods. The German economy will probably shrink 0.2 percent in the current quarter after contracting 0.5 percent in the previous three months, and Spain's economy will also shrink in the third and fourth quarters, according to today's projections. Outside the euro area, the commission sees UK output “contracting slightly'' in the second half of the year. “Economic activity has slowed down considerably'' in recent months, Juncker, who is Luxembourg's premier and finance minister, said in Brussels today. A technical recession is defined as two consecutive quarters of economic contraction. While the commission raised its inflation forecast for 2008 to 3.6 percent from 3.1 percent, it said consumer-price growth “may be at a turning point'' after oil prices fell from a record and as past increases in food and energy costs “gradually fade in the coming months.'' The recent declines in commodity prices and the euro also “have provided some relief,'' Almunia said. Since reaching a record $1.6038 against the dollar on July 15, the currency has dropped around 12 percent. Oil prices have fallen almost 30 percent in last two months to $103.84 a barrel. Euro slipped 0.1 percent to $1.4115 as of 1:44 P.M.
