Eurozone economy to keep on shrinking through 2013

Not too long ago, the European Commission was predicting that the currency bloc would grow by at least 0.1% in 2013, but that unexpectedly larger-than-expected downward turn for the eurozone’s net growth last week means that even that piddling prediction is looking a little too rosy. The EU’s official economists are now forecasting that the eurozone economy will contract for a second year in a row and for the third year out of the past five, reports the WSJ:

The European Commission, the EU’s executive arm, forecast Friday a 0.3% contraction for 2013 and sees falling spending by businesses, consumers and national governments pushing euro-zone unemployment to a new high. Mass joblessness is expected to increase in the countries hardest hit by the crisis, with the average unemployment rate expected to reach 27% in Greece, 26.9% in Spain and 17.3% in Portugal. …

Unemployment will be a huge obstacle for governments as they attempt to carry out austerity programs that are partly responsible for the bloc’s dismal growth and employment situation.

Dang. A huge part of the EU’s attempt to tackle the issue, however, is getting member countries to abide by their by their deficit reduction targets — and France is kind of an important one in that 17-nation mix, seeing as how theirs is the eurozone’s second-largest economy. After watching their own economy contract last quarter, however, French President Hollande’s Socialist regime is looking to resist that push.

The first big test is likely to come in France, which the commission expects will miss a pledge to bring its deficit under 3% of gross domestic product by the end of this year. The forecast sees the French deficit this year at 3.7% of GDP. …

The commission uses the forecast each year to decide whether it will push for more cuts from national governments to hit previously agreed budget goals or whether it will allow the deficit targets to slip—a process that can result in fines for governments that refuse to cooperate. The government of French President François Hollande recently said it won’t push for more cuts to reach the 3% goal this year.

The EU has allowed for some leniency in deficit-reduction goals from other countries, and Hollande is looking for that same option — and Germany, the EU’s biggest economy, is not pleased about it. Via Reuters:

The schism dividing the euro zone’s strong and weak economies deepened to include its core pairing in February as French firms suffered their worst month in four years in stark contrast to prospering Germany. …

While businesses in Germany sustained a healthy rate of growth, French services companies fell into their worst slump since the nadir of the Great Recession in early 2009. …

“There are issues in the French economy which are being unmasked by the depth and severity of this crisis,” said Peter Dixon, global equities economist at Commerzbank.

He said France has major structural problems, and also said business activity may have been crimped by confusion over the government’s economic policies.

“That may well have been frightening the horses when it comes to businesses.”

France’s new Socialist government is having trouble engendering an optimistic business climate? Whaat?!