The European Union trimmed its forecast for euro-area growth next year and raised its unemployment estimate as the economy struggled to regain momentum after a record-long recession. Gross domestic product in the 17-nation currency bloc will rise by 1.1% in 2014, less than the 1.2% forecast in May, the Brussels-based European Commission said.
Unemployment, now at its highest rate since the euro was introduced, will be 12.2% in 2014, higher than the 12.1% predicted six months ago. “We are seeing clear signs of an economic turnaround, but growth will pick up only gradually and will translate into jobs only with a lag,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels. “We must not fall into the trap of complacency. Further decisive action to boost sustainable growth and job creation will continue to be necessary in Europe.” The gloomier outlook deals a blow to the growing sense of optimism that the euro area is emerging from the sovereign-debt crisis and may make it more difficult for European governments to convince financial markets that they are tackling the turmoil through deficit reduction and structural reforms. While the commission’s gauge of economic confidence is at a two-year high, services and manufacturing output unexpectedly slowed in October and unemployment is at a record 12.2%. Next year’s projected return to growth will come after the euro-area economy contracts an estimated 0.4% in 2013, the commission said in its report. That follows a decline in GDP of 0.7% in 2012, the first time output has fallen in two consecutive years since the introduction of Europe’s single currency in 1999. The commission forecasts euro-area annual inflation to be 1.5% in 2014, slowing to 1.4% in 2015, adding further pressure on the European Central Bank to cut interest rates further from already record-low levels.