Forecast for Economic Growth in Europe Is Lowered

BRUSSELS — Europe’s economic outlook received a fresh dose of gloom Thursday, when the European Commission warned that the Continent’s economies were stalled and faced the risk of a double-dip recession.

The commission’s latest growth forecasts intensified concerns that, as some members of the euro currency union take tough austerity measures to appease the debt markets, they are stifling any chance for economic growth that might help pull them out of financial distress. The commission predicted that, as a result of the contraction, the region’s government debt levels would edge up next year.

“The recovery in the European Union has now come to a standstill, and there is a risk of a new recession,” Olli Rehn, the European commissioner for economic and monetary affairs, told reporters in Brussels.

“This forecast is in fact the last wake-up call,” he added.

Mr. Rehn, an unflappable Finn who is rarely prone to hyperbole, was not exaggerating. Even Germany, the economic engine of Europe, is now expected to record just 0.8 percent growth in 2012 — more than a percentage point lower than the European Commission predicted in its spring forecast. And none of the euro zone’s other three biggest economies — France, Italy and Spain — are projected to achieve 1 percent growth in 2012.

At the other end of the spectrum lies Portugal, which was forced to ask for a bailout this year and is contracting so fast that it might not be able to meet its financial goals. The new forecast is for Portugal to have negative growth of 3 percent for 2012 — worse than the minus 1.8 percent predicted earlier.

That would rank Portugal at the bottom of the chart, below even Greece, whose economy is expected to shrink by 2.8 percent in 2012.

“The slowdown in economic activity is compounding investors’ concerns about debt sustainability,” said Simon Tilford, chief economist at the Center for European Reform in London. “In the south of Europe we have very high borrowing costs and no economic growth. That’s a lethal combination.”

Italy, for example, risks being forced into a vicious downward cycle if it has to make deep cuts in public spending to meet its creditors’ demands, and the austerity measures plunge the country into a recession that reduces tax revenue, Mr. Tilford said.

Over all, the European Commission’s revised forecast showed growth of only 1.5 percent this year for the 17 nations using the euro, before slumping to 0.5 percent next year.

The commission had previously expected the euro area’s economies to expand 1.6 percent in 2011 and 1.8 percent next year.

Debt levels in the euro area are predicted to increase from an average 88 percent of gross domestic product in 2011 to 90.4 percent in 2012 and 90.9 percent the following year.

The debt of Greece, the region’s outlier, next year is expected to reach a more staggering level than the 162.8 percent of G.D.P. this year. The forecast is for 198 percent of G.D.P. in 2012, and even marginally higher than that the following year.

The next highest debt ratio in the euro zone is Italy’s, at 120.5 percent of G.D.P. — and the sheer size of its debt, 1.9 trillion euros, makes it a much bigger worry for Europe. The commission forecasts growth of only 0.1 percent for Italy in 2012, with its debt ratio remaining stable.

The commission’s report underscores the risk that European leaders have begun to acknowledge in recent months — that austerity measures could send euro zone economies into a downward spiral. To stimulate growth, the European Commission wants to press structural reforms like liberalizing labor markets and relaxing restrictions that can create market inefficiencies.

A separate document prepared before a summit meeting of European Union leaders last month noted that through changes like freeing up services and integrating the energy sector, Europe could add 3 percent of G.D.P. by 2020. But those ideas still face resistance in many euro zone nations and would take years to put in place.

So Mr. Tilford argues that the euro zone’s healthier economies should be stimulating demand.

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