Fiscal tightening impedes eurozone recovery

The economic forecasts published last week by the European Commission for the euro area make for depressing reading.

The commission sees the eurozone economy contracting by almost 0.5% in 2012, with GDP remaining broadly flat in 2013. The unemployment rate is expected to rise further next year to around 12%.

The commission says that the ongoing correction from the financial crisis continues to weigh heavily on economic activity and employment in the eurozone. Domestic demand continues to be held back by the legacy of the crisis of 2008-09, as households, banks and governments are simultaneously reducing leverage. At the same time, the global economy has weakened over the past year, hitting exports.