EU downgrades growth forecast to 0.5%

The European Commission is forecasting growth of 0.5% for the Irish economy this year, compared with the Government's prediction of 0.7%.

However, the Commission estimated growth would pick up to 1.9% next year.

In its spring forecast, the Commission said the EU economy is still in a mild recession.

However, it expects a recovery to set in slowly from the second half of the year, with a growth forecast for 2013 of around 1.3% in the EU, and 1% in the euro area.

Unemployment is running at 11% in the euro area and it is expected to remain at that level through next year.

The Economic and Monetary Affairs Commissioner Ollie Rehn said that, while a recovery is in sight, the economic situation remains fragile and without further determined action, low growth in the EU could remain.

The Commission said the main risk remained an aggravation of the sovereign debt crisis with financial contagion and a sharp drop in credit availability.

Other risks include surging oil prices.