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EU Economists Expect Weak Growth, Defaltion and Debt to Weigh Heavy

“BRUSSELS — European Union economists on Tuesday forecast tepid growth for most of the region through 2015, while warning that lingering debt burdens and the specter of deflation could sabotage the recovery.

The forecasts, published by economists at the European Commission, see a mild recovery over the next two years. The impact of budget austerity, a major drag on growth since the euro-zone debt crisis flared in 2009, is expected to fade this year. Meanwhile, policy overhauls in the euro zone’s weaker economies are starting to bear fruit, helping to boost their export sectors, the commission said.

Growth in the euro area is forecast at 1.2% this year and 1.8% next, after two consecutive years of contraction. That won’t be enough to make much of a dent in euro-zone unemployment, which is seen hovering near record highs of 12% in 2014 and 11.7% in 2015. The commission report forecasts growth in the broader EU—buoyed by strong momentum in the U.K.—at 1.5% this year and 2% next.

But the tepid recovery faces some daunting obstacles. Debt owed by governments, households, businesses and banks remains too high in many of the bloc’s countries, the commission report says. And low inflation in the euro zone, or even the threat of outright deflation, threatens to make the debt problems even worse.

The commission forecasts inflation in the euro zone at 1% this year and 1.3% next, well below the European Central Bank’s target of just under 2%….”

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