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EU’s Olli Rehn forecasts shrinkage of euro-area economy for 2d year in a row

Olli Rehn, EU commissioner for economic and monetary affairs, says prospects for growth in many parts of the union were “very disappointing.’’

Thierry Roge/EPA

Olli Rehn, EU commissioner for economic and monetary affairs, says prospects for growth in many parts of the union were “very disappointing.’’

BRUSSELS — A top EU official warned Friday that the euro-area economy would shrink for the second year in a row and that such countries as France and Spain would miss fiscal targets meant to ensure the stability of the common currency.

Olli Rehn, the European commissioner for economic and monetary affairs, forecast growth across the 27-nation European Union of just 0.1 percent this year and a contraction of 0.3 percent among the 17 countries in the euro zone.

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Rehn’s presentation signaled “another year of falling output and rising unemployment in store in 2013,” said Tom Rogers, a senior economic adviser at Ernst & Young.

In a sign of such sluggishness, credit ratings agency Moody’s Investors Service downgraded Britain’s government bond rating one notch from the top AAA to AA1.

Treasury chief George Osborne said the blow, which had been expected, only redoubled his resolve ‘‘to deliver our economic recovery plan,’’ based on deep spending cuts.

Moody’s said ‘‘subdued’’ growth prospects and a ‘‘high and rising debt burden’’ were weighing on the British economy.

Rehn said prospects for growth in many parts of the union were “very disappointing.’’ He made the assessment while presenting an economic forecast prepared by his department at the European Commission, the union’s administrative arm.

“The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term,” Rehn said.

He said the European economy should resume expanding in 2014, with growth reaching 1.6 percent across the union and 1.4 percent in the euro area.

But the downbeat forecast, coming a day after data showed that a slump in business activity in the euro area worsened unexpectedly this month, added to perceptions that Europe continues to struggle to stimulate growth while cutting spending to pare deficits.

The commission also forecast that unemployment would continue to rise in the euro area this year, to 12.2 percent, up from 11.4 percent in 2012.

In Spain, the commission said it expected joblessness to hit 26.9 percent, up from 25 percent last year. In Greece, the forecast was for unemployment to leap to 27 percent from 24.7 percent a year earlier.

Even in Germany, which is expected to grow this year by 0.5 percent, unemployment was seen nudging up slightly this year to 5.7 percent from 5.5 percent in 2012.

The grim figures will add fuel to a furious debate over whether an insistence on austerity is creating a self-perpetuating cycle where cuts to state spending to meet EU targets diminish demand, weakening tax revenue and further straining government finances.

Material from the Associated Press was used in this report.
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