The European Commission published its forecast in which it foresees a continuation of the unexpected stalling of the recovery in late 2011 into the first two quarters of 2012. In addition, the inflation forecast for 2012 has been revised slightly upwards compared with the autumn, due to persistently high energy prices and increases in indirect taxes. 

The economic forecast for the first semester of 2012 published by the Commission also foresees an euro area in mild recession with signs of stabilisation; although a modest growth is predicted to return in the second half of the year. On an annual basis, real GDP in 2012 is now forecast to remain unchanged in the EU (0.0%) and to contract by 0.3% in the euro area. In 2012, GDP growth is forecast to be negative in nine countries, stagnant in one and positive in seventeen. Growth will be highest in Latvia, Lithuania and Poland and lowest in Greece and in Portugal. In September 2011, the interim forecast published by the Commission had showed that GDP growth were expected to remain subdued in the second half the 2012, coming close to standstill at year-end.

With the ongoing weakening of global demand weighing on net exports, the outlook is conditioned by a less supportive global economy. EU business and consumer confidence are still at low levels, although a recent slight improvement has been noted as the financial sector has shown signs of stabilisation. Credible policies in vulnerable countries and the increasing recognition of the steady progress in tackling the sovereign-debt crisis have helped to stabilise the markets. Sovereign risk perceptions have recently abated somewhat for certain countries, but spreads remain at elevated levels and credit conditions for the private sector have been tightening. While the broad financial-market situation in the EU remains fragile, the risk of a credit crunch has been reduced, largely due to the liquidity measures taken by the European Central Bank. Overall, a gradual return of confidence and a recovery of investment and consumption in the second half of 2012 are expected.

The European Commission also stresses that uncertainty remains high and developments across countries are uneven. Amid lingering uncertainty, risks to the EU growth outlook for 2012 are tilted to the downside. Moreover, the Commission warns that if an aggravation of the sovereign-debt crisis were to result ultimately in a credit crunch and a collapse in domestic demand, this would probably entail a deep and prolonged recession.