Euro Economy to Contract

European Commission lowers growth forecast; sees tumbles in Italy, Spain.

Europe’s economy will shrink in 2012, with Italy and Spain facing sudden crunches as they battle to escape the debt crisis, the European Commission said.

The 17-nation euro economy will contract 0.3 percent, the commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.

Growth Differentials

Spain is still suffering from the aftershocks of the burst housing bubble, compounded by fiscal austerity and high corporate debt that is holding back business investment, the commission said.

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