EU Commission Forecasts Pain Almost Over

The European Commission just came out with a spring 2012 forecast for the EU economy.  You can see the main point above in the chart for GDP and forecast.  The good news is that Q2 will be the last quarter of contraction: recovery will begin forthwith next quarter.

Or not:

The forecast mild recovery is predicated on a return of confidence, and thus on the assumption that the challenges faced by the euro area, notably the still on-going sovereign-debt crisis and the fragile state of the EU banking system, will be successfully and sustainably overcome.

That's a pretty big assumption...

In particular the main mechanism identified to initiate recovery is that a falling Euro will help European competitiveness and drive greater demand for European exports.

Overall, domestic demand is unlikely to support GDP growth in 2012, as the process of deleveraging continues across the sectors of the economy. Banks need to further strengthen their balance sheets and tight credit conditions are expected to weigh on consumption and investment. Private investment is currently still contracting and is expected to be a drag on GDP in 2012.

and

On balance, net exports of goods and services are expected to support economic growth over the forecast horizon. The consolidated current-account balance is predicted to gradually improve over the forecast horizon in the euro area and the EU.

True as far as it goes, but seems mainly likely to help the strong (Germany, Netherlands) rather than the weak (Spain, Italy, Greece).  There's only so much olive oil you can buy...

And as long as the weak are going to the wall, the whole area will continue to be riven by uncertainty about the future viability of the entire project, while will inhibit investment and consumption alike.