More gloom ahead as eurozone must wait for start of gradual recovery

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European Central Bank head Mario Draghi has warned of another gloomy year for the eurozone, cutting its growth outlook for 2013 – but added that a gradual recovery should take hold by the end of next year.

The bank now sees the economy shrinking by 0.3 per cent in the 17 European Union countries that use the euro. That is the midpoint of the forecast range for between minus 0.9 per cent and plus 0.3 per cent.

Previously the bank projected growth of 0.5 per cent but the eurozone’s economy is caught in recession, with growth restrained as embattled governments slash spending amid efforts to cut their debt.

Mr Draghi spoke after the bank left its benchmark rate unchanged at a record low of 0.75 per cent. A rate reduction might, in theory, have stimulated the economy by making it easier to borrow, spend and invest but Mr Draghi stressed that rates are already low, and borrowing remains weak.

He also said he expects EU leaders to reach a deal “soon” on making the ECB the eurozone’s central banking supervisor.

EU officials failed to reach agreement on the proposal at a meeting earlier this week. Germany wants the new supervisor to oversee only the biggest banks, while France wants it to look after all 6,000 eurozone financial institutions.