EU warns of 'deep, prolonged recession'
By Matthew Dalton

BRUSSELS -- The European Union Thursday slashed its growth forecast for the 27-nation bloc in the coming year and said it can't exclude the possibility of a deep, prolonged recession.

The European Commission, the EU's executive arm, said in its semiannual forecast the economy is struggling with weak confidence, financial turmoil, government austerity packages and a slowdown in Europe's main trading partners.

It said the EU's gross domestic product in 2012, adjusted for inflation, would grow just 0.6%--sharply down from its forecast only six months ago of 1.8%.

Since then, the euro-zone sovereign debt crisis has intensified, undermining investment and consumer confidence, the commission said. Government austerity packages have suppressed growth across the bloc. Domestic demand, which economists had hoped would be able to drive the recovery, has failed to pick up the slack.

"The probability of a more protracted period of stagnation is high," said Marco Buti, head of the EU's economics division. "And, given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded."