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Eurozone recession set to ease but recovery elusive Eurozone recession set to ease but recovery elusive
(4 months later)
Recession in the eurozone is thought to have eased in the first quarter, but analysts do not expect the currency bloc to return to growth any time soon.Recession in the eurozone is thought to have eased in the first quarter, but analysts do not expect the currency bloc to return to growth any time soon.
Economists are forecasting a 0.1% decline in first quarter GDP when figures are released on Wednesday morning – a significant improvement on the 0.6% contraction in the last quarter of 2012. But a decline would still prolong the recession the region has suffered since the fourth quarter of 2011.Economists are forecasting a 0.1% decline in first quarter GDP when figures are released on Wednesday morning – a significant improvement on the 0.6% contraction in the last quarter of 2012. But a decline would still prolong the recession the region has suffered since the fourth quarter of 2011.
Chris Williamson of data provider Markit said: "The first quarter may show a modest decline, but don't take that as a sign that things are stabilising because it's got worse again. We've seen the situation weakening again in April, with Germany possibly turning to decline." He is more pessimistic than consensus, predicting a 0.3% decline in the first quarter.Chris Williamson of data provider Markit said: "The first quarter may show a modest decline, but don't take that as a sign that things are stabilising because it's got worse again. We've seen the situation weakening again in April, with Germany possibly turning to decline." He is more pessimistic than consensus, predicting a 0.3% decline in the first quarter.
The German economy is expected to have grown in the first three months of the year, while Spain and Italy contracted further. Williamson said: "The big uncertainty is France. The Bank of France has been suggesting it might be more or less flat, but the flow of economic data in recent weeks is pointing to another decline."The German economy is expected to have grown in the first three months of the year, while Spain and Italy contracted further. Williamson said: "The big uncertainty is France. The Bank of France has been suggesting it might be more or less flat, but the flow of economic data in recent weeks is pointing to another decline."
He said GDP figures were, however, backward-looking and recent data suggest the eurozone economy will continue to contract at least until the end of the year, unless policymakers do more to reinvigorate the economy.He said GDP figures were, however, backward-looking and recent data suggest the eurozone economy will continue to contract at least until the end of the year, unless policymakers do more to reinvigorate the economy.
The quarter point cut in interest rates by the European Central Bank is, he says, a token gesture and more needs to be done to bring borrowing costs down in peripheral countries, such as Spain and Italy.The quarter point cut in interest rates by the European Central Bank is, he says, a token gesture and more needs to be done to bring borrowing costs down in peripheral countries, such as Spain and Italy.
Other economists were more optimistic. Christian Schulz of Berenberg Bank expects the eurozone to pull out of recession in the third quarter, as crisis-hit countries come to the end of their biting austerity programmes.Other economists were more optimistic. Christian Schulz of Berenberg Bank expects the eurozone to pull out of recession in the third quarter, as crisis-hit countries come to the end of their biting austerity programmes.
"For the turnaround, it's the periphery that is the driver," he says. "[Austerity] has really depressed domestic demand, so that effect will go away.""For the turnaround, it's the periphery that is the driver," he says. "[Austerity] has really depressed domestic demand, so that effect will go away."
He says a deciding factor for the health of the eurozone economy will be whether ECB policy has an impact on investment. ECB president Mario Draghi said this month that the central bank is looking at whether it can do more to promote small business lending in the eurozone via asset-backed securities.He says a deciding factor for the health of the eurozone economy will be whether ECB policy has an impact on investment. ECB president Mario Draghi said this month that the central bank is looking at whether it can do more to promote small business lending in the eurozone via asset-backed securities.
"The borrowing costs for small and medium-sized businesses is still prohibitively high," said Schulz. "If the ECB's policy works then investment can also drive a recovery.""The borrowing costs for small and medium-sized businesses is still prohibitively high," said Schulz. "If the ECB's policy works then investment can also drive a recovery."
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