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Eurozone recovery hopes fade further

Dec 12 2012 19:12
London - Chances of a recovery for the eurozone economy have faded further into 2013, according to a Reuters poll of economists who say the recession has deepened over the last three months.
Huge questions over the health of some of the region's biggest economies make any kind of major rebound for the eurozone extremely unlikely next year. That may have to wait until 2014, and quite possibly later.
The currency union will see no better than stagnation early next year, before finally achieving paltry growth of around 0.2% in the second quarter, Wednesday's poll of more than 70 economists showed.
The outlook represents a new low since Reuters started polling on the 2013 outlook in January. No economist in the survey now believes the eurozone economy grew in the current quarter.
Overall, economists expect a full year average growth rate of zero for next year.
The region as a whole is reliant on Germany as the biggest driver of economic growth, and the signs from there have been ominous.
"Key German surveys have shown few signs of recovery in Q4 so far and industrial production collapsed by 2.6% in October," said Philip Shaw, chief economist at Investec, in a research note.
"Hence the upturn is further away than seemed to be the case and we have slashed our 2013 euro area GDP forecast to -0.4% from +0.3% previously."
Economists now believe the economy has shrunk this quarter by 0.3% rather than the 0.2% forecast last month, which would mean the recession has deepened from the 0.1% decline reported for the third quarter.
Despite a clear consensus on the poor health of the economy, respondents were split right down the middle over what else the European Central Bank will do about it, if anything.
Thirty-nine economists think it will hold its main refinancing rate at its current record low of 0.75% through the first quarter of next year, while 38 believe the ECB will cut it to 0.5%.
That analysts are so divided is little wonder as the ECB's Governing Council members are similarly split.
"At least one member of the Governing Council has voted for a rate cut, which ECB President Mario Draghi said could happen if the outlook deteriorates further," said Azad Zangana, economist at Schroders, who thinks the ECB is more likely to stay on hold.
Whatever the ECB eventually decides to do, inflation looks unlikely to stand in its way.
The poll showed inflation falling beneath the bank's 2% target ceiling in the second quarter next year, where it looks set to stay through to midway next year.
Economists put only a median 25% chance on Greece leaving the eurozone next year, echoing the findings of an October poll which found that just eight of 34 fund managers foresaw such an event.
eurozone  |  eu economy



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