It was sure to happen, after months of dithering by the Euro zones leaders, terrible economic data out of the PIIGS nations and the falling confidence in the global economy the Euro zones Gross domestic product has contracted.
The figures released by Eurostat show that the region’s economy shrank by 0.2% in the three months from April to June compared with the previous quarter. The figure had been predicted by economists but it will be of little comfort to the regions leaders who have a Herculanean task of turning the Euros fortunes around. The Eurozone economy is now 0.4% smaller than it was a year ago and paves the way for the bloc to enter a full blown recession in the third quarter of 2012.
Annalisa Piazza of Newedge Strategy said; “Looking ahead, the picture remains very clouded. Not only business confidence continued to edge lower in July but the August sentiment indicators also show further depressed figures. In details, the German ZEW index fell by another 6 points in August, down to -25.5, the weakest since the start of the year. Confidence declined despite the “hope” that the ECB could help the troublesome EMU countries with additional monetary policy accommodation. The ZEW industry breakdown shows that the sentiment has improved a touch in the financial sector related industries whilst the effects of easing demand weigh on the “real” economy sectors.”
Europe’s workhorse Germany posted better than expected Growth of 0.3% but it wasn’t enough to prevent the contraction. Demand for exports has fallen and confidence is waning as the global economy enters another risky period for confidence.
“Germany has asserted itself thanks to growing exports to countries outside the eurozone,” said Christian Schulz at Berenberg Bank.
“It’s hardly a surprise that consumption has increased due to low unemployment, rising wages and a low rate of inflation.”
The nations posting growth were: Germany 0.3%, Netherlands 0.2%, Austria 0.2%, Estonia 0.4% and Slovakia 0.7%.
The nations posting contractions were: Portugal -1.2%, Cyprus -0.8%, Italy -0.7%, Finland -1%, Greece -6.2% and Belgium -0.6%.
France posted a GDP figure of 0% meaning that the country’s economy has stagnated for a third consecutive quarter defying economists’ predictions that it would contract by 0.2%. The awful data out of Portugal now means that the country’s economy is now 3.3% smaller than a year ago, as growth is crushed by ongoing austerity being implemented as part of its IMF-led bailout. With taxes up and public sector salaries being cut, the Portuguese economy is expected to keep shrinking this year plunging the country deeper into recession. The happiest country is no doubt the Netherlands as the country posted growth of 0.2% preventing the nation slipping into a devastating triple dip recession.
The eurozone isn’t officially back in recession yet (it has to post two successive quarters of falling GDP) but recession is inevitable.
Howard Archer of IHS Global Insight comments:“Ongoing largely weak data and survey indicate that the Eurozone is headed for a further GDP drop in the third quarter as it struggles against tight fiscal policy in many countries, high and rising unemployment, muted global economic activity and ongoing serious sovereign debt tensions that weigh down on confidence and limit investment.
Consequently even if lower inflation and some limited temporary easing of sovereign debt tensions allows Eurozone economic activity to stabilize in the fourth quarter, GDP is still likely to contract by 0.5% overall in 2012.”
Now that a Eurozone wide recession is unavoidable surely the currency blocs leaders will put aside their differences, seize the bickering and work together to prevent the collapse of the single currency.
The old saying of ‘it has to get worse to get better’ is something that people all over the globe will be hoping is the case for the Euro.
The Pound to Euro exchange rate is currently trading at 1.270
The Pound to US Dollar exchange rate is currently trading at 1.569
The Pound to Australian Dollar exchange rate is currently trading at 1.491
The Euro to US Dollar exchange rate is currently trading at 1.235
The Euro to Pound exchange rate is currently trading at 0.787
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