Download The euro area seems unlikely to avoid a recession

The euro area seems unlikely to avoid a recession this quarter and the next as the German and French
economies, which posted growth in the third quarter, are losing steam. Euro-area gross domestic product
(GDP) rose 0.2 % last quarter, Eurostat said, propped up by the German and French economies, which account
for about 48 % of the region’s economic output. Germany expanded 0.5 % and France 0.4 % from the previous
three months, led by consumer spending. But that performance is unlikely to endure.
The euro area composite PMI index fell to a 28-month low of 46.5 last month, below the 50 level that
denotes expansion. That would indicate a contraction of at least 0.4% in the fourth quarter, absent any
improvement in November and December.
The EuroCOIN indicator, compiled by the Centre for Economic Policy Research as a gauge of growth in
the region, is below zero, indicating a contraction this quarter. The gauge peaked in May 2011 at 0.62
and has dropped each month since. It turned negative in October for the first time since September 2009,
falling to minus 0.13.
Germany’s ZEW index of investor and analyst expectations, which aims to predict developments six
months in advance, declined to minus 55.2 from minus 48.3 in October.
That’s the lowest since October 2008 and 73 points below the 10- year average of 17.8, suggesting the
largest economy in the region may shrink in the first quarter of 2012.
Countries with sovereign bond yields that have been driven higher by debt crisis concern are already
struggling to grow.
The GDP of Spain, where 10-year yields remained above 6 %, stagnated in the three months through
September.
Portuguese economic output shrank 0.4%, the fourth successive quarterly contraction. And Greek GDP
fell 5.2 % year on year, according to the Hellenic Statistical Authority.
Greece and Portugal will suffer recessions in 2011 and 2012, the European Commission forecasts.
Portugal’s economy will decline 1.9% this year and 3% in 2012, while Greece is forecast to contract 5.5%
this year and 2.8% in 2012.
The Commission cut its euro area growth forecast for 2012 by more than two thirds to 0.5%, while estimating
growth of 1.5% for this year. Even if the debt crisis abates, the region is likely to slip into recession as fiscal
austerity measures are implemented. European Central Bank President Mario Draghi’s prediction of a “mild
recession” may prove to be an underestimation…
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