This is our first guest post from our new friends at Quantshare.
Recession to stay in Euro Zone
The
world economy continues to underperform and all the major economic entities
have reflected the same in their revised forecasts. Especially, Euro Zone
economy is still ailing despite all the measures taken in the past. The outlook
for the Euro Zone seems to be gloomy in the coming quarters and the GDP growth
will remain in red.
According
to the latest data from European Union’s statistics office, the Euro Zone GDP
fell to -0.2% in Q1 2013 as compared to -0.6% in the preceding quarter
primarily due to weakness in two of its major economies- Germany and France. In
the current scenario, recession in Euro Zone seems to be the biggest threat to
the global economy. In fact, Paris-based watchdog OECD (Organization for Economic
Co-operation & Development) slashed its forecasts for the region to 0.6%
contraction as compared to 0.1% contraction projected earlier.
Also,
the unemployment
rate is a matter of great concern as it rose to an uncomfortable
record high of 12.2%. The retail sales data, which is used as a proxy for
consumer demand fell more than expected. This is obvious given the high rate of
unemployment, which is hurting the overall purchasing power of consumers. At
the same time, the contribution from Government spending has been nil due to
constrains from fiscal consolidation point of view.
Banking Front
On
the Banking front, European Central Bank (ECB) has slashed its main refinancing
rate by 25 bps to a record low of 0.5% and marginal lending rate to 1.0% from
1.5% to promote growth in the region. ECB President Mario Draghi said that the
ECB’s monetary policy will remain supportive for the development of the
region’s economy as long as needed. Despite these efforts from ECB, Banks have
been reluctant in lending to small firms. ECB Executive Board Member Benoil
Coeure has expressed his concerns over the same and said that the central bank
is looking at options to improve lending to the small firms. This hitch has
been more prominent in the southern countries where the recession is deepest.
ECB needs to see that the policies are actually implemented in order to assist
the economic growth.
Some of the key economic indicators
· Unemployment rate stood at 12.2%,
which is a record high.
· Annual CPI rose to 1.4%.
· Retail sales dropped 0.5% sequentially
in April & 1.1% y-o-y basis.
Although
the European Commission (EC) and ECB have optimistic forecasts for the Euro
Zone economy in the next few quarters, the reality seems to be quite different
leaning towards a worsening situation. Both EC & ECB expect Euro Zone
economy to come out of red in second half of the year, but the same seems to be
grossly miscalculated and unlikely given the current situation. Things are
going nowhere unless proper implementation of the agreed upon policies is
ensured. As of now, Euro Zone is to remain in recession.
By Patrik Fonce. A writer and trader at QuantShare.
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