Monday, November 29, 1999

POLL - No sign of euro zone recovery gaining momentum

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The euro zone's limp economic recovery shows scant sign of gaining momentum over the next 18 months and there is a one-in-four chance the bloc could slip back into recession over the next year, a Reuters poll showed.Median forecasts from the survey of over 60 economists showed growth is unlikely to top 0.4 percent in any quarter from the second half of this year through to the end of next year -- slower than the rate of expansion seen in U.S. or Britain.Foremost among the factors that influenced their predictions was the crisis of confidence about the indebtedness of its governments, which plunged the euro into four-year lows against the dollar in recent weeks.While economists in the latest poll taken over the last week raised their full-year growth forecast for 2010 to 1.1 percent from 1.0 percent seen in May's survey, they trimmed their full-year outlook for 2011 to 1.4 percent from 1.5 percent."Signs of a strong rebound remain conspicuously absent," said Christoph Weil at Commerzbank."In the summer the euro zone economy will grow significantly more slowly, as the debt crisis in the peripheral countries will exert progressively greater drag."For graphic comparing U.S., euro zone, UK and Japan growth outlooks, click: finance ministers last week shifted their rhetoric towards slashing deficits after long endorsing growth-friendly but budget-busting stimulus.Economists polled last week said it was the right time for such a stance, but they gave a 30 percent chance of a return to recession for the euro zone in the next 12 months as governments take money out of the economy.In the latest survey, around 25 economists gave a one-in-four chance for this scenario and odds of just 5 percent that any country would leave the euro area over the next year."The financial crisis in the euro periphery is exacerbating the gap between a strengthening core and a weaker periphery," said Holger Schmieding at Bank of America-Merrill Lynch."Spain and Portugal may fall back into stagnation while Greece suffers a severe recession."UNCERTAIN TIMESGreek Prime Minister George Papandreou last week said defaulting or leaving the euro was no option and that he was committed to unpopular austerity measures designed to rescue the state's unsustainably overdrawn budget.Economists gave just a 5 percent chance of any country leaving the euro in the next 12 months and a one-in-five chance that Greece would default at some point in future."Greece's new budget consolidation programme is demanding and we do not think the risk of default has been eliminated," said Philip Shaw at Investec."But it probably has been pushed back for a few years, buying time for other members to get public finances on a sounder footing and minimise the risks of future contagion."There was little consensus among economists who gave a view on whether unemployment had peaked in the euro zone, with 10 saying it had, and 13 that it had not.Official data on Tuesday -- released midway through the polling -- showed employment stabilising in the first three months of the year after falls in previous quarters.Analysts said the euro zone economy would expand 0.5 percent in the second quarter of this year, the fastest quarterly growth rate since leaving its worst-ever recession, but it is expected to slow in subsequent quarters.The listless recovery will give the European Central Bank cause to wait until the second quarter of next year before hiking interest rates from their record low 1.0 percent, the survey showed, in line with a June 2 poll but later than the first quarter seen in May's corresponding poll.By comparison, the Bank of England is expected to start hiking rates sooner.The British economic recovery is expected to outpace the euro zone's next year, although respondents in the latest poll there suggested new official UK forecasts -- although more downbeat than before -- are still too optimistic.(For a PDF summary, click [ECILT/PDF])(Polling by Bangalore Polling Unit, Editing by Toby Chopra)
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