Euro Recession Seen Longest in Single Currency EraStefan Riecher
Euro-area data this week will probably reveal economic scars of the sovereign debt crisis confirming that the region is now suffering the longest recession since the single currency’s creation.
Gross domestic product in the 17-nation economy fell 0.1 percent in the first three months of 2013, a sixth straight quarterly decline, according to the median of 39 economists’ forecasts in a Bloomberg News survey. That would exceed the 15-month contraction in 2008-2009 during the financial crisis, and is the longest streak since the euro’s founding in 1999.
The data to be released on May 15 follow a series of national GDP reports that day showing the legacy of the sentiment shock and austerity measures since the crisis began. While a European Central Bank pledge to backstop the euro has eased financial-market tensions, economic confidence at a four-month low and record unemployment highlight the risk that the slump will persist.
“We are at a very critical stage at the moment and there are indicators that uncertainty is on the rise again,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “It is essential for the euro area to find the right mix between necessary austerity and measures to support economic growth as soon as possible.”
Euro-zone finance ministers met in Brussels today to discuss the economic situation in the region after the European Commission revised its forecast for 2013 down to a 0.4 percent contraction. They are reviewing bailout programs in Cyprus and Spain, and may sign off on aid payments to Greece.
The euro fell 0.2 percent today to $1.2971 as of 6:41 p.m. in Frankfurt. European stocks declined from their highest level in almost five years. The Stoxx Europe 600 Index slid 0.2 percent to 304.46.
The European Union’s statistics office in Luxembourg will release first-quarter euro-area GDP data at 11:00 a.m. on May 15, following reports from countries including France, Germany, Italy, the Netherlands and Austria. Eurostat will publish its detailed report on April inflation and March trade figures at the same time the following day.
The GDP data follow a May 10-11 meeting of Group of Seven finance ministers in England, who concluded that “growth prospects remain uneven and we can’t take the global recovery for granted,” according to U.K. Chancellor of the Exchequer George Osborne, who chaired the gathering.
In China, fixed-asset investment unexpectedly decelerated last month, the National Bureau of Statistics said in Beijing today, and industrial output trailed estimates, adding to concerns that the world’s second-largest economy will fail to show much of a recovery this quarter.
On the eve of the G-7 meeting of finance ministers, U.S. Treasury Secretary Jacob J. Lew said European policy makers are still falling short in efforts to revive their economy, calling for “the right balance” between austerity and growth.
With the region’s slump spreading to France and Germany in the fourth quarter, when both economies suffered a contraction, officials have acknowledged a need to soften the fiscal squeeze.
“If we would have too much adjustment, what would it mean?” French Finance Minister Pierre Moscovici said in a Bloomberg Television interview with Francine Lacqua after the G-7 talks. “It would mean that our economy would be in recession, and we cannot accept that.”
France’s economy probably did succumb to a renewed recession in the first quarter with a contraction of 0.1 percent, according to the median forecast of 25 economists in a Bloomberg survey. Still, business sentiment for April published by the Bank of France today unexpectedly rose to 94 from 93 in March.
In Italy, GDP probably fell for a seventh successive quarter, dropping 0.4 percent, the median of 21 forecasts shows.
Germany’s economy, the region’s biggest, may have escaped the recession affecting its neighbors with growth of 0.3 percent, according to another survey of 41 economists.
With the euro area’s economic slump persisting and the annual inflation rate dropping to 1.2 percent in April, the ECB on May 2 reduced its key interest rate to a record low of 0.5 percent and signaled it stands ready for further action if the outlook doesn’t improve.
ECB President Mario Draghi predicted a “gradual recovery” later this year even though risks “are on the downside.”
The Frankfurt-based central bank is considering buying asset-backed securities among other options to support lending to small and medium-sized companies, Draghi said on May 12. He predicts the euro economy will shrink 0.5 percent this year before growing 1 percent in 2014.
“The pace of the recession may be easing but I don’t see a real recovery yet,” said Martin van Vliet, senior euro-area economist at ING Bank NV in Amsterdam. “We can’t be sure the worst is behind us before job growth returns.”
The euro area’s jobless rate rose to a record 12.1 percent in March, with 19.2 million people out of work and youth unemployment at 24 percent. In France, the number of people actively looking for work reached a record 3.225 million.
“Our people, they feel that there is something of an adjustment fatigue,” Moscovici told Bloomberg Television. “They want jobs, jobs, jobs.”
While the jobless rate in Germany is close to a two-decade low and rising wages are boosting consumption, unemployment in Spain is the highest since at least 1976.
“Economic improvement in the euro area is coming only very slowly and high unemployment drags on,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “In the end, countries will have to boost potential output for a long-term growth perspective, and that needs adjustment and structural reforms.”