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Europe recession over? Far from it
Hong Kong, AUG 15 (AGENCIES):
Published on 15 Aug. 2009 11:32 PM IST
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Rosier-than-expected GDP numbers from Germany and France may have raised hopes of an early European recovery, but economists caution that the Eurozone will continue to “languish in mild recession” for the rest of the year, and perhaps even see a “double-dip”. According to DNA report, both Germany and France registered 0.3% GDP growth in the second quarter of 2009, against an anticipated fall of 0.5% in Germany and 0.3% in France. But those “upside surprises” were offset by declines in Spain, Italy and the Netherlands. The Eurozone as a whole saw its GDP contract by 0.1% against a 2.5% contraction in the first quarter. “With high-frequency data still at very weak levels, sluggish external demand, and banks reluctant to lend, any recovery in the Eurozone will be slow and weak,” says Moody’s economist Enam Ahmed. “At this point, we still expect the Eurozone economy to languish in mild recessionary territory in the second half of the year.” BNP Paribas economist Clemente De Lucia points to “several headwinds... still present in the (Eurozone) economy,” and says, “We do not expect activity to come back to solid sustained growth until mid 2010.” Even in Germany and France, despite the positive GDP data, “most economic indicators are still consistent with economies in recession,” points out Ahmed. For instance, manufacturing and services purchasing managers’ indices are still below the level of 50, which signals contraction. Business and consumer sentiment “also remains well below historical norms... furthermore, the recent rebound in consumer confidence will be tested by rising unemployment in coming months.” Economic research advisory firm GaveKal, where the chief economist is well-known commentator Anatole Kaletsky, reckons that the main reason why GDP has steadied in Europe is that employment has not been slashed in line with production. “The advantage of this is that consumption can be sustained for longer even when production collapses... but the disadvantage is that productivity collapses and job losses can continue for years after the recession is over.” Societe-Generale economist Brian Hillard, however, dismisses concerns that Germany, in particular, will witness a “major increase” in unemployment. But even he expects unemployment to continue to rise for the next year since economic expansion “is expected to fall short of the rate required to generate positive employment growth.” For the Eurozone as a whole, Hillard reckons that “after a surprisingly rapid period of stabilization - largely down to the success of policy stimuli - the outlook is still for a rather long, rather slow workout.” GaveKal, admitting to a “bearish bias on Europe”, goes even further. “The surprisingly strong GDP numbers from Germany and France have prompted some analysts to point out that Europe’s economy is more solid than the US one ... Nevertheless, looking at the statistics objectively, the idea that Europe -- and particularly Germany -- is in better economic shape than America remains absurd.” The long delays in Europe between production declines and cutbacks in employment “generally result in weaker economic recoveries and much bigger risks of double-dip recessions than in the US,” GaveKal concludes.

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