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Sunday 4 December 2016

Risk of new recession in faltering European economy

Recovery hampered by global slowdown and rising euro as Germany surges ahead

Published 22/10/2010 | 05:00

ECB president Jean-Claude
Trichet: critics claim ECB is
behind the curve. Photo: Bloomberg News
ECB president Jean-Claude Trichet: critics claim ECB is behind the curve. Photo: Bloomberg News

A new recession in the eurozone cannot be ruled out, analysts said yesterday, as the region's economy slows and the gap between Germany and the rest increases.

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Growth in the zone's services and manufacturing industries weakened for a third month in October as a global slowdown and the rising euro restrain the economic recovery in the region.

But Germany's private sector grew faster than expected, the survey showed, accelerating from the previous month as burgeoning order books led employers to hire at the fastest pace in two-and-a-half years.

A composite index based on a survey of euro-area purchasing managers in both industry and services fell to 53.4 from 54.1 in September, London-based Markit Economics said yesterday.

"There are legitimate risks to the economic outlook," said Simon Barry, chief economist at Ulster Bank. "Once momentum turns down, which is happening at the moment, you need to be alive to the concept that downward momentum could accelerate. It wouldn't be wise to rule out a recession."

"The German economy is now growing at least twice as fast as that of the overall euro zone," said Markit economist Chris Williamson.

"That means that the periphery is really struggling and increasingly so as we move into the fourth quarter," said Mr Williamson.

Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast, said the data pointed to a likely further slowdown in activity in the latter part of this year.

"The data confirms other sources of information that point to further divergence within the eurozone," she said.

"While the German indices rebounded in October, the French PMIs headed lower. We expect the PMIs for peripheral countries to show even larger falls as the pain from fiscal retrenchment is only starting to hit these economies.

"On its own, the German economy cannot pull the Eurozone up and its resilience is likely to falter later this year as orders from the rest of the world slow and the rest of the Eurozone enters full-scale fiscal austerity," Ms Diron said.

"The ECB doesn't seem to be tuned into risks to the same degree as others," Mr Barry said.

"If other central banks are becoming increasingly concerned and if the global economy does weaken over the next quarters, there's little doubt that it will have an impact on the European economy."

Irish Independent

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