Tuesday, 5 May 2009

Eurozone economy to contract 4 percent

The European Commission has cut its forecast for the eurozone economy. Bloomberg reports:

The economy of the 16 countries sharing the euro will shrink 4 percent in 2009 and 0.1 percent in 2010, the European Commission, the EU executive in Brussels, said today, revising a January estimate for a contraction of 1.9 percent this year. The region’s average budget deficit will swell to 6.5 percent of output next year, when unemployment will rise to 11.5 percent, the commission said...

Euro-area inflation will slow to 0.4 percent this year before accelerating to 1.2 percent in 2010, the commission projected. That follows a report from the commission last week showing consumers expect prices to decline over the next 12 months, the first time the price-outlook gauge has been negative since at least 1990.

However, this downward revision in the forecast comes at a time when reports are showing that the worst may already be over. For example, Bloomberg reports that the contraction in manufacturing is easing.

The recession in Europe’s manufacturing industry eased for a second in April, suggesting the worst may be over.

A gauge of manufacturing activity rose to 36.8, a six-month high, from 33.9 in March. That was slightly better than the initial estimate of 36.7 published on April 23. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction.

And the US is already reporting some positive economic data. Again from Bloomberg:

Pending sales of U.S. existing homes posted their first back-to-back gain in almost a year in March and construction spending ended a six-month slide, spurring a rally in stocks.

The number of Americans signing contracts to buy previously owned homes jumped 3.2 percent after a 2 percent gain in February, the National Association of Realtors said today in Washington. Construction unexpectedly rose 0.3 percent as gains in commercial and government projects overshadowed a continued drop in homebuilding, Commerce Department data showed.

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