Wednesday, 16 November 2011

Eurozone economic outlook dim

The eurozone economy barely grew in the third quarter. From Reuters:

The euro zone economy grew just 0.2 percent in the third quarter as solid growth in Germany and France was dampened by countries at the sharp end of the debt crisis and economists expect a slide into recession by early next year.

Growth from July to September was the same as in the second quarter, but the outlook for the last three months of 2011 is dim, with the region's deepening debt crisis weighing on sentiment and consumer confidence.

"The economic slump will accelerate in the coming months," said Christoph Weil, economist at Commerzbank. "We expect real GDP to already fall in the closing quarter of 2011 at a rate of 0.25 percent on the third quarter," he said...

"We expect the economy to contract significantly in Q4, and the recession looks likely to last into next year. The question of exactly how deep and long the recession is depends on whether policymakers act decisively to contain the crisis," said Nick Kounis, economist at ABN AMRO.

Meanwhile, the debt crisis shows no sign of abating. Italy’s 10-year yield climbed 37 basis points to 7.07 percent on Tuesday. Spreads of French, Belgian, Spanish and Austrian 10-year yields over bunds all climbed to euro-era records. Italian, Spanish, Belgian and French credit-default swaps also surged to records.

Contagion continues to widen. Edward Harrison notes that the default probability for Netherlands crossed the 10 percent threshold on Tuesday.

In stock markets, the STOXX Europe 600 fell 0.6 percent but the S&P 500 rose 0.5 percent.

US stocks gained partly as a result of positive US economic reports on Tueday. Retail sales rose 0.5 percent in October after having risen 1.1 percent in September. The New York Fed's general business conditions index rose to 0.6 in November from minus 8.5 in October. The producer price index fell 0.3 percent in October.

Inflation has also showed signs of moderating in the UK. A report on Tuesday showed that consumer price inflation eased to 5 percent in October from September's three-year high of 5.2 percent.

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