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Current affairs

EU to linger in recession for another year‏

EU to linger in recession for another year‏
23 February 2013
Patrick Corby
Avatar
Patrick Corby
23 February 2013

The European economic crisis has officially been recognised as continuing throughout this year and into 2014, as officials concede that Europe is estimated to shrink by 0.3%, down from previous estimates of growth of 0.1%. 

European Commission Vice-President Olli Rehn gave the official statement in 2012 that unemployment across the single trade area was expected to increase to 12.2% this year, up from 11.4% in last year.

The lasting worries about European growth data is well placed, with flat or negative growth across the last five quarters starting in the end of 2011.

The market is worried but acting. Constant pressure is building that the weakest Southern Eurozone states, which broke their deficit agreements and eventually led to the crisis, are constantly unable to meet debt levels or deficits consistent with their contribution in growth to Europe.

The European Central Bank (ECB) last year stated it would buy government bonds and take on the debt of those states that need it. However Spain, Greece, Italy and countries such as France are being forecast as continually contracting their over-indebted nations into 2014 and beyond.

Spain has had the largest problems decreasing its levels of debt to market growth, and stands to have the worst recession out of Europe as it stands presently.

Again and again, however, it’s Germany who has a regulatory framework based around tight credit extension and debt that has come out as the leader in growth and foundation of European stability. 

The ECB’s statement supported the market’s confidence but masked underlying risks according to Andrew Grantham of CIBC World Markets. “Markets are a little bit too optimistic,” he said, meaning that we may still be continuing a bubble in the economy at a level that is not sustainable, pressuring a tighter rein on credit. 

The UK is also not on target with its export led growth meaning a continued international deficit, with government overspending forecast to increase to 7.4% of GDP in 2013, up from 6.3% in 2012. The UK has the worst deficit in the European Union currently. 

Right now the pound is abruptly overvalued. With Mark Carney arriving in the Bank of England and inflation being extended upwards to 3.2%, the purchasing power of the pound is anticipated to fall sharply this year. 

Patrick Corby

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