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Analysts see return to growth in eurozone

13 august 2013, 15:37
0
Jobseekers. ©REUTERS/Regis Duvignau
Jobseekers. ©REUTERS/Regis Duvignau
Figures due Wednesday are expected to show the eurozone finally edging out of a record 18-month recession which has cost millions of jobs and tested the single currency bloc to near breaking point, AFP reports citing analysts.

For some governments, not least Germany's which faces polls in September, that could be vindication after promising that the tough spending cuts and tax hikes needed to combat the debt crisis were essential for a return to growth.

The austerity message, however, has worn thin as the eurozone economy has contracted for six consecutive quarters, stoking demands that governments put the focus on jobs instead.

Led by powerhouse Germany, the 17-state eurozone likely grew by up to 0.2 percent in the three months to June compared with the previous three months, when it shrank 0.2 percent.

Analysts said this would make it the first positive report since the third quarter 2011 when the eurozone slumped into recession, defined as two consecutive quarterly contractions.

Germany eked out a gain of 0.1 percent in the first quarter this year and the country will likely rebound more sharply now with a gain of up 0.7 percent, while struggling France is tipped to come in at 0.2 percent growth after a 0.2 percent contraction.

Analysts said recent data all pointed in the same direction of a recovery but they were cautious on the outlook, noting that overall the eurozone economy will still shrink for the full year.

The eurozone "probably finally stopped contracting ... We expect (the economy) to have been at least flat quarter-on-quarter and it may well have eked out marginal growth of 0.1 percent", said Howard Archer of IHS Global Insight.

Germany "clearly saw appreciably faster growth" of at least 0.6 percent, Archer said, adding that the pace of the downturn in Italy and Spain -- ranked third and fourth in the eurozone after Germany and France -- has "slowed appreciably".

Recent gains in retail sales, industrial output and business activity were all positive he said, citing the closely-watched Markit Economics composite purchasing managers index which jumped to an 18-month high of 50.5 points in July from 48.7 in June.

Crucially, eurozone unemployment fell 24,000 in June, the first such drop since April 2011.

"While it is highly unlikely that this means that eurozone unemployment has stopped rising, it does at least fuel hopes that the decline in labour markets is now moderating markedly," Archer said.

Analysts at French bank Societe Generale also noted the recent improved data, expecting the eurozone second quarter GDP to show a gain of 0.2 percent.

But they warned that temporary factors likely played a role, meaning it "is too early to call an end to the euro area debt crisis".

A rebound from poor weather in the first quarter will help Germany to post growth of 0.7 percent, with France on 0.2 percent, they said.

At the same time, "diverging trends are still apparent" between the strong and weaker economies, they said, adding that continued problems in getting the banks to lend to business and continued austerity will also "weigh on growth".

French house CM-CIC Securities took a similarly cautious line.

"If the risk of a further downturn is getting less, the upturn is unlikely to be very strong ... growth will still be held back by austerity policies and the reduction of debt," they said in a research note.

Archer of IHS Global Insight added another concern to the list -- "muted and fragile" global growth which will undercut demand for exports.

As a result, the eurozone will "contract by 0.6 percent in 2013 before growing by around 0.75 percent in 2014" as governments ease up on austerity and business and consumer confidence returns, he said.

In June, the European Central Bank, the euro's guardian, downgraded its 2013 forecast to a contraction of 0.6 percent instead of 0.5 percent, but upgraded next year to 1.1 percent growth from 1.0 percent.

The ECB "continues to see downside risks surrounding the economic outlook for the euro area", said Mario Draghi, who heads the bank.

"They include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries."

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