Euro zone starting to emerge from recession - Reuters Poll

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By Andy Bruce | February 14, 2013 5:49 AM EST

The euro zone is starting to claw its way out of recession and it might do so this quarter, but there is no prospect of any major upturn thereafter, a Reuters poll showed on Wednesday.

While data on Thursday are expected to show the downturn deepened in the fourth quarter last year, there have been early signs the region is emerging from a slump that stretches back to the second quarter of 2012.

Wednesday's poll suggested the economy will stagnate this quarter after shrinking 0.4 percent at the end of last year, and achieve growth by the end of June - little changed from last month's poll.

Economists hardly have high hopes for the future, given the harsh budget cutbacks that have resulted in recession, growing jobless queues and had only limited success in restoring confidence in state finances.

As ever, the euro zone outlook depends on the marked divergence between the strong "core" euro zone economies and the weaker ones, especially in southern Europe.

"I do think there is the potential to see an acceleration in activity in some of the northern economies, Germany in particular," said James Nixon, chief European economist at Societe Generale.

For Spain and Italy, however, the picture is very different, with both committed to long-term fiscal tightening that will subtract whole percentage points from gross domestic product.

"That's something that's not going to change in 2013 and to be frank, it's not going to change in 2014 either," said Nixon.

Overall, the poll showed euro zone economic growth is not expected to exceed 0.3 percent in any quarter from now until the second half of 2014.

Not even the most optimistic economist forecasts a single quarter of growth that would even match the average of 0.6 percent quarterly seen in the years preceding the global financial crisis in 2008.

By contrast, the United States is expected to fare somewhat better this year and next compared with the euro zone, despite facing its own problems trying to breath life into the world's No.1 economy.


The biggest hopes for global growth rest on emerging economies like China and India, which endured a disappointing 2012.

"Improving global growth would also help matters, while a further rise in the euro could be damaging (for Europe)," said Howard Archer, chief UK and European economist at IHS Global Insight.

The euro rallied around 3 percent in January in a move that was completely unforeseen by foreign exchange strategists, prompting talk among economists and some policymakers about overvaluation.

European Central Bank President Mario Draghi said last Thursday he would monitor the economic impact of a strengthening euro, feeding expectations the climbing currency could open the door to an interest rate cut.

Still, most analysts do not think the European Central Bank will cut interest rates from their present record low 0.75 percent.

While for months last year economists were split down the middle on whether the ECB would ease monetary policy further, now only 17 out of 70 predict such a move.

If the economy took another turn for the worse, inflation would be unlikely to stand in the way of ECB policymakers wanting to take action; the poll shows price growth should average around the central bank's target ceiling of just under two percent into the middle of next year.

In Britain, analysts say the economy will not sink into recession for the third time in four years even if, as seems likely, the Bank of England refrains from providing stimulus via extra asset purchases.

(Reporting by Andy Bruce; editing by Patrick Graham)

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