Euro-Area’s Downturn


Through March the euro-area economy shortened more than economists forecast in the three months, spread out a recession to a record sixth quarter and rising pressure on the currency bloc’s leaders to outgrowth.

According to Bloomberg, May 15, Andrew Balls, head of European portfolio management at Pacific Investment Management Co. deliberates the euro-area economy, financial strength and investment approach.

The European Union’s statistics office in Luxembourg said today, gross domestic product (GDP) in the 17-nation euro zone dropped 0.2% after a 0.6% decrease in the previous quarter. The median of 39 estimates in a Bloomberg News survey was for a 0.1% contraction. From a year earlier, the economy shortened 1%.

The German economy, Europe’s largest, expanded less than forecast in the first quarter. France fell into a recession and Italy’s contraction topped estimates. The European Central Bank cut its benchmark interest rate to a record low of 0.5% this month and President Mario Draghi said the ECB is ready to act again if necessary.

Howard Archer an economist at IHS Global Insight in London stated in the first-quarter contraction “reinforces pressure on the ECB to come up with further measures to try and support euro-zone growth,” and added “An interest rate cut to 0.25% looks ever more possible, while the ECB will also continue to look into the case for a negative deposit rate and ways of getting more credit through to smaller companies.”

The euro stretched losses after the data was out and was trading at $1.2862 at 1:15 p.m. in Brussels, down 0.5% on the day. The Stoxx Europe 600 Index was up 0.5% to reach 307.24.

The euro area’s economic misery contrasted with the U.K., as Bank of England Governor Mervyn King stated that a recovery is currently “in sight” as he handed out his final forecasts with a rally position for U.K. progress.

Officials expected that growth may increase to 0.5% this quarter from 0.3% in the first three months of the year, stated in the central bank’s quarterly Inflation report. The central bank realized inflation topping at 3.1% in the third quarter of this year, lower than predicted in February.

This year Sovereign borrowing costs have decreased across the bloc. The yield on Spain’s 10-year debt was at 4.35% at 12:11 p.m. in Brussels, related to euro era high of 7.75% in July, a day before Draghi assured to do no matter what is needed to hold the single currency organized. The yields for similar maturities were at 4.01% for Italy, 1.95% for France and 1.39% for Germany.