Says Europe Economy Probably Already in Recession
NOV 03 2008
European Commission said the region's economy probably
entered a recession this year and will stagnate in 2009,
increasing pressure on political leaders to collaborate
on measures to tackle the financial crisis.
in the euro area will slump to 0.1 percent next year,
the worst performance since 1993, the Brussels-based commission
said today. It also estimated that gross domestic product
will shrink for three consecutive quarters this year and
cut its forecast for full-year 2008 growth to 1.2 percent
from 1.3 percent previously.
ministers meet today to try to overcome the worst financial
crisis since the Great Depression. While France and Germany
led European governments in committing a combined $1.7
trillion to protect the region's banks, and the European
Central Bank now offers unlimited loans in an attempt
to get credit moving, there has been no unified government
response. Chancellor Angela Merkel last week proposed
a 50 billion-euro ($64 billion) package to revive the
in 2009 seems now unavoidable,'' said Jacques Cailloux,
chief euro-area economist at Royal Bank of Scotland Plc
in London. ``Today's new GDP forecast of 0.1 percent for
2009 by the European Commission still looks too optimistic
at BNP Paribas and Citigroup Inc. also said the EU remains
overly optimistic, with both predicting the euro area
will shrink next year. The EU partly acknowledged this,
saying its forecasts are subject to ``considerable uncertainty
and downside risks.''
contracted at a record pace in October and faster than
initially estimated, according to separate figures published
today. Figures last week showed that executive and consumer
confidence has dropped to a 15-year low.
the euro pared gains after today's reports. The euro was
at $1.2838 as of 13:43 a.m., compared with $1.2898 earlier,
while the Dow Jones Stoxx 600 was up 0.3 percent at 222.66,
paring an earlier gain of 1 percent.
government bonds advanced, with the yield on the German
bund, Europe's benchmark government security, falling
5 basis points to 3.84 percent.
said GDP in the euro region will probably contract by
0.1 percent in both the third and fourth quarters after
shrinking 0.2 percent in the second quarter, pushing the
region into a recession, defined as two straight quarters
L'Oreal SA, the world's largest cosmetics maker, last
week cut sales and profit forecast for the third time
in less than four months. Deutsche Lufthansa AG, Europe's
second-biggest airline, lowered its earnings forecast.
horizon has now significantly darkened,'' European Economic
and Monetary Affairs Commissioner Joaquin Almunia said
in today's report. ``We need a coordinated action at the
EU level to support the economy similar to what we have
done for the financial sector.''
measures to tackle the economic fallout from the credit
crunch have so far been piecemeal, with governments including
Italy, France and Germany planning their own tax breaks
or stimulus packages. The EU in late October pledged to
present a recovery plan this month and EU leaders are
scheduled to meet this week to coordinate their position
before a summit of world leaders hosted by President George
W. Bush on Nov. 15.
Nicolas Sarkozy has been pushing for a unified action
and that is ``a goal the president never gave up on,''
French Finance Minister Christine Lagarde said today in
an interview. ``So I'm not going to give up on it either.''
to flooding markets with cash, central banks across the
world have also begun slashing interest rates to limit
the economic impact of the financial crisis. The European
Central Bank is set to cut its benchmark rate this week
for the second time in less than a month after the U.S.
Federal Reserve lowered its rate to match the lowest level
in a half-century. Policy makers in Japan, India and Norway
have also cut borrowing costs.
Spanish and U.K. economies will all contract next year,
while Germany, Europe's largest economy, France and Italy
will stagnate. For 2010, the EU sees the overall euro-area
economy expanding by 0.9 percent.
the drop in oil prices, the slowdown will cool inflation,
which may ease to 2.2 percent in 2009 from 3.5 percent
this year, the EU said. It will also push the euro region's
unemployment rate to 8.4 percent next year from 7.6 percent
this year. EU countries' budget deficits are likely to
widen, with the euro-area average forecast to increase
to 1.8 percent next year, which would be the biggest since
Growth is ``at
a standstill'' in many European economies, Almunia said.
``The economic situation is exceptionally uncertain.''