The euro area recession is set to deepen in the current quarter despite the absence of new negative shocks. The deepening is partly caused by a general attempt to reduce inventories.
In 2013, headwinds from fiscal tightening should ease, inventory reduction should come to an end and a gradual recovery in global growth would help the euro area to return to moderate growth. The peripheral euro area countries are undergoing important structural reforms, unit labour costs are declining and all sectors are deleveraging. This process is set to continue albeit at a slowing pace.
At the end of this process, we could see a sudden boost to growth as confidence returns and economies have become much more competitive. The timing is uncertain.
In our main scenario, the ECB will keep its monetary policy on hold until 2015. The ECB OMT will only be activated if financial markets lose confidence in Spain or the ECB. The main risk factors are political unrest in peripheral countries or a significant worsening of the economic situation in France, Spain or Italy, which could reignite break-up concerns.
To Read the Entire Report Please Click on the pdf File Below.
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Euro Area: Return From The Abyss
Published 12/13/2012, 01:11 AM
Updated 05/14/2017, 06:45 AM
Euro Area: Return From The Abyss
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