Europe is bracing for the release of dismal economic figures this week that are expected to highlight the threat of recession and could spur the European Central Bank (ECB) into action at its next meeting.
The eurozone barely expanded in the second quarter, eking out 0.1% growth, while Germany, its largest economy, shrank by 0.2%. The third quarter is expected to reveal that the long period of stagnation continued into the second half.
Economists polled by Reuters are forecasting 0.1% growth for the eurozone as a whole and for Germany, but there is a risk that both could have slid back into recession, defined as two or more consecutive quarters of contraction. France is expected to have notched up 0.2% growth while Italy is estimated to have contracted slightly again.
Spain, which has reported 0.5% economic growth, is likely to be the star performer between July and September.
Economists at ING said: “It looks as if the eurozone and Germany have avoided a technical recession. But let’s be clear, the mere fact that something has not got worse is no reason to cheer.”
In financial markets, hopes were rising that the ECB could deliver a pre-Christmas present in the shape of quantitative easing at its December meeting, although many economists believe further action will be delayed until next year.
On Thursday, the central bank’s president Mario Draghi firmly rejected suggestions of a north-south divide among members, and stressed the ECB was “unanimous in its commitment to using additional unconventional instruments within its mandate” to ward off deflation.
Over the weekend, an ECB policymaker warned that the eurozone risked slipping into a self-fulfilling period of stagnation without further efforts to cut the cost of credit. Benoît Cœuré, a French economist who sits on the ECB’s executive board, pointed to the latest economic evidence, and called for “forceful and consistent action” from monetary policy, along with measures to boost infrastructure spending and restructure markets to make them more competitive. He also referred to the European Commission’s slashing of its growth forecast for the eurozone to 1.1% next year, from the 1.7% predicted only six months ago.
“Monetary policy cannot support growth in a long-lasting way. Only an adequate mix of reforms and investment can do it. And it is a matter of urgency,” Cœuré said, adding: “The ECB is committed to taking additional measures if we face the prospect of inflation being too low for too long.”
In the UK, the Bank of England is expected to shed more light on when interest rates will rise from their record low when it publishes its quarterly inflation and growth forecasts on Wednesday.
The absence of wage growth and a drop in inflation to 1.2% in September suggest that the first rate increase could be further off than expected until recently. Economists polled by Reuters are nearly evenly split between those expecting a move in the spring and those who think it will happen in the summer.
