Euro-zone growth has probably stopped slowing and the bloc may yet escape recession this year as it adapts to its new cash currency, but more unemployment could still undermine a recovery, economists said yesterday.
Euro-zone growth has probably stopped slowing and the bloc may yet escape recession this year as it adapts to its new cash currency, but more unemployment could still undermine a recovery, economists said yesterday.
Confidence in the region's important service industry rose last month, according to a Reuters survey, echoing a similar signal from manufacturers earlier this week.
And in other good news, December euro-zone inflation dipped back to 2 per cent from 2.1 per cent, level with the European Central Bank's inflation goal of under 2 per cent, while French consumer morale stood its ground.
"Recent indicators confirm our outlook that a recession \in Europe\ is unlikely at this stage even if a significant slowdown is evident," said Mr Paul van den Noord, chief European economist at the OECD in Paris. "The recovery should start in the middle of this year. For that to happen, you would expect early indicators to be pointing in this direction now, and some of them are. But downside risks remain," he added.
Reuters' Eurozone Business Activity Index rose to 49.2 in December from 46.9 in November, nearing the 50 line between growth and contraction, after hitting a series low of 46.7 in October in the aftermath of the attacks on the United States.
"The data is telling us that hopefully, the worst of the cycle has been seen in the fourth quarter," said Mr Jean-Francois Mercier at investment bank Schroder Salomon Smith Barney.
"So the contraction will stop and we will avoid a recession in the euro zone," he said. The survey also reflected the relative running order within the euro zone, with growth slowcoach Germany still below the 50-threshold while Italy and France both nudged above. Services account for over 60 per cent of euro zone output and will be a crucial ingredient in a recovery.
Also, unemployment in the euro zone was unchanged at 8.5 per cent in November, the Eurostat statistical agency said.
Economists warned that jobless numbers will creep up across the region as the year progresses and as the wave of corporate job cuts announced in recent months begin to take effect.
This could undermine household spending and poses one of the largest risks to the region's hopes for recovery, because fears for job security could make households spend less and save more.
How much damage unemployment does confidence versus how much household spending is encouraged by lower inflation will be important in guiding growth this year, along with the health of the United States and the outcome of America's war on terror. - (Reuters)
