Hopes rise that European recession is ebbing
News Article Date: Tuesday 23rd of June 2009
Berlin - The global recession appears to be loosening its grip on Europe, with a slew of a key indicators rising on hopes that economic growth could start to gain traction in the runup to start of the new year.
Earlier this year economists were drawing up global disaster economic scenarios after last year's meltdown in the US mortgage industry pitched the world economy into its deepest downturn since the Great Depression.
Now, said Rainer Guntermann, senior economist with the investment house Dresdner Kleinwort: 'There is a consistent picture at the moment which is pointing to a turning point.'
A survey released Tuesday showed German consumer confidence rising faster than forecast with the business survey group Markit Economics' composite purchasing managers index (PMI) for the 16-member eurozone edging up to 44.4 in June from 44.0 in May.
'The recession in the eurozone is easing as confidence indicators have clearly resumed their upward trend of the last months,' said ING Bank economist Carsten Brzeski.
This also followed surveys showing a bigger-than-forecast rise in business confidence in the eurozone's two biggest economies - Germany and France.
On Monday, the Munich-based Ifo economic research institute said its closely watched German business confidence survey hit a seven- month high in June after rising for three consecutive months.
'The survey results confirm that the German economy is gradually stabilising,' said Ifo president Hans-Werner Sinn in releasing his institute's latest survey.
Based on a survey of 7,000 German executives, the Ifo index slumped to a 26-year-low in March as concerns grew about the fallout from the steep global economic downturn.
In line with other indicators, the French and German business surveys have gained ground on hopes that a string of big government fiscal stimulus packages around the world and hefty global interest rate cuts would help pave the way for an economic recovery going into 2010.
Even so, economists still warn that Europe is facing a long haul to drag itself out of recession with rising unemployment in the wake of the economic slump now threatening to place pressure on wages and consequently undercut consumer spending.
This in turn could slow the pace of the pickup in the European economy and leave exports as the key catalyst for a convincing rebound in economic growth in Europe.
In particular, this is likely to mean a rise in demand for exports from countries such as China, the US, Brazil and India.
The prospects of the German economy contracting by a dramatic 6 per cent plus this year could wipe out about a decade of the nation9s economic performance, Guntermann estimates.
'Following the recent growing number of signs that the economic downturn may be coming to an end, consumer hopes of economic stabilization are intensifying and accordingly, economic expectations are increasing moderately,' GfK said releasing its German consumer confidence survey Tuesday.
But the Nuremberg-based GfK warned that the threat of rising unemployment would be the deciding factor in whether the latest uptick would lead to a sustained increase in consumer confidence.
As a result, this would offset the positive impact on consumer purchasing power resulting from dwindling inflation. Eurozone inflation fell to zero in May, official figures showed.
While the mood in French boardrooms improved in June for the third consecutive month, French Data also released Tuesday showed household spending in the nation posted a surprise 1.6 per cent year-on-year fall in May.
Moreover, the eurozone PMI surveys released Tuesday fell short of analysts' forecasts and remain below the 50 point marker which signifies an economic contraction.
'By remaining well below 50, the index signalled a drop in output for the thirteenth straight month, representing by far the longest and most severe period of contraction seen in the survey's 11-year histroy,' said Markit releasing the survey.
In addition, the recent pickup in the majority of the slew of indicators has been driven by the expectations' component of the indexes with the hard economic data - exports, industrial orders and production - still flashing warning signals.
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