Eurozone appears headed for economic recovery
Analysts predict 0.2% growth in second quarter
The economy of the eurozone appears to have turned a corner, with analysts predicting GDP data releases later this week will show growth in the second quarter.
A Reuters poll indicates data to be released Wednesday will show the eurozone economy grew 0.2 per cent in the second quarter. That would mark an end to the recession that took hold in late 2011.
Europe has suffered over the past two years with currency crises, banking scares and political uncertainty.
But despite the weakness of some members, such as Greece and Spain, the 17-nation region appears to set to reverse the negative trend.
Germany probably grew about 0.75 percent, according to a government estimate, exceeding the 0.6 percent economists predict. Germany, the largest economy in the EU, is already seeing higher private consumption and industrial production.
Britain may also be heading for a mild expansion after throwing off the effects of its austerity programs.
Much depends on China, U.S.
Budget cuts have gone ahead in Spain and Italy, improving confidence in the region. And although China may be slowing, there is an acceleration of growth in the U.S., the world’s biggest economy, which may have helped the EU economies.
"The external environment is really getting better, led by signs that U.S. demand is picking up," Nick Kounis, of ABN Amro Bank NV in Amsterdam, said in an interview with Bloomberg.
"The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow."
The European Central Bank has cut interest rates to their lowest-ever level and president Mario Draghi has said he would have to see much more improvement before they are allowed to rise.
Keeping rates low
In a news conference at the beginning of the month, he outlined the many risks the euro zone still faces, including weaker-than-expected domestic demand, uncertainty over the global economy and a slow pace of structural reforms.
Europe's major economies showed signs of improvement in early 2011, but two interest rate hikes from the European Central Bank midway restricted credit too quickly and turned a potential recovery into a recession. Draghi is not keen to repeat that mistake.
He is also wary of Fed chairman Ben Bernanke's remarks about a potential interest rate rise in June, which led to market turmoil.
High youth unemployment, averaging 24 per cent across the 17 EU nations, is a continuing problem.
Spain’s economy shrank just 0.1 percent in the second quarterand in Italy, GDP fell 0.2 per cent, both better than economists had predicted. GDP data from Germany, France, and the eurozone's statistics office is scheduled to be released later this week.