Euro Area Economic Recovery Still Out of Reach


The Euro Area economy has been in recession since late 2011 and prospects for 2013 are not brighter. Indeed, tough austerity measures imposed by debt ridden governments in connection with soaring unemployment rate and restricted credit to consumers and businesses have been undermining domestic consumption.

In fact, in March the unemployment hit record high for 23rd consecutive month. In addition, retail sales fell 2.4 percent yoy, the lowest level since December of 2012 and 0.1 percent mom. To make things even worst, the business sector remains feeble. In February, industrial output fell for the 14th consecutive month and business confidence has failed to rebound, maintaining the negative outlook over the short term. As such, and in conjunction with below-target inflation rates, the ECB voted to cut its key interest rate by 25bps to 0.5%, the lowest rate on record, in an effort to kick-start the economy. Moreover, the extension of the ECB's liquidity conditions should help to reduce borrowing costs for most indebted countries and depreciate further the currency which would have a positive effect on exports. 

 

In the last quarter of 2012, the Euro Area GDP contracted 0.6% over the previous quarter. It was the steepest decline since Q1 of 2009 and extends further the economic recession.

 
In March, the unemployment rate rose to a new all-time high of 12.1%. This increase is primarily driven by soaring unemployment rates in Spain, Greece and Portugal.
     

Consumer confidence has been very weak since late 2011 and was reported at -22 in April. Indeed, in March, retail sales decreased 2.4% yoy. It was the 23rd contraction in a row.
 
In April, Business Confidence was reported at -0.93, its lowest level since October of 2012 and near a 3- year low. This reflects an overall weak industry sector as industrial production contracted for 15th consecutive month in March. 

 


Nuno Fontes | nuno@tradingeconomics.com
5/14/2013 10:09:01 AM