Eurozone likely to slip back into recession

Eurozone 'Heading For Recession In 2012'

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10:25am UK, Thursday December 15, 2011


The eurozone is likely to slip back into recession next year, according to a
report by Ernst & Young.


The audit firm said it expects the economies of the 17 member countries to
shrink in the first two quarters of 2012.

The report predicts growth of just 0.1% for the whole of the year and warns
unemployment in the eurozone is unlikely to fall below 10% before 2015.

The warning was backed up by economic data from Markit suggesting output
continued to contract across the 17-nation bloc over the past month.

Although the headline Purchasing Managers Index (PMI) figure rose slightly,
at 47.9 it remained below 50 which separates economic growth from a
slowdown.


Nikkei One-Day Chart




The survey compiler said the slight improvement was down to strength in
France and Germany, with peripheral eurozone economies still struggling.

Last week, 26 of the 27 members of the EU backed new fiscal rules to keep
budgets in line, with only the UK abstaining.

But just days later, cracks have begun to emerge as drafting of
the pact begins, with some countries already airing concerns.

Many also fear the pact will still not be enough to prevent more countries
from needing a bailout like Ireland and Greece.

The euro fell to an 11-month low on the back of the concerns on Wednesday,
dropping below $1.30 (84p) for the first time since January, while gold -
usually seen as a safe -haven for investors - lost 3.5%, before stabilising.

Asian markets also reflected weak sentiment with Tokyo's Nikkei down 1.7% and
Hong Kong's Hang Seng index 1.8% lower overnight.


FTSE 100 1-Day Chart




But in Europe, markets fared better on Thursday's open, with Britain's FTSE
100, Germany's DAX and France's CAC all edging up by nearly 1%.

"The reforms agreed at the summit on December 9 were a step in the right
direction and the response seems to have been mildly positive," Ernst &
Young said.

It added: "Investors remain very concerned about the commitment and ability
of eurozone governments to implement reforms quickly."

Nonetheless, the leading economist and chairman of Goldman Sachs Asset
Management has expressed his confidence in the single currency.

Jim O'Neill told Sky's Jeff Randall Live that European leaders
would not give up easily, despite the continuing crisis in the
eurozone.

Meanwhile, the head of Britain's armed forces, General Sir David Richards,
has said the eurozone crisis is of "huge importance" to defence chiefs as well
as the City.


Chief of the Defence Staff General Sir David Richards




In a lecture to the Royal United Services Institute in London, he said: "I am
clear that the single biggest strategic risk facing the UK today is economic
rather than military.

"Over time, a thriving economy must be the central ingredient in any UK grand
strategy.

"This is why the eurozone crisis is of such huge importance, not just to the
City of London, but rightly to the whole country, and to military planners like
me."

He added: "The country's main effort must be the economy. No country can
defend itself if bankrupt."

Ernst & Young agreed that problems in the eurozone have impacted the UK
but said the worst may be over for Britain.

Marie Diron told Sky News: "The eurozone is the main trading partner for the
UK so it is in the interest of the UK that the eurozone is stable and growing
and what we see is that the UK will probably see weak growth next year, although
the bulk of the pain has probably already gone through."











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