Eurozone recession warning for 2012

Posted on 15 Dec 2011 by Tim Brown

The eurozone is expected to return to recession in 2012 according to a report by audit firm Ernst & Young.

The company said it anticipates 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 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 to 47.9 but remained below 50 which indicates growth.

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, according to Sky News, 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.

In addition, the governor of France’s central bank has launched a strong attack on credit rating agencies, calling them “incomprehensible and irrational” as Paris braces for a potential downgrade of the country’s triple A status.

Christian Noyer, head of the Bank of France, said a French downgrade would not be justified – adding that the agencies should begin by downgrading the triple A rating of Britain, which “has bigger deficits, more debt, higher inflation, less growth than us and where credit is shrinking.