Still the economic conditions in Europe are shaky amid the turbulences resulting from the global downturn that affected small as well as major economies. After the improvement seen in the third quarter last year, recovery started to loose momentum with the scale back of stimulus measures that boosted economies by giving a lift to growth.
In the euro zone, there is no data from the whole block but important news to be released from the largest economies in the zone. In Germany, trade balance for January is expected to show a widened surplus to 14.5 billion euros from 13.5 billion euros, while exports and imports will slid to 0.5% and 1.2% from 3.0% and 4.5% prior respectively.
Germany, the largest economy in the euro area, relies heavily on exports in its growth; however, the expected data is showing that it is not benefiting from the euro's depreciation against the dollar.
The 16-nation currency slipped more than 7% versus the green currency from December to January, reversing the gains generated last year, boosted by the debt woes in Greece. Still, the euro may face more downward pressure as long as Greece is not bailed out and with the spillover of the contagion to other European economies.
In the fourth quarter, the euro zone showed withdrawal in growth to 0.1% from 0.4% in the three months ending in September, while data released recently may provide clues that the EU block may return to recession again in the first quarter.
Also, Italy will release its GDP final reading for the fourth quarter with expectations to show contraction of 0.2% from 0.6% expansion in the third quarter.
The sharp rise seen in Italy the third quarter halted as a result of decline in production and rise in unemployment. Industrial production plummeted 0.7% in December, while jobless rate climbed to 8.5% during the same month. Economists are predicting recovery to be sluggish this year, especially with the high debt that reached 5.3% of GDP in 2009 from 2.7% in 2008.
Nevertheless, the debt concerns are prevailing across most European economies. Greece leads the high debt wave with 12.7% of GDP, the highest in the EU, which makes it vulnerable to further downgrades by S&P and Moody's Investors Service despite its efforts to cut the widening deficit.
The Greek government pledged to increase taxes on tobacco, alcohol and sales to addition reducing of public workers’ bonus payments received at holidays by 30% to cope with the EU's ongoing pressure. The step is the second since announcing the initial plan of cutting deficit to 8.7% of GDP from the current 12.7% within three years.
The latest setback in the euro zone was triggered yesterday when some Fitch Ratings analysts said Portugal’s credit rating may be downgraded if its fiscal consolidation program is deficient.
Outside the euro zone, U.K., which also has high debt, may be subject to a downgrade. Yesterday, Moody's Investor Service said U.K. banks that will not improve their funding positions may be subject to downgrade, especially with the scale back of the government assistance to banks.
The economic conditions in Britain are still fragile; manufacturing production and industrial production for January due today are predicted to show a decline on the month to 0.2% and 0.5% from 0.9% and 0.5% respectively.
The British Chamber of Commerce lowered its estimates for 2011 from 2.3% to 2.1%. Besides, the BoE lowered its growth forecasts to 3.2% in the second quarter of 2010, below the previous projections of 4%.
