Eurozone slump fears worsen

A third recession in the eurozone could be on the cards, economic data continues to disappoint.

The latest developments in the eurozone have reinforced fears of a third recession in seven years. Industrial production in the bloc declined by almost 2% in August, with capital goods production falling by almost 5%.

Germany's ZEW economic sentiment indicator fell for a tenth successive month and the country's GDP growth forecast for 2014 was cut from 1.8% to 1.2%.

Meanwhile, markets were unimpressed with Greece's plan to leave its bail-out programme early and its bond yields jumped to a seven-month high on the news.

What the commentators said

The situation in the eurozone used to be that the core was strong, partly compensating for weakness in the periphery, said Wolfgang Munchau in the FT. Now both areas are weak. And policymakers show little sign of doing anything much about it. "Secular stagnation is not so much a danger as the most probable scenario."

It's not just that investors are worried the European Central Bank may not embark on quantitative easing (QE) money printing or that German resistance could delay QE until a Japan-style slump has already become entrenched.

It's also hard to see the "supposedly too-big-to-fail" economies of Italy and France getting their act together, said Allister Heath. Meanwhile, more turbulence in Greece could be on the way, said Paul Taylor in The International New York Times.

A likely early election next March could see the leftist Syriza party gain power on a platform of reversing austerity policies and demanding debt relief. This would be the first time a movement "deeply hostile" to an international bailout programme takes power in Europe, with unpredictable political and economic consequences.

In short, said Heath, it seems analysts could well have been wrong to think that "the ticking time-bomb under the European project had been defused".

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