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".

Recommended

Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021
Why are energy prices going up so much?
Energy

Why are energy prices going up so much?

UK energy prices are going through the roof, with electricity the most expensive in Europe and gas at its highest for 13 years. Saloni Sardana explain…
16 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021