Economic prospects remain subdued according to the latest quarterly economic outlook from the German Ifo economics institute in association with the French INSEE institute and the Italian ISAE institute. Meanwhile, at its first meeting in 2010, the governing council of the European Central Bank (ECB) is expected to keep interest rates on hold today, including its benchmark rate at 1%.
Real GDP (gross domestic product) in the Eurozone is forecast to expand at rates of 0.3% in Q4 2009, and 0.2%, in both Q1 2010 and Q2. Growth will be mainly hampered by the fading of fiscal support, the restrictive credit conditions and the tense situation on the labour market. Real GDP is expected to have fallen by 3.9%, on average, in 2009.
On Wednesday, Destatis, the German federal statistics office, reported that the economy contracted 5% in 2009. The agency said the recession was at its severest in late 2008 and early last year. By the second quarter, Germany had come out of recession. The third quarter saw a 0.7% expansion but Destatis said growth had stalled in the fourth quarter but it provided no quarterly figure.
Germany still had to “lay the foundations for a self-sustaining upswing,” said Rainer Brüderle, the economics minister. He added that a long haul back from recession would not be helped in its early stages by recent severe winter weather.
Volker Treier, chief economist at the German Chambers of Industry and Commerce, told the newspaper Bild on Monday that unless weather patterns changed drastically, the frigid start to the year would cost nearly €2 billion and hit growth in the first quarter of 2010 by as much as 0.4 percentage points, mostly because of the idling of the construction sector and the resulting delay in orders for furnishings and appliances.
A 1.1% rise in November industrial production, reported this week in France, was attributed to car production supported by a government scrappage scheme.
The European Union's new permanent president Herman Van Rompuy on Wednesday said the fight against climate change and the economic crisis were his top priorities in the months ahead.
Speaking ahead of a meeting with Chancellor Angela Merkel on his first official visit to Germany, Van Rompuy said that the EU27 must strive for 2% average annual growth.
"One thing is clear now. We need economic growth which is sustainable and which is at least 2%, instead of the projected structural growth of 1%... in order to keep up with the other major economies in the world,"Van Rompuy said.
The president has arranged a special EU economic policy summit for next month.
He has said that Europe’s “social model” and “way of life” - - its combination of vigorous free enterprise and a generously funded welfare state - - will be unsustainable unless the EU doubles its economic growth rate to at least 2% a year.
Van Rompuy calls this target “a matter of survival,” believing that Europe is coming out of the financial crisis well in the short term, having rejected protectionism, deflationary budgets and over-tight monetary policies. However, the EU has avoided the worst by allowing an increase in its budget deficits - -“shifting the financial pain forward into the future.”
Eurozone Economic Outlook
