The Eurozone economy will likely remain in recession during the rest of the year, with only marginal growth at best occurring in the second half, before recording moderate growth next year, IHS Global Insight Chief European and UK Economist Howard Archer said.
The firm forecasts that the euro area economy would contract 0.7 percent in 2013, and will likely struggle to grow by more than 0.5 percent in 2014. Under such circumstances, the European Central Bank will be prompted to take interest rates down to 0.25 percent from 0.5 percent. However, the rate-cut is unlikely to happen at this month's meeting.
The central bank's main focus will remain on ways of facilitating getting more credit through to smaller companies, the economist noted.
Revised data from the Eurostat yesterday showed that the Eurozone economy contracted 0.2 percent sequentially in the first quarter, slower than fourth quarter's 0.6 percent fall, marking a record sixth successive quarterly decline.
Output was dragged down mainly by a further sharp drop in investment. Adding to the downturn, exports fell by 0.8 percent quarter-on-quarter as they were limited by muted and faltering global growth. While business confidence was generally firmer in the first quarter, it was still low compared to long-term norms and it relapsed in March.
Germany only just managed to return to growth while France moved into modest recession and the Netherlands continued to contract. Elsewhere, GDP contraction was still appreciable in Italy and Spain, while Portugal, Greece and Cyprus remained well in recession.
Also, the upside for domestic demand in the Eurozone remains constrained by restrictive fiscal policy in many countries, still tight credit conditions, very high and rising unemployment, and limited consumer purchasing power.
On the positive side, the economy can expect to benefit from the upturn in consumers' purchasing power coming from a recent sharp overall retreat in inflation. Lower input prices resulting from softer oil and commodity prices are also easing the pressure on companies' margins, the economist added.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.