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MENAFN - ecPulse - 04/11/2012

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Investors to remain alert this week as they will key their eyes on a critical Parliamentary vote in Greece on 2013 austerity along with the monetary decisions by the two European giant central banks, the ECB and BOE.

After the narrow approval of the privatization bill last week, the Greek Parliament is set to face a tough test as it votes on a 13.5 billion euros of cutbacks for 2013-2014 which are required by Greeces creditors to become eligible to receiving the coming installment of its second bailout, which without Greece would face the ghost of default on November 16.

Hence, the main attention will be on Greece as a rejection could push the debt-wracked euro area nation to a dismal fate that could be facing a default or even may be kicked out of the European monetary union.

It is important, yet, to remember that attention is predicted to remain on the latest developments in Spain, where two euro zone officials said last month Spain is preparing to formally request a bailout in November. However, the most recent announcements by Spanish Prime Minister Mariano Rajoy referred that he would not rush to ask for rescue unless the situation worsens.

Accordingly, European policy makers are still continuing their efforts to ease the crisis while shoring up the 17-nation region to recovery, especially as the recent data referred to a possible continuation in recession this year.

Last weeks data gave a grim picture about the economic situation in the euro area as unemployment climbed to 11.6%, the highest since compiling data for the first time in 1995, making the number of people out of work soars to 18.5 million after it had been increased by 146,000 in September, where Greeces joblessness, due this week, is predicted to remain at record high in August after rising above 25% in July.

By the same token, a composite index of manufacturing and services will confirm the ninth consecutive monthly contraction in October, adding to worries the economy may continue deterioration in the fourth quarter as crisis continue to weigh on growth prospects.

In Germany, exports will drop 1.5% in Sep. from 2.4% advance in Aug. while imports will drop 0.3% from a prior of 0.3% rise, according to median estimates.

The ECB, however, is expected to hold its benchmark rate at record low of 0.75% when it announces its rate decision on Nov. 8, referring that some analysts expect a cut in interest rate to a new record low of 0.5% within the next few months as the economic situation has deteriorated while inflation has eases.

Moving to the U.K., the BoE is also estimated to hold its monetary stance this month at 0.50% interest rate and 375 billion pounds of asset purchases.

Policy makers will probably wait for another month to assess the impact of FLS program, which is aimed to beef up credit to companies and households, and till getting the latest growth and inflation forecasts in Novembers quarterly inflation report due later in the month.

Nonetheless, the minutes of Octobers decision showed there could be a split among the nine-panel member this month as “some members felt that there was considerable scope for asset purchases to provide further stimulus,” whilst “other members, while acknowledging that asset purchases had the scope to lower long-term yields further, questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy.”

Britain expanded a robust 1.0%, the strongest growth in five years, leaving three consecutive quarters of contractions, giving hopes of recovery, yet economic growth may slow once again in the coming quarters as the rebound in the third quarter reflects the unwinding of June’s extra public holiday for Queen Elizabeth II’s Diamond Jubilee, which weighed on the second quarters figures, plus the positive effect of the Olympic Games that was hosted by London from July 27 to August 12.

U.K. PMI manufacturing showed a widening contraction to 47.5 in October from a revised of 48.1 while services is set to show an ease in expansion to 52.0 from a prior of 52.2. On the other hand, CPI for the year ended September decelerated to 2.2%, the slowest in nearly three years, giving more room to policy makers to add to stimulus in the coming period.


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