A harsh economic week has passed, beginning with uncertainty covering the U.S fiscal cliff, the delayed Greek tranche, recession in the euro area and dire outlook in the United Kingdom.
Greece remains center stage, finance minister failed to assert whether the debt-strangled country will be able to receive the second tranche anytime soon. Eurogroup chief Jean-Claude Junker said they will grant Greece a two year extension to reduce public dept to 120% GDP till 2022 while the IMF insisted on the original deadline in 2020. The ongoing debacle over Greece’s unsustainable debt load left Greece’s second bailout tranche postponed causing more frustration for both investors and the public.
November 26 could be the day when European ministers will approve the second installment. However the Eurogroup is set to try to reach an agreement in this week’s November 20 meeting ahead of the EU Summit later in the week.
On the data front, the start was from the United Kingdom; UKs’ inflation report was another hit! The BoE downgraded its outlook for UK economy’s’ growth, and the bank expected growth to remain weak in the coming period taking into consideration the surrounding global uncertainty and the austerity policies applied by government.
As for inflation, it’s expected to remain elevated over the short-term before gradually returning to target over policy horizon. BoE also said that the debt crisis, government’s austerity measures, and the rise in energy cost are lingering pressures on growth and inflation.
Euro zone’s Preliminary GDP reports confirmed that the Euro zone entered a technical recession where GDP contracted by 0.1% during the third quarter following 0.2% contraction in the second quarter.
The euro zone entered recession even after France, Germany and Italy GDP beat expectations, France and Germany’s preliminary readings confirmed a further slowdown in growth. On the other hand, growth data for Italy and Spain showed that both economies remained in recession during its third quarter.
The eyes are now on the European finance ministers to provide the needed financial support for Greece, as further delays could risk pushing the country a step closer to the abyss and outright disorderly default.
ECB is under great stress, whether from Germany’s refusal to the announced OMT or to the rapid deterioration in growth which might force the ECB to act again with further support, whether cut rates to new historic lows or announce yet another round of cheap loans to ease market tension!
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