(menafn – ecpulse)
Euro zone data released today showed that euro area growth stalled in the first quarter, amid the undergoing political uncertainty and fiscal woes. The GDP advanced reading for the first quarter showed a flat reading, following the 0.2% drop in the last quarter of 2011. On the year, the reading also came flat compared to the prior 0.3% drop.
In fact, the reading beat expectations of seeing 0.3% contraction on the quarterly basis, probably boosted by the better-than-expected advance in the German reading which recorded 0.5% expansion.
In France, the growth path stalled in the first quarter from a revised of 0.1% which was 0.2% initially.
Although there is improvement in the regions largest economy, yet it seems that Germany is moving solely as other euro area nations are suffering to achieve growth amid the austerity vows by the government.
Additionally, the latest manufacturing and services data add to worries that euro area may be heading to a severe recession.
Euro area PMI services showed widening contraction to 46.9 in April from 49.2 in March while the manufacturing sector had also showed a widening contraction of 45.9 in April from 47.7 in March.
In the same vein, unemployment reached 10.9% in March from 10.8% in March, buoyed by the tremendous rise in Spains unemployment to 24.4%, marking the highest level since 18 years, on the back of the sharp austerity adopted by the government to trim budget shortfall to target.
Earlier this month, Draghi urged euro area members to have a “growth compact” as the debt crisis worsens, where he said uncertainty remains “very, very high.”
The European Commission in its spring forecasts released last week said it expects the euro area to record 0.3% contraction this year while rebounding to 1.0% growth in 2013.
Moreover, the euro area is still facing political risks after the win of Hollande in the French Presidential elections, taking in mind his anti-austerity intensions.
In Greece, the current political impasse is probably driving the debt-mired nation into new elections by mid-June. Today, the Greek President will invite leaders of the parties in a final attempt to create a coalition government; however, it appears to be a useless attempt as the leader of Syriza Party Alexis Tsipras rejected the invitation leaving markets with more reasons to decline.
On the other hand, the fiscal concerns in Italy and Spain are pushing up their borrowing costs as seen at yesterdays auctions.
Spain is adopting a strong reform to its ailing banking sector, where the government announced last week its take over to Bankia, Spains fourth biggest lender.
Moodys Investors Service, on the flip side, said it downgraded 26 Italian banks, including UniCredit and Intesa Sanpaolo. The rating agency revealed that “Italian banks are particularly vulnerable to adverse operating conditions, which are likely to cause further asset quality deterioration, earnings pressure, and restricted market funding access,” adding that “the Italian government’s austerity measures and structural reforms are weighing on the country’s near-term economic outlook.”
In the FX market, the euro surrendered some of the gains versus the dollar after the euro area GDP report; the pair is hovering around 1.2842 after touching a high of 1.2869.
