The euro areas economic prospects are deteriorating as national governments cut spending in a bid to narrow deficits and tackle the debt crisis. Economic and Monetary Affairs Commissioner Olli Rehn signaled on Monday that the EU may reduce its 2011 growth forecast from 1.6% on concerns that financial turbulence could spill into the broader economy.
The risk of recession in the euro area has clearly increased as demand from Asia is flagging and governments efforts to cut fiscal deficits are curbing domestic consumption, said Daniel Hartmann, an economist at Zug, Switzerland-based Bantleon Bank and the most accurate European forecaster in a Bloomberg News ranking. I expect the indicator to decline further in the coming months.
A gauge of sentiment among European manufacturers dropped to minus 2.9 from 0.9 in the previous month, Tuesdays report showed. An indicator of services confidence fell to 3.7 from 7.9, while a measure of consumer confidence declined to minus 16.5 from minus 11.2.
European leaders have struggled to contain a debt crisis that originated in Greece and has forced Ireland and Portugal to seek bailouts as well. The ECB began buying Spanish and Italian government bonds on August 8 to stop the debt crisis from spreading to the euro-regions third- and fourth- biggest economies. The purchases brought the countries 10-year bond yields down to about 5% from euro-era records, even as EU leaders disagreed over how to contain the crisis.