Implications of the Worsening Eurozone Recession

ECB Cuts Economic Forecast –

ECB cuts eurozone growth forecasts –

Euro zone set for recovery in second-half of 2013: Draghi | Reuters.

During the last four quarters, the eurozone has either failed to grow or contracted, and the news is just getting worse.  Today, the ECB announced that it has cut its forecast for growth in the Eurozone from 0.5% to a 0.3% contraction in 2013.

The Wall Street Journal article from which I sourced these statistics claims that these forecasts are only three months old. They are and they aren’t. While first made in September, they have been repeated ad nauseam since then in an effort to jawbone markets. Just one week ago, Draghi was forecasting a return to growth in the second half of 2013, not a “gradual return to growth.”

There are implications of the deepening Eurozone recession that are being ignored by the mainstream media. In the PIIGS, the baseline economic forecasts used to mollify investors about their fiscal conditions need to be changed.

In each of the periphery countries and across the entire Eurozone, slackening demand will lead to small tax revenues and higher social spending on items such as unemployment payments. Portugal, Spain and Greece will endure widening budget gaps as a consequence. Greece may even need a 4th bailout prior to German elections.

I bet 2013 deficit forecasts are not revised until the Spring of 2013 in any of these countries despite the fact that the more timely information is available now to make adjustments.

Furthermore, since the onset of the eurocrisis, economic and fiscal projections have proven to be much nicer than the biting truth of reality. These projections will be no different. Europe’s recession will be both longer and deeper than predicted with adverse consequences to the Eurozone’s crisis fighting efforts.




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