The Euro is deemed to weaken alongside the US dollar today as the Euro Zone economy contracted in the fourth quarter at their fastest pace since the depth of the financial crisis as most countries fell short of estimates, raising concerns of a deeper recession. Analysts say that the larger than expected drop in output suggests that the Europe’s economic and financial crisis is far from over.
Eurostat reported yesterday that the economy of the 17-nation bloc shrank by 0.6 percent in the fourth quarter, worse than the estimated 0.4 percent decline. The figure is the sharpest contraction since the beginning of 2009 and marks the first time the region failed to grow in any quarter within a year. For 2012, the bloc as a whole fell 0.5 percent. Spanish GDP fell at a 2.8 percent annualized rate. Portugal and Greece also suffered deeper contraction. Meanwhile, Italy’s drop of 3.7 percent last quarter at an annualized pace added to fears that the country’s depressed economy could lead to further political instability. Nevertheless, the performance of the region’s major economies particularly worried the markets. Germany saw its output contract by 0.6 percent on declining exports and investment, larger than the 0.5 percent expected drop. French GDP, meanwhile, fell at a 0.3 percent annual rate.
The bleak economic figures call into question the timing of a recovery that was tipped to begin later this year. European Central Bank President Mario Draghi painted a positive picture of the Euro Zone, saying that positive contagion is already working its way through the economy. The region’s deepening downturn challenges European authorities’ insistence that fiscal austerity will lead to growth by boosting business confidence. While such optimism is still not completely erased, hopes for an economic revival this year could prove fleeting. Analysts deem that with the grim figures, any return to growth over the course of 2013 will likely only be minimal. With the figures calling into question the regional economy’s road to recovery, a short position is then advised for the EUR/USD to conclude the trading week.
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