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Saturday, August 25, 2012

Eurozone eyes second recession in two years


For those who are eager to see how austerity plays out, pay attention. Cutting spending and services will not help an economy grow as we're seeing in the UK and Europe. What will hurt the most in Europe is the slipping economy in Germany.
The euro zone now looks destined for its second recession in three years, according to business surveys that showed the economic rot is even spreading through Germany, the region's largest and strongest economy.

The 17-nation bloc's economy will contract 0.5-0.6 percent in the current quarter as orders for new business decline again, Markit's Purchasing Mangers' Index (PMI) suggested — far worse than the consensus in the latest Reuters poll.

A debt crisis which began in the euro zone's smaller economies is now hammering business and consumer confidence across the bloc, putting pressure on policymakers to take radical steps to help vulnerable countries such as Spain and Italy.
After spending the last four weeks in Southern France, my circumstantial evidence also pointed towards recession. Besides those from Northern France, people from Northern Europe love spending summer vacation in France but business owners were all concerned with lower numbers this year. More Americans are traveling (thanks to better exchange rates and stronger economy) but those numbers will always be small compared to home grown tourists.

Even upon my return to Paris, the usual empty streets of August were suddenly full. Europeans see the slowing economy and are putting the breaks on spending. It's possible that EU governments have learned a few lessons from the failed austerity programs, but not likely. With a fragmented political system in the EU, it won't be easy to climb back out of recession any time soon.

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