Weakening Germany & France

Expectations continue to decline for core eurozone countries, while the Federal Reserve does everything it can to boost the US economy

Dave Sekera, CFA 18 December, 2012 | 10:06AM

Eurozone Recession Spreads to Core Countries from Peripheral

The European Central Bank (ECB) recently lowered its economic forecast for the eurozone's 2013 gross domestic product (GDP) to a 0.3% contraction compared with the 0.5% growth estimate it forecast in September. The decrease was largely due to recent weakening in Germany and France, which together account for about half of the eurozone GDP.

Germany, which has long been the pillar of strength, recently lowered its 2012 GDP growth forecast to 0.7% from 1.0%, as GDP is expected to contract 0.3% in the fourth quarter. The country also lowered its 2013 forecast to 0.4% from its June estimate of 1.6% based on its assessment that GDP may also contract in the first quarter of 2013.

The ECB held its benchmark refinancing rate steady at 0.75% at its December meeting, but as the recession in the eurozone expands, we would not be surprised to see the ECB cut short-term rates.

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About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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