Lookback After QE3: ECB Outlook Commits to Recession for 2012 and Likely in 2013
The European Central Bank's outlook was hardly given notice as the world was focused on Ben Bernanke and the FOMC's new round of quantitative easing. The ECB is on the way down the path of its own quantitative easing via bond buying like our own Federal Reserve. It has not been a secret that the euro arae is in a deep recession in select areas (the PIIGS) and that the healthier economies are either in a recession or just barely avoiding a technical recession. What was skimmed over in the news this week was that the ECB's new September outlook confirms what the rest of the world knows: the recession for 2012 is a certainty.
More important is that the recession for the euro area is likely in 2013. Many prior outlooks have hinged on the hope that somehow growth would magically reappear in 2013. The outlook also shows that the risks remain to the downside as well.
The editorial data in the ECB September outlook today (on page 5) shows that the euro area's real gross domestic product contracted by 0.2% in the second quarter of 2012 after zero growth in the first quarter. On the outlook it stated:
Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty. Looking beyond the short term, the Governing Council expects the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.6% and -0.2% for 2012. For 2013 that projection is now between -0.4% and 1.4%. While that comes to 0.5% growth as the mid-point, this is lower than the June forecasts. It also noted, "The risks surrounding the economic outlook for the euro area are assessed to be on the downside."
As far as inflation, the ECB is now projecting, after a rise to 2.6% in August due to higher energy prices, that inflation will be in a range between 2.4% and 2.6% for 2012 and between 1.3% and 2.5% for 2013. Those inflation projections are higher than the June forecast as well.
The good news is that the markets on Friday are all higher on the heels of the Bernanke QE3 via MBS buying. In France, the CAC 40 is up 2.1% against gains of 1.5% on the DAX in Germany and against 1.65% gains in the FTSE 100 in the U.K.
JON C. OGG
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