x Abu Dhabi, UAEMonday 24 July 2017

Euro zone in recession as a Greek exit haunts bloc

The spectre of a Greek exit from the euro-zone is gaining solidity as the single-currency bloc's recession horror show rolls on.

The spectre of a Greek exit from the euro zone is gaining solidity as the single-currency bloc's recession horror show rolls on.

GDP in the euro zone slipped 0.1 per cent in the third quarter from the previous three months, when it fell 0.2 per cent, the European Union's statistics office in Luxembourg said yesterday. Government spending declined 0.2 per cent after a 0.1 per cent drop in the second quarter.

Greece will probably exit the euro in the final quarter of next year or in early 2014, said Megan Greene, the director of European economics at Roubini Global Economics, adding that a vote on the 2014 budget may trigger a collapse of the government.

"Greece will continue to go deeper into depression next year and possibly the year after that," Ms Greene said yesterday.

European governments, fighting the sovereign debt crisis that started in 2009, late last month eased the terms on emergency aid for Greece and are counting on a bond buy-back as a market-based way of cutting the country's debt, paving the way for continued aid payouts. Economists question whether that will be enough to keep the country in the single currency.

"The [European Central Bank, EU and IMF] troika will be willing to just throw money at Greece until at least we've had the German elections and Spain and Italy by then will have asked for support from the bailout funds and the ECB," said Ms Greene.

Greece leaving the euro "might be in their best interest", David Watts, an analyst at CreditSights, said on Tuesday.

But he warned that could result in more pain for the remaining members. "As far as the euro zone is concerned and as far as presenting a united front to investors, an exit of a country would be a very grievous blow."

Yesterday's EU report showed in Germany, Europe's largest economy, GDP rose 0.2 per cent in the third quarter, down from 0.3 per cent in the previous three months. France's economy expanded 0.2 per cent, while Italy's GDP fell 0.2 per cent.

In Spain, which locked in a bank bailout earlier this year, GDP declined 0.3 per cent. The economies of Cyprus, Austria, Portugal and the Netherlands also contracted.

Euro-zone finance ministers meet on Thursday to decide on releasing Greece's next aid payment.

Spain has hesitated to request a full bailout.

Meanwhile, Britain was boosted by some better than hoped for results yesterday, as new car registrations rose by 11.3 per cent on the year last month, said the Society of Motor Manufacturers and Traders (SMMT).

There were 149,191 new registrations last month, taking the total for the year so far to 1,921,052 cars, a rise of 5.4 per cent, the trade group said.

That makes Britain the second-largest new car market in Europe, ahead of France and after Germany, the SMMT said.

"The upward trend has been driven by private retail customers," said Paul Everitt, the SMMT chief executive.

"The outlook for 2013 remains challenging," he added.

Demand for small cars, such as the Mini and Supermini, also showed above average growth during the January to last month period.

UK house prices also rose more strongly than expected last month although they are still lower than a year ago and likely to remain broadly unchanged next year, the mortgage lender Halifax said yesterday.

Halifax said prices rose 1 per cent, faster than the 0.2 per cent increase expected by economists polled by Reuters and after a smaller than previously reported 0.1 per cent decline in October.

Martin Ellis, a Halifax economist, said a new Bank of England scheme to boost lending appeared to be helping the national housing market.

"There are signs that the funding for lending scheme [FLS] is helping to reduce mortgage rates and may be contributing to the recent pick-up in mortgage approvals," he said.

"The FLS should help to ease credit constraints, resulting in some improvement in mortgage availability in 2013."

* compiled from Bloomberg News and Reuters