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Lower growth in Europe?

Written by A Forex View From Afar on Wednesday, September 10, 2008

The Euro-area economy that was once looking resilient to the global slowdown, is now preparing for some hard times ahead, according to some analysts.

Continuing with the global slowdown, the ECB, last week, cut the growth outlook for the coming quarters. The growth forecast for the annual real GDP was trimmed down to a range between 1.1% and 1.7% in 2008 and between 0.6% and 1.8% in 2009. Today, the person responsible for the Euro-area Economic and Monetary Affairs, JoaquĆ­n Almunia said the European Union forecast for the following quarters would also be reduced, calling the outlook “unusually uncertain”.

Looking in the past at how wrong the central bank’s forecast has been (and this is not the ECB case alone, most central banks are in this category), the market starts to ask how close is the ECB to a recession? Technically speaking, it is still uncertain who will call the ECB recession, but probably Eurostat will take this role. One way or another, the currency market is in a deep re-valuing process, and until the Euro-area shows some decent signs of economic expansion, the selling will probably continue.

It was only a few months ago that most market pundits said the U.S. would be the only economy affected by the credit crunch, while global development will continue to be helped by emerging economies. Today, global development has suddenly changed into a global slowdown, while the emerging countries are being choked by inflation rather than prospering by strong demand. Just a personal thought; if the problems related to the credit crunch continue for longer than previously anticipated, the economies from the emerging countries will be affected by reverse money flows.

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