Euro-zone: Core Countries Continue Sliding

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The recent round of the Greek crisis took over the news during November. The other “star of the crisis, Spain, isn’t doing much better in terms of its economy, but at least the bond yields are falling.

Here is the current state of Europe’s 4 major economies:

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  • Spain: The fourth largest economy is reluctant to take a bailout, as bond yields have fallen. Spain managed to raise all the money it needed for 2012, and with no new bond auctions, yields began falling. However, the situation remains bad: the country expects the fourth quarter to be the worst. The economy’s downwards move became worse due to the rise in VAT in September, and the ongoing tension with Catalonia: pro-independence parties won a majority in parliament, and there appears to be a political deadlock. In addition, the number of unemployed people continues rising. In December, the usual Christmas shopping period, stores will receive another blow after the VAT raise: many end of year bonuses have been cancelled, leaving less money for shopping. The data will only be evident in January, but the deterioration is clear to see.
  • Italy: The euro-zone’s third largest economy continues to squeeze, and unemployment remains high. The Retail PMI for this country is below 40, showing rapid deterioration. In addition, there is political uncertainty in Italy: it is unclear if former PM Silvio Berlusconi will return to the scene, and it is unclear if the socialist party can win the elections. In the meantime, the 5 Star Movement of Beppe Grillo is gaining traction and it already reached the second place in opinion polls. While elections are planned only for the spring, they could certainly be brought forward. The future of current PM Mario Monti is unclear.
  • France: Europe’s second largest economy is seeing the highest unemployment level in 14 years, as the current Hollande administration is losing support quickly. Labor and tax policy came under scrutiny as the president zigzagged about policy. Many market participants have fear for France, which recently saw another credit rating downgrade. In Q3, France saw some growth after two flat quarters, but there is still a danger of a recession.
  • Germany: The euro-zone’s locomotive, Germany also saw drops in retail sales and a warning from Mario Draghi: that this large country might begin feeling the pain, and that it is not immune. Unemployment, while still at low levels, is already on the rise in Germany. Also here, the economy is still growing, but at a slow rate and with unimpressive future prospects, as PMIs show.

All in all, the euro-zone officially entered a recession in Q3, and all indicators point to an even worse situation in Q4. Is it darkest before dawn? Or will it take Europe a long time to recover? The high value of the euro doesn’t help.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.