Euro Zone's 4Q GDP Unrevised

Today euro zone released its GDP preliminary reading for the fourth quarter coming in unrevised at 0.1%. European expansion is slowing down after the 0.4% growth recorded in the third quarter.

Annual GDP showed that the economy's contraction remained steady at 2.1%. The EU block started the year with 2.5% contraction and ends it with a weak rebound of 0.1% which raises concerns that the economy will need much time to fully recover from the economic recession that hit the world in 2008.

Europe's service and manufacturing industries showed expansion for a seventh consecutive month in February. PMI manufacturing rose to 54.2, the highest in 30 months, from 52.4 in January, while services fell to 51.8 from 52.5. Meanwhile, recovery is loosing momentum, while it is depending largely on the euro's depreciation against the dollar.

The 16-nation currency slipped more than 6% against the dollar since December, reaching its lowest in 9 months versus the greenback pushed sown by the casting doubts aroused from Greece's massive budget deficit. Skeptics that Greece and other European economies' debt, especially Spain and Portugal, will impact recovery reduced the appeal of the euro and encouraged investors to resort to refuges as yen and dollar.

Looking into quarterly details, gross fixed capital inched up to -0.8% from the revised -0.9%; government spending slid to -0.1% from the revised to 0.8%; household consumption surged to 0.0% from -0.2% previous; and Exports advanced 1.7% and imports soared 0.9%.

It is clear from the details the decline in government spending is the main reason behind the retreating growth figures. On the upside exports balanced the reading after its rise that was triggered by the euro's drop.

Moreover, Germany, the largest economy in the euro region, which was responsible for pulling the economy out of recession in the third quarter, is showing a deterioration after its growth retreated to 0.0% in the fourth quarter from 0.7% and 0.4% expansion in the third and second quarters respectively. In France, the second largest economy in the euro area, economic expansion accelerated to 0.6% from 0.2% which balanced growth figure in the euro zone.

The European Commission said the euro-zone recovery may not strengthen till the fourth quarter of the current year and maintained its projection for 0.7% expansion in 2010, while in January's bulletin ECB expects the euro area to expand 0.8% in 2010 and 1.2% in 2011.

ECB Bulletin for February revealed that the economy will expand at a moderate pace in 2010 and recovery will be "uneven" as factors supporting the economy as activities will be affected by balance sheet adjustment.

Policy makers at the ECB left the interest rate unchanged in February and is expected to keep it at its low level of 1.00% in today's meeting where members will set the rate and Trichet will announce the end of the 6-month tender and may restrict the money accessible to banks on the one-month and three-month basis by reintroducing bidding.

However, some expects to see a sluggish unwinding to stimulus with the ongoing concerns sparking in Greece. The Greek government announced the previous day cutting deficit by 4.8 billion euros through increasing taxes on tobacco, alcohol, and sales in addition to reducing public workers' bonus payments received at holidays by 30%, but such measures did not persuade Germany to give financial aid to it.

Merkel said that her meeting with Papandreou tomorrow will discuss any financial commitments to Greece, while the German finance minister ensured that measures adopted by Greece are capable of emboldening investors to buy Greek debt.

Ecpulse

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