Industrial Production To Show Improvement Amid Debt Concerns In The Euro Zone

Today is another tranquil day in the euro zone and U.K. due to lack of fundamentals to continue the calmness that prevailed throughout this week. The major sentiment in the euro area is threatening with the slowdown in recovery and the inclining debt woes spilling over across countries.

On the European calendar today, industrial production for January is due with expectations to show improvement to 0.7% from -1.7% in December, while on the year, the reading is predicted to soar to -1.6% from -5.0%.

The industrial sector is estimated to ameliorate in January as a result of the euro's depreciation which slipped more than 5% versus the green currency this year, reversing the gains generated last year, boosted by the debt woes in Greece. Still, the 16-nation currency may face more downward pressure as long as Greece is not bailed out which actually may give a boost to growth in the first quarter.

PMI manufacturing for the month of January rose to 52.4 from 51.6 in December. However, by looking to other data, German exports slumped in January to -6.3% from 3.4% despite the euro's drop against the dollar which mirrors the weakness in demand. The data released recently from the euro zone is volatile and does not provide a clear picture about the future of recovery.

In the fourth quarter, the economy grew only 0.1%, slowing down after the 0.4% expansion recorded in the third quarter. The rebound from recession is very week and we might see the euro zone in a recession again in the first quarter of 2010. 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.

Still, the debt woes are the main concern these days in the euro area and probably will not end until the EU decides to help Greece. However, providing help for Greece may open the door for other economies that are suffering from high debt like Portugal and Spain to ask for help.

The EU treatment to the Greek debt crisis is controversial as the EU does not want to help Greece and at the same time does not welcome any outside help like from the International Monetary Fund. The EU wants each country to solve its own problems internally and Trichet said the suggestion of Greece to leave the EU is "absurd."

The Greek economy outlined a three-year plan to reduce its deficit from 12.7% of GDP to 8.7% by 2012 and pledged to raise 4.8 billion euros through increasing taxes and in addition to reducing public workers’ bonus payments received at holidays.

Nevertheless, these measures are capable of neither solving the problem nor stopping speculations against the euro. Sarkozy said this month that the EU may help Greece in May if needed according to the measures and rules set by the European block.

Thus, European economies in the coming period have to both boost their growth and enhance recovery while cutting spending to narrow the swelling deficit, which put the ECB in a difficult situation.

Ecpulse

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