Credit crunch clouds uneven European rebound
European economies are shaking off recession but analysts warn the
pace of recovery could vary greatly from country to country, revealing a
North-South divide, and could be undone by a squeeze on credit.
Economists show near unanimity that official stimulus measures,
renewed consumer and business confidence and beefed up production have
combined to halt the worst downturn since the 1930s.
The eurozone’s two leading economies, Germany and France, have
already put recession behind them and, according to analysts at ING Bank
“the coming months are likely to bring more good news” for the bloc as a
whole.
ING says a return to growth of 0.5 percent in the 16-nation eurozone
is possible in the third quarter compared with the second.
While gross domestic product is projected decline 3.8 percent in
2009, it should show an expansion of 1.2 percent in 2010 and 2.1 percent
in 2011.
The rebound in the eurozone is also likely to have a salutary impact
on Russia and central and eastern Europe, where analysts at Capital
Economics see negative growth of 8.0 percent this year transformed into
a 1.0 percent momentum gain in 2010 and 2.0 percent in 2011.
But economists are voicing concern that recovery in Europe will be
far from uniform. “The fast growing economies of the past are likely to
be the laggards of the future, while past laggards need to fully tap
their growth potential,” ING analysts said.
Gilles Moec at Deutsche Bank in a recent note cited a potential
North-South split, pointing to “striking divergences” within the
eurozone.
Whereas France and Germany encountered the downturn from positions of
relative economic health, “the dire state of public finances in Italy
prevented any fiscal support from mitigating the recession there while
Spain has to cope with overindebtedness in both the household and
corporate sectors.”
Industrial output, a key component of economic well-being, improved
in both France and Germany in July while declining in Spain and Italy,
he said. ING economists say the real test for eurozone will come next
year, when government support measures are withdrawn.
“The economy still needs to prove that it can swim without armbands,”
they wrote recently.
Among their principal worries is the availability of credit —
critical to sustaining momentum — in Germany and France.
Loans to the German corporate sector have been on the decline since
the start of the year at a time when demand for such credit has been
rising, according to ING.
“This makes a real text book credit crunch a realistic threat for the
German economy,” ING analysts said. Credit conditions are also
tightening in France, where new loans from the banking system to the
private sector fell by 20 percent in July compared with the same month
last year and where managers are reporting difficulties in meeting the
financing needs of their companies, ING analysts found.
A credit crunch looms over the emerging market economies of eastern
Europe as well.
“Aggressive cuts in official interest rates over the past year have
yet to have much impact on borrowing costs in the real economy,”
according to analysts at Capital Economics.
They said that interest rates on consumer loans in every country of
eastern Europe are higher than they were a year ago.
The problem, they added, is that emerging market lenders — still
saddled with risky, “non-performing” loans — are generally hesitant to
approve fresh credit.
For Russia, another potential constraint to recovery is the prospect
of falling oil prices next year when a recent surge in stock-building
comes to an end, Capital Economics analysts said. “Any shock to oil
prices is likely to lead to a sharp sell-off in the ruble.
AFP |