Strategic Briefing | 2.7.2012 | Europe & Recession Risk

What’s next for Europe?
CNN | Feb 6
The European Central Bank has thrown cold water on the sovereign debt crisis by injecting billions of euros into the banking system, but the embers of the crisis are still smoldering. S&P says the eurozone has a 40% chance of entering a severe recession this year, with the economy projected to shrink by as much as 2%. Unless comprehensive reform creates a much tighter fiscal union, uncertainty will continue to cast a dark cloud over Europe’s economic future.
German Manufacturing Orders Rise
The Wall Street Journal | Feb 7
German manufacturing orders rose more than expected in December, driven by a surge in demand from outside the euro zone, in the latest sign that Europe’s largest economy may yet avoid recession despite the euro zone’s debt crisis. New orders rose 1.7% on the month in adjusted terms, after slumping by a downwardly revised 4.9% in November, data from the economics ministry showed Monday…. While German orders data are “very volatile”, the latest figures “seem to suggest that factory activity has not collapsed,” even after German economic growth moderated in the fourth quarter “as demand from abroad was hit by the global slowdown,” said Annalisa Piazza, a strategist at Newedge in London. “If anything, a slight pick-up is expected in the first quarter of 2012,” she said.

Falling Unemployment In Germany
Bloomberg | Feb 6
German unemployment dropped to a two-decade low in January, bolstering economic growth as the sovereign-debt crisis prompted companies from Spain to Greece to cut jobs. Germany’s economic expansion has helped soften a slowdown across the region as companies boost output and hiring. Still, Europe’s largest economy is cooling as slower global growth and weaker demand from debt-stricken euro-area neighbors erode sales. Siemens said last month that meeting targets for this year has become harder and predicted that Europe will slip into recession.
German Industrial Production Unexpectedly Dropped in December
Bloomberg | Feb 7
German industrial output unexpectedly dropped the most in three years in December as Europe’s debt crisis weighed on confidence and the global economic slowdown damped demand…. While the German economy probably shrank 0.25 percent in the final three months of last year, data this year suggest it may avoid recession, which is commonly defined as two consecutive quarterly contractions. Business sentiment jumped to a five-month high in January and factory orders gained 1.7 percent in December, driven by demand from outside the 17-nation euro area. “It appears that factory orders are stabilizing and a turning point may have been reached,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “We are becoming slightly more optimistic on the German business cycle, especially if we get a little more clarity on how the Greek situation is going to evolve.”
Germany, France and EC increase pressure on Greece
The Telegraph | Feb 7
Germany and France have told Greece there will be no €130bn bailout unless it agrees harsh new austerity cuts and reforms, while the European Commission warned the deadline for a deal “has already passed”.
Euro crisis could almost halve China’s growth, IMF says
BBC | Feb 6
A eurozone recession could almost halve Chinese growth this year, according to the International Monetary Fund (IMF). The IMF forecasts China’s economy will grow by 8.2% this year – but warns that a recession in the eurozone could cut this to 4.2%. It said Beijing should get ready to inject billions of dollars into the economy to fend off any downturn.
Second (UK) recession fears grow as small business confidence plummets
The Guardian | Feb 5
The beleaguered state of the UK economy has been underlined by three separate reports revealing that Britain’s one million small and medium-sized businesses were facing their most difficult year since the recession of 2009. Sharp declines in bank lending to smaller firms, and a collapse in confidence across the sector outlined in the reports will add to concerns that the economy is about to enter a second recession in three years, analysts said. The gloomy reports will also put pressure on the Bank of England to pump an extra £50bn into the economy when it meets on Thursday.
Fears of recession return as (UK) retail sales fall
Yorkshire Post | Feb 7
Retail sales fell last month, making it the second-worst January since 1995 and raising fears that Britain is poised to return to recession. According to the latest British Retail Consortium (BRC) data, only January 2010 was worse after food sales slowed sharply following a boost over Christmas.