The European Central Bank has yet again cut its growth forecast for the Eurozone in 2013. Only three months ago the ECB told us growth would measure at least be a 0.5 percent—a meager rate of growth, to be sure, but still growth and not shrinkage. Under the new forecast, however, the Eurozone is expected to shrink for another year, by -0.3 percent. The Wall Street Journal reports:
The euro-zone economy hasn’t posted any growth since the third quarter of 2011. Analysts expect it to contract around 1.5%, at an annualized rate, in the fourth quarter and again in the early months of 2013.
Spanish and Italian GDP have each contracted for five straight quarters. This drains government coffers of tax revenues and puts upward pressure on social spending, suggesting that government-debt burdens will rise even if these countries are able to issue debt for reduced rates.
Meanwhile, the German Bundesbank lowered its forecast for the German economy as well, to a paltry 0.4 percent. The formerly healthy Northern economies continue to suffer from the Euro crisis and the damage is accumulating. Given that most Euro rescue scenarios are predicated on significant financial contributions from Germany and its northern neighbors, this is troubling news.
Mario Draghi’s sovereign central bank may have staved off a catastrophic collapse in the short term, but it appears unable to prevent what’s quickly becoming a lost decade for Europe. And the longer Europe goes without a return to robust economic health, the greater the chance that a full blown crisis and panic could take hold.