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Poll: Weakness to plague eurozone
Tuesday, 15th May 2012 04.42pm

The euro zone economy might return to weak growth in the second half of the year but unemployment looks certain to rise past its current 15-year high, according to a Reuters poll of 70 economists.

The survey was conducted before today's news that the euro area narrowly escaped recession by stagnating in the first quarter instead of shrinking, kept afloat only by strong growth in Germany.

But all of the 34 economists who answered an extra question thought the euro zone unemployment rate will head higher, and there are few signs the economy will recover much in the quarters ahead.

Economists had suspected the economy shrank 0.2 percent in the first quarter, but Tuesday's data showed it flatlined.

"Even if the euro zone as a whole narrowly escaped technical recession in Q1, there is no sign of a strong, sustained economic bounce-back on the horizon," said ING economist Martin Van Vliet.

The euro zone economy will shrink around 0.4 percent this year, the poll showed - a far cry from the 2.3 percent growth expected for the United States, which faces its own problems in creating enough jobs.

The poll showed very weak euro zone growth of 0.1 percent returning in the third quarter, and 0.2 percent in the fourth - little changed from last month's survey. But things look gloomier for the current quarter.

"In fact, lead indicators suggest that euro zone growth could fall back into negative territory in Q2," said Van Vliet. Euro zone companies floundered far more than expected last month, according to business surveys that showed a very poor start to the second quarter. Purchasing managers indexes, which have a good record of tracking economic growth, suggested even German companies are starting to struggle. And while Germany surged ahead with growth of 0.5 percent in the first quarter - far more than any economist polled by Reuters expected - the outlook for the currency union's periphery looks increasingly miserable. Italy's economy slid further into recession in the first three months of the year, declining 0.8 percent quarter-on-quarter. These debt-laden countries - which include Spain, Italy, Greece and Portugal - will probably endure years of economic pain, marked by lengthening dole queues. The euro zone unemployment rate hit 10.9 percent in March, equalling a record high of 15 years ago, and the poll showed it peaking at 11.4 percent towards the end of this year, or the start of next year. That would leave more than 25 million euro area citizens out of a job. Workers in Spain and Greece are suffering the most - each country has more than a fifth of its labour force currently unemployed. Most economists based their forecasts on the assumption there will be no significant worsening of the euro zone's sovereign debt crisis, with Greece lurching dangerously over the euro zone's exit's door. If it falls through, chaos would likely filter through financial markets. "I think the economics are pretty compelling that it's not good for anyone for them to leave - not for the Greeks, not for the European Union, not for the rest of the global economy, at least not at this point," said Mark Zandi, chief economist at Moody's Analytics. "The economics say no, therefore I think that's the most logical, likely scenario, but the politics could trump the economics." Greece's president will ask politicians on Tuesday to stand aside and let a government of technocrats steer the nation away from bankruptcy, but leftists have already rejected the proposal and look set to force a new election they reckon they can win. (C ) Reuters

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