2013 will be quite difficult for the Eurozone

On February 14 the Statistical Office of the European Union (Eurostat) has informed that the GDP of 17 countries in the Eurozone in Q4 2012, according to the first estimate, fell down by 0.6% as compared with the preceding quarter and by 0.9% in the relevant period of 2011.

Most analysts surveyed by Bloomberg, expected a downfall at the level of 0.4%. On the other hand, according to statistics of individual EU member states, it was clear that the results will be negative. One can identify a number of factors, which eventually led to the decline of GDP in the EU member states.

Firstly, there was an effect of high base, which has replaced the economic recovery observed in Q4 2011.


Secondly, an expressed crisis situation is noted in southern Europe. Unemployment in some countries has exceeded 20%, while in the Eurozone in general - 11%. All this indicates that the demand for labor is not available because the production is not growing.

Additional pressure is provided by strong Euro. Exporting countries would prefer a cheaper Euro. Now everything is against the Eurozone.

A third indirect reason is that European banks have repaid more money to the Central Bank than it expected. This means that the money was not demanded by the Eurozone economy, what indicates extremely low business activity.


I think 2013 will be quite difficult for the Eurozone. ECB expects a revival of activity only in H2 of this year. Maybe it will happen, but with the current Euro rate against other world currencies it will be very difficult. Expensive Euro poses a direct threat on exports from Eurozone, as well as revenue of southern European countries from holiday seasons.

The outstanding issue is participation in the ECB "currency war". However, we can recall the example of Japan, the Central Bank which with a political support has managed to weaken the yen, having significantly revived the economy. Basically, the European Union faces a similar problem. But the question is, whether the ECB is committed to such scenario.


A.L. Vedev, Director of the Center for Structural Research