The euro fell across the board last week after the release of economic growth figures showing that the Eurozone economy had remained in recession for a record sixth consecutive quarter.
Andy Scott, premier account manager at foreign currency exchange brokers HiFX, said: “As a collective, the economy of the 17 member countries contracted by 0.2% in the first three months of 2013, following a fall of 0.6% at the end of last year. The euro fell to a six-week low against the dollar, below 1.29, and fell by around 0.75% against the pound.
“Most of the individual country figures were worse than expected with France, the euro area’s second-largest economy, back in recession for a second time in the past four years. Italy’s recession continued for a seventh consecutive quarter, contracting by a further 0.5%. Germany narrowly escaped recession with growth of just 0.1%, which was less than expected, with the figures for the end of last year also being revised lower to show a contraction of 0.7%.
“It’s unlikely that these figures will have surprised anyone who pays even just the slightest attention to the news. The Eurozone has some deep and entrenched issues that have come to light over the past few years. Several economies in southern Europe had been growing predominantly thanks to increasing government borrowing and spending. Now that Germany has a hold of the purse strings and global investors have demanded much higher rates of interest to lend money to these countries, the craters are there for everyone to see. The calls to ease the austerity measures that continue to damage confidence and hamper growth prospects will no doubt continue to increase but, publicly at least, Germany remains opposed to dramatically changing deficit reduction targets. There will also likely be additional pressure from politicians on the ECB to do more to try to stimulate the economy, but with interest rates at record lows of 0.5%, they may be limited in increasing demand. Monetary stimulus alone cannot undo the impact of economies that were largely dependent on state borrowing that is no longer available.
“The euro area looks like it could be in for a very tough couple of years with rising unemployment a problem that shows no signs of abating.”