Euro economy to shrink as spain, italy re-enter recession - Sea Fishing Tripod Manufacturer

Fifty- seven percent of respondents in a BloombergGlobal Poll said at least one country would abandon the euro thisyear. We see slight euro-region growth in the second half of 2012followed by a weak expansion in the following year, saidChristoph Weil, a senior economist at Commerzbank AG in Frankfurt. We can t really call it an upswing, more of a stabilization.Spain remains the problem child; they re facing the biggest issuesapart from Greece. The euro was little changed after the report, trading at $1.2944 at12:43 p.m. in Brussels, up less than 0.1 percent.

Euro-Region Contraction A euro-region contraction this year would be the first since 2009,when the U.S.-led banking crisis exposed the excessive borrowingand imbalances that plunged Europe into its sovereign debttroubles. Euro-region gross debt may average 91.8 percent of GDPthis year, up from 88 percent in 2011, with the shortfall narrowingto 3.2 percent from 4.1 percent, the commission said. Greece mayhave both the biggest budget deficit and the highest debt burdenthis year, it said. In Germany, Europe s largest economy, GDP may rise 0.7 percentthis year and 1.7 percent in 2013, according to the commissionforecasts. In France, where Francois Hollande last weekend defeatedNicolas Sarkozy, becoming the first Socialist to win the presidencyin 17 years, the economy is seen growing 0.5 percent and 1.3percent this year and next, respectively.

High Uncertainty The outlook continues to be surrounded by high uncertainty, thecommission said in the report. The largest downside risk remainsan escalation of the sovereign-debt crisis in the euro area. Aresurgence of financial turmoil due to negative confidence shockswould spill over to the real economy and reinforce negativefeedback loops between fragile banks and weak sovereigns. Euro-region unemployment will probably average 11 percent thisyear, up from 10.2 percent in 2011, with Spain s jobless rate thehighest among members states at 24.4 percent, today s reportshowed. In Greece, unemployment may increase to 19.7 percent from17.7 percent, the commission said.

Economies around the globe are also showing signs of cooling.China s industrial production grew the least since 2009 in April,retail sales rose less than estimated and inflation was belowtarget, reports showed today. Malaysia s central bank kept itsbenchmark interest rate at 3 percent and the U.K. s economyprobably contracted more than previously forecast in the firstquarter after the statistics office reported a deeper slump inconstruction. U.S. Confidence In the U.S., the world s largest economy, confidence amongconsumers probably declined in May, according to a Bloombergsurvey.

The Thomson Reuters/University of Michigan s indicatorwill be released later today. Eighty percent of the 1,253 investors, analysts and traders who areBloomberg customers said they expected more pain for Europe s bondmarkets this year. Respondents to the May 8 survey were alsoincreasingly worried Spain will default and 84 percent forecast theeuro-region economy to worsen. In elections in Greece last weekend, voters flocked to partiesopposed to austerity measures backed by German Chancellor AngelaMerkel, denying the two main parties a combined majority andspurring calls for policies to boost growth.

German FinanceMinister Wolfgang Schaeuble said on May 9 that if Greece decidesnot to stay in the euro zone, we cannot force them. Spanish Measures Greece s slump may ease after the economy contracted 6.9 percentin 2011, the commission said. Portugal s GDP is seen declining fora second straight year, while the Irish economy may expand 0.5percent in 2012. All three countries received external aid over thepast two years. In Spain, which is suffering from the aftershocks of the bursthousing bubble, compounded by fiscal austerity and surgingunemployment, gross debt will average 80.9 percent of GDP in 2012,up from 68.5 percent, holding above the EU s 60 percent limit,with the deficit seen at 6.4 percent, down from 8.5 percent, thecommission said.

Spanish Prime Minister Mariano Rajoy will announce further measurestoday to help cleanse lenders of real estate assets. The countrywill take over Bankia by converting its 4.5 billion euros ($5.8billion) of preferred shares in the group s parent company intoordinary shares, it said two days ago. Financial markets currently appear much more concerned about thelack of growth in Spain and the problems facing the banking systemthan about fiscal indiscipline and rightly so, said Martin vanVliet, an economist at ING Groep NV in Amsterdam. Attention willnow shift to the announcement from the Spanish government latertoday.

To contact the reporter on this story: Simone Meier in Zurich atsmeier@bloomberg.net To contact the editor responsible for this story: Craig Stirling atcstirling1@bloomberg.net.

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