S&P says Euro Zone in risk of Triple-dip

S&p Says Euro Zone In Risk Of Triple-dip

Market Outlook By Bulls Capital Markets, Posted on November 19, 2014 facebook-icon google-icon linkedn-icon pinterest-icon

The euro zone is in danger of its third recession since 2008, despite recent better-than-expected economic data

The euro area has suffered two recessions in quick succession—one in 2009 and another in 2012-2013—constituting the so-called double-dip recession.

Data on Friday showed the euro zone economy grew by a meagre 0.2 percent in the third quarter —just above the 0.1 percent forecast. Serious concerns about the region's economic health remain, particularly with regards to high unemployment and very low inflation.

Unless the European Central Bank (ECB) initiated sovereign bond purchases, "the risk of recession is very considerable." The ECB has already announced plans to purchases covered bonds and asset-backed securities (ABS), but there are calls for the bank to go further and buy sovereign bonds, in the style of the U.S. Federal Reserve, the Bank of England and the Bank of Japan.

Hopes for so-called full-blown quantitative easing by the ECB were stoked by dovish words from ECB President Mario Draghi. On Monday, he reiterated the bank's commitment to using "additional unconventional instruments if needed," before explaining that these measures might entail the purchase of sovereign bonds.

"We are moving into very dangerous territory, with the ECB's reputation on the line as it takes more and more risks… I hasten to add that this is probably necessary,"

On balance, he said that the euro zone was likely to avoid recession in 2015 and early 2016, boosted by the decline in oil prices, of which Europe is a net importer.

 
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