Economists see Eurozone avoiding recession

Ruth Pitchford, Reuters, London

Economists said on Friday they expect the euro zone to carry on growing into next year, albeit anemically, backing a chorus of senior figures in the bloc who have insisted it is set to avoid recession.

Many economists believe the United States is already in recession and markets had feared the eurozone would inevitably follow suit, starved of U.S. export business and burdened with relatively high real interest rates. But officials have been asserting this week that the 12-nation eurozone would escape the worst of the downturn.

And a Reuters poll of economists showed that most expect the eurozone to avoid a significant economic contraction.

French data on Friday underlined the risks to growth.

An official survey of more than 2,000 companies, carried out in October, showed they planned to cut industrial investment by 4 percent in 2002 in response to the collapse in demand, exacerbated by the Sept.11 attacks on U.S. cities.

But economists expect intensive interest rate cuts in the United States to reinvigorate the U.S. economy before it drags the eurozone behind it into recession.

And further cautious easing by the European Central Bank will also help the eurozone economy to avoid contraction, they say.

"Growth is going to grind to a halt over the next six months, but...we do expect a sharp rebound in activity in the second half of next year as the large amount of monetary and fiscal loosening around the world takes effect," said James Carrick at ABN Amro in London.

"We do see a rebound in the U.S. and that will drag the rest of the global economy along with it," he added.

In the Reuters survey, carried out between Monday and Thursday last week, the mid-range of 31 forecasts showed gross domestic product (GDP) in the euro area would grow at an average 1.5 percent this year and 1.2 percent in 2002.

It was much more pessimistic than the last survey in August, which forecast 2.0 percent for 2001, rising in 2002 to 2.4 percent, the long-term trend growth rate for the eurozone.

But only three of the 24 economists who gave detailed breakdowns in this week's survey expected the eurozone economy to contract for one or more quarters.