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FTSE under pressure as eurozone slumps back into recession

by Sarah Miloudi on Nov 15, 2012 at 10:23

FTSE under pressure as eurozone slumps back into recession

Despite France and Germany growing in the third quarter the eurozone is now in its second recession since the financial crisis began.

National growth data for quarter three showed that even though France and Germany's economies expanded by 0.2%, the single currency bloc could not skirt a fully blown slump.

The eurozone contracted by 0.1% in the last three months, following its 0.2% contraction in quarter two.

Even before the official data was unveiled economists warned the eurozone could not escape the gloom, with Capital Economics' weighted average of the available data predicting the 0.1% contraction.

Although the expansions in France and Germany came as a positive surprise, these were not enough to ease the overall squeeze on Europe, sending the FTSE 100 down as traders digested the data.

At shortly after 10am the index was down 0.39% at 5,699.

Figures for the individual eurozone constituents are still coming through, though initial data suggest that while consumer spending edged up overall in the eurozone in the third quarter, investment was very weak.

Howard Archer, of IHS Global Insight, said that if it had not been for net trade holding up well, the contraction would have been deeper.

Looking forward, chief European economist Archer said the prospects for the single currency zone in the fourth quarter look bleak, spelling a likely cut in eurozone interest rates.

'With the eurozone seemingly headed for further GDP contraction in the fourth quarter after moving officially into recession in the third quarter, and with the underlying inflation situation in the single currency area looking far from alarming, we believe the ECB will take interest rates down from 0.75% to 0.50% sooner rather than later,' he said.

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