Sound bites: -0.6% Q4 Eurozone GDP dip presages triple trip recession

There is so much food for thought for the ECB in the latest Eurozone GDP drop. It presages a further escalation in the Eurozone crisis and must concentrate the ECB’s minds for another early cut in interest rates and more monetary stimulus coming down the slipway in the coming months. The ECB needs to move fast to stop the current downturn turning into a deeper economic rout. As it stands, double dip recession in the last five years risks slipping into a triple trip recession.

We are already half way there judging by the fourth quarter drop in output. Prospects for the first quarter look grim. Recent economic data and confidence surveys reveal a picture of continuing gloom. There is no chance of an early return to positive growth and the likelihood stands that the Eurozone will flat-line at best, or slip deeper into recession for the whole of 2013 in the worst case. The political backdrop looks grim. EU fiscal austerity looks set to extend for years. The markets are not out of the grip of Eurozone contagion tail risks. Consumer demand is being squeezed hard. Businesses are not in the mood to invest. And the global slowdown is putting a brake on Eurozone export prospects.

Pressure is mounting on the ECB to pull more stimulus out of the bag very soon. The odds of a rate cut are slender this week, but we will probably hear more from Draghi about the possibility of further liquidity measures coming on stream in the future. The ECB will need to join the Fed, the BOJ and the BOE on the Big Easy route to monetary expansion and economic reflation. It is all about co-ordinated teamwork now. The ECB should not delay too long on rate cuts and a quarter point ease should come on line in the next couple of months. In the coming months a move closer to zero interest rate policy should not be ruled out. The Eurozone crisis is snowballing and requires exceptional policy response. The Bundesbank will need to bite their lips.

Highlights 

• Economy shrinks 0.6 percent in Q4, quarter-on-quarter
• Economy contracts 0.9 percent year-on-year