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28 Nov 08: Euro Area - Economy
A testing time – deepening recession now, strong policy response helps recovery in 2009
With GDP down by 0.2% for a second consecutive quarter, the euro area entered recession, according to the conventional definition, in 3Q08.
Downward momentum has persisted into 4Q08, with Germany posting the sharpest decline among the big euro area economies.
But the sharpest decline may be reached at the beginning of 2Q09, for 2009 as a whole we expect GDP to be almost 1% below the level of 2008.
The build up of monetary and fiscal stimulus is likely to help a recovery late 2009/2010 allowing growth to return to potential at the end of this period.
Asset conclusions: further upside to euro area bonds due to falling inflation, ECB policy, structural change. European stock likely to outperform other stock markets in the downtrend.