June 23, 2005

...AND LOWER...:

Eurozone's growth 'is grinding to a halt' (Ambrose Evans-Pritchard, 24/06/2005, Daily Telegraph)

The eurozone is sliding towards a Japanese-style "liquidity trap" and may have trouble holding monetary union together unless the EU authorities take prompt action, according to a report yesterday by HSBC.

The bank warned that eurozone GDP growth was likely to "grind to a halt" as exports weaken in the second half. "The dangers of a liquidity trap are rising in the region," it said.

"Germany is perilously close to deflation. We believe it is only a question of time before there are generalised price falls in the country. This will in turn raise more questions about the rules governing EMU and the sustainability of the single currency itself."

The bank said the Netherlands and Italy were also in danger.

Italy was in "dire straits" after a "collapse" in productivity and negative growth for five out of the past nine quarters. "Italy has completely failed to adapt to the rigours of the fixed exchange rate," it said

HSBC forecast 1.1pc eurozone growth in 2005, but warned that the bloc may tip into recession as the global trade cycle turns down.

So when you have fewer people and more goods available cheaper you get falling prices? Who'da thunk it...

Posted by Orrin Judd at June 23, 2005 9:30 PM
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