Like a person who drops their toast only to find its landed butter side up, the Eurozone has experienced a bad news/good news kind of morning.
Earlier today a report compiled by the National Statistics institute in Madrid revealed that Spanish GDP declined 0.7 per cent in the fourth quarter of 2012, compared with a 0.3 per cent decline in the third.
Last week the Bank of Spain forecast contraction of 0.6 per cent, but clearly the government’s stalwart attempts to contain the second largest budget deficit in the Eurozone have come at a cost.
From a year earlier the nation’s 4Q GDP was down 1.8 percent.
This latest result comes after data showing Spanish unemployment hitting a shocking record high of 26 per cent and some economists are forecasting that the hard times are far from over.
One industry expert commented: ‘Risks on this number are clearly on the downside. The recent behaviour of indicators would suggest a stronger impact than anticipated of tax increases on domestic demand.’
Another stated: ‘The government’s commitment to a very painful multi-year fiscal austerity plan has deflated consumer spending and will continue to do so amid high unemployment, shrinking house equity and still excessive debt levels.’
However, not long after this disappointing data release a far more optimistic one followed.
In January economic confidence in the Eurozone rose by more than expected.
Economists expected the index of executive and consumer sentiment to rise from 87.8 last month to 88.2 this month, but the figure actually climbed to 89.2.
The figures also showed that service confidence rode from minus 9.8 to minus 8.8 while sentiment among European manufacturers grew from minus 14.2 to minus 13.9.
Although this good news is an additional sign that the Eurozone is fighting back against recession, as a senior economist with Capital Economics asserted: ‘The improvement in financial markets is starting to show some effect on business confidence. But it is a very slow process and it is too soon to suggest we are seeing a real recovery in the Eurozone.’
The Eurozone is still expected to have contracted in the last three months of 2012 and has been forecast to stagnate through the first quarter of this year.
Prehaps Steffen Kampeter, the German deputy Prime Minister, said it best when he told the BBC: ‘The fire is under control. But we have to take care it will not start again’.
After today’s news the Euro extended gains against its American currency rival, pushing considerably above 1.35 US Dollars, and also strengthened to 0.8600 pence against the British Pound.
As of 11:10 am
The Pound to Euro exchange rate is currently trading at 1.1624
The Pound to US Dollar exchange rate is currently trading at 1.5764
The Pound to Australian Dollar exchange rate is currently trading at 1.5102
The Euro to US Dollar exchange rate is currently trading at 1.3557
The Euro to Pound exchange rate is currently trading at 0.8600