City experts have warned that the crisis in Southern Europe is creeping north after the eurozone fell back into recession. Euro area GDP fell by 0.1% in the third quarter of 2012, as austerity and the weakening global economy hit demand
Paul de Grauwe, London School of Economics
We are now getting into a double-dip recession which is entirely self-made. It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else. Countries in the south have to reduce their deficits, but they cannot if those in the north with a surplus are not willing to help with stimulus. This divide, even hostility, between countries is stronger than I have seen in the last 20 years. The degree of austerity has now put so many people in terrible conditions that they reject all of this. That's a very dangerous situation.
Martin Van Vliet, ING
What you notice is that the recession in southern Europe is slowly creeping to other countries. If you look at the indicators for the fourth quarter you see that even Germany many not grow again and that shows that the economy has an enormous need for a new impulse. If the global economy grows faster again, there are rays of light in China, if the US sails past the fiscal cliff, Germany could pick up again but the question is whether that would be enough to counteract the contraction in other parts of the eurozone.
Steen Jakobsen, Saxobank
This was totally expected because of austerity policies combined with world growth slowing down and a dramatic fall in activity in Germany and the Netherlands. Social tensions are rising, as we saw [on Wednesday], because the first casualty is the real economy. The balance now will have to be to continue to implement reforms and also reducing the burden of austerity through debt relief, which is a very difficult balance.
Chris Williamson, Markit
The data were better than expected, with analysts having anticipated a 0.2% decline. However, worse is probably yet to come, with a stronger downturn likely to be seen in the fourth quarter as output looks set to fall in Germany and France after showing surprising resilience in the region's two largest economies third quarter.
These numbers are unlikely to lead to any change of course at the European Central Bank. President Draghi has clearly stated that the ECB are aware that the economy is weak and will remain weak for some time, and that policy is suitable accommodative, so the dip back into recession is highly unlikely to prompt further policy easing.
Holger Schmieding, Berenberg bank
As the eurozone recession will likely get worse before it can get better, many countries may miss their next fiscal targets for 2012 and 2013. The challenge for eurozone policy makers will be to accept such fiscal shortfalls and not prolong the recession by imposing extra austerity on countries that fail to meet their fiscal targets for cyclical reasons.
Howard Archer, IHS Global Insight
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 that the ECB will take interest rates down from 0.75% to 0.50% sooner rather than later. Indeed, an interest rate cut in December is very possible.
Victoria Clarke, Investec
No-one's been kidding themselves that the euro area economy isn't very, very weak. The PMIs have been consistently poor for some time now, and there's no real evidence there of any pick-up in momentum for the quarters ahead.