Euro zone to exit recession, but weak growth lies ahead

LONDON Tue Aug 13, 2013 4:33pm BST

A view shows the locked grate of a food store that has gone out of business in Madrid March 27, 2013. EUTERS/Susana Vera

Credit: Reuters

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LONDON (Reuters) - The euro zone has probably escaped from its lengthy recession, although there is little prospect the economy will start growing again at a healthy rate before 2015, according to a Reuters poll of 30 economists.

Respondents were almost unanimous that data on Wednesday will show the euro zone economy stopped contracting from April through June for the first time since the end of 2011. The consensus showing modest growth of 0.2 percent on the quarter.

The survey was mostly conducted before industrial production figures published Tuesday showed a 0.7 percent rise on the month in June, growing again after a slight drop in May and reinforcing expectations the euro zone economy is stabilising.

Still, few expect any kind of significant upturn from here.

The median outlook suggested euro zone gross domestic product (GDP) growth is unlikely to exceed 0.4 percent in any quarter from now until 2015.

As before, survey data suggest Germany is leading the way, with the ZEW economic sentiment index for August exceeding expectations.

"Fiscal policy is becoming less of a constraint, and that's a plus, and monetary policy (is) steadily becoming more aggressive, which is appropriate and that helps," said Mark Zandi, chief economist of Moody's Analytics, on the prospects for the euro zone.

Only one forecaster predicted any quarter of contraction between now and the end of 2014.

The poll also showed inflation looks set to stay comfortably below the European Central Bank's target ceiling of at or close to 2 percent until at least the end of next year.

That will allow the ECB to hold its main refinancing rate at a record low 0.5 percent until 2015 at the earliest.

Economists who answered an extra question cited political instability as the biggest risk to a potential economic recovery, followed by a failure to fix the banking system.

While southern European countries have been subject to a lot of political turmoil over the last few months, the German federal elections in September could be another source of instability.

Chancellor Angela Merkel is favoured to win a third term in the parliamentary election but could fall short of the votes she needs to retain power with her preferred partner, the business-friendly Free Democrats.

(Reporting by Andy Bruce, polling by Swati Chaturvedi and Ashrith Doddi Editing by Jeremy Gaunt.)

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