Cautious optimism as Eurozone shows signs that the worst is over

THE eurozone will continue to drag its heels in 2013, but experts think it should remain on the road to recovery.

Despite the ongoing recession in the single currency bloc, which is expected to continue into the new year, some analysts are being cautiously optimistic for the region’s prospects. The main source of optimism comes from the actions taken by the European Central Bank (ECB) in 2012 – specifically its bond-buying rescue plan unveiled in September.

But a Greek exit from the single-currency area and further deterioration in Spain’s finances remain a threat, while forthcoming elections in Italy and Germany will show whether the current strategy has popular support.

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Peter Zemcik, analyst at Moody’s Analytics, said: “While the euro area is in recession and likely to stagnate through most of 2013, reasons for cautious optimism are emerging.

“Policymakers from the European Union and European Central Bank have committed themselves to keeping the currency union together.”

The eurozone economy is expected to grow around 0.2 per cent in 2013, with unemployment peaking above 12 per cent in the middle of the year.

The ECB cheered investors in September with its bond-buying programme, which is known as the Outright Monetary Transaction and has seen the central bank buying bonds between one and three-year terms which can have no limits. Participating countries that have their bonds bought will have to accept certain conditions which will be part-monitored by the International Monetary Fund.

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“The central bank’s willingness to buy government bonds on the open market are the long-promised bazooka in the ECB’s arsenal,” Mr Zemcik said.

“Just the possibility of such purchases has eased pressure on governments and reduced their borrowing costs, although these remain elevated for many countries.”

The main driver of growth in the eurozone will be Germany, which is expected to grow by 1.2 per cent.