Brakes Slammed on Eurozone Growth, UK Misses Opportunity to Accelerate UK Growth

Nov. 11, 2011 - PRLog -- Jay Mawji, head of market analysis at FX trading dealer Vantage FX (http://www.vantagefx.co.uk/), provides an overview of the eurozone activity which shaped currency movements on 10th November 2011.

“The news never gets better in the eurozone, with the obvious now stated that growth in the eurozone is expected to fall dramatically through 2012 on the back of sentiment and tighter measures to contain the eurozone crisis. The Bank of England today announced no change in the Interest rate and Quantitative Easing Programme whilst the US shows a narrowing trade balance, which could open the door to pro-growth policies.

Reports on the eurozone economies today show signs of a slow down into 2011, with a vague opportunity to regain momentum in late 2012. Predictions show that the economy will contract month-on-month through the end of 2011 and into the first quarter of 2012, where if all goes well, the eurozone should begin to see an open road and begin to gather speed towards an economic recovery. There is every expectation that the eurozone’s shift to tighter polices, falling confidence and virtually non-existent consumption will starve the economy of growth through much of the foreseeable future. Whilst there is more of a concern of long term periods of stagflation, the probability of a full blown eurozone recession dragging the rest of us along should not be discounted.

The US appears to be clawing back its trade deficit, with the gap between exports and imports narrowing. Levels of production in the US show signs of an increase in the ability to produce exports, whilst the level of imports, particularly from China decreases. The US government has made public their view of the Yuan being too weak, giving it a competitive edge over US products. There have been threats of adding an additional ‘duty’ to Chinese imports by the US administration, although that would launch a new breed of ‘economic war.’ It is expected to see the US engage in growth stimulus as soon as the trade deficit and balance of payments are under control, which the US will be keen to engage in. Such measures will likely weaken the US dollar as Quantitative Easing is likely to be the most effective strategy.

The Bank of England today reported no change on interest rates in the UK and a pause on the Stimulus until such time that firm expectations can be drawn on factors affecting our economy, namely the eurozone. The minutes out next week will paint a picture of whether the Bank of England are considering any other moves, or whether they will park the bus and wait for a signal…

I can’t help feeling like the global economy is like the M25 on a bank holiday weekend: all rushing around, but not getting anywhere.”

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