Goshen News, Goshen, IN

Local News

November 17, 2013

What's holding the eurozone recovery back?

(Continued)

It was trading near two-year highs above $1.38 as recently two weeks ago. The strength, particularly this year, has raised concerns that exporters might suffer. That was confirmed in figures released Thursday that showed German big exporters suffered during the quarter, dragging growth down. Across the eurozone as a whole, industrial output fell modestly.

Even so, many economists think the industrial sector will be the main driver of growth over the coming months, partly because it can tap into demand from better-performing countries outside of Europe.

“The main growth driver should be stronger exports, particularly to the U.S. and emerging economies,” said Zach Witton, an economist at Moody’s Analytics.

Better times coming

Like governments and households, companies have spent the past few years shoring up their finances. Battered by recession that has crimped demand for years, they have been reluctant to invest in their businesses or splash out on acquisitions to expand operations as they focused on paying down debts and rebuilding their cash positions.

However, there are signs that companies are becoming more optimistic. A recent survey showed companies are increasingly looking at how to expand their businesses. And in recent months, surveys of business managers pointed to an increase in economic activity. The purchasing managers’ index published by financial information company Markit has risen back above the 50 threshold that indicates expansion.

Debt a problem

The eurozone’s long-term performance is linked to its ability to reduce its debt. One of the reasons the eurozone struggled to get out of recession was that governments worried about debt aggressively began cutting spending and increasing taxes. That hurt growth, dented consumer confidence and sent unemployment sky-rocketing.

Eurozone countries — even Greece — have mostly completed their austerity measures. But it will take more time for governments to reap the rewards of those measures. Budgets remain in deficit, causing public debt to keep inching higher — to 93.4 percent of annual GDP.

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