July 14, 2011 / 20:48 IST
The euro zone economy will grow slowly but steadily over the coming year, according to the latest Reuters poll, but the forecast was unchanged from the previous month in a sign economists are shrugging off the impact of the debt crisis.
The 17-nation bloc's economy will probably grow just 0.4% per quarter from here until next April. That would be slower than the 0.8% rise seen in the first quarter of this year.
Economists in the poll, taken over the past week, also left their 2011 and 2012 growth forecasts unchanged at 2.0 and 1.7% respectively.
"We expect Germany -- so far the powerhouse of growth and the main driving force behind above-potential growth in the euro area -- to expand more modestly," said Frank Engels at Barclays Capital, explaining the lukewarm outlook for the euro zone.
Growth in Germany and France, Europe's two largest economies, was seen slowing sharply.
The survey came as officials considered whether to hold an emergency European Union summit after acknowledging for the first time on Tuesday that some form of Greek default may be necessary to stop the crisis spreading to other member nations.
There has also been growing concern that Italy, Europe's third largest economy, would be sucked into the debt crisis.
Willem Buiter, chief economist at Citi and a former UK central banker, said there was clear spread beyond Greece, Ireland and Portugal, the three nations who so far have received bailouts from the International Monetary Fund and EU.
"We're talking a game-changer here, a systemic crisis," he said. "This is existential for the euro area and the EU."
The euro fell to a four-month low against the dollar this week, in part because IMF Managing Director Christine Lagarde said the lender and its EU partners were not yet ready to discuss terms for a second Greek bailout.
"Nothing should be taken for granted," she told reporters in Washington.
Concerns are not limited to Europe. Moody's Investors Service said late on Wednesday the United States may lose its top-notch triple-A credit rating in the next few weeks if politicians can't agree to raise its USD 14.3 trillion debt limit by early August.
Interesting times
Despite an intensifying debt crisis, the European Central Bank raised interest rates last week for the second time this year, and signalled another hike is likely this year.
Economists expect the ECB to raise rates one more time this year, to 1.75%, followed by another hike in the first three months of 2012. That's in line with the latest Reuters ECB interest rate poll. [ECB/INT]
Inflation held at 2.7% in June, considerably higher than the central bank's 2.0% ceiling. Economists in the poll did not see it averaging below that ceiling until the second quarter of 2012.
Inflation is expected to average 2.6% this year and 2.0% in 2012, little changed from June's poll.
Unemployment is expected to drift down only gradually, averaging 9.8% this year and 9.4% next. It is currently at 9.9%, down only a tad from a peak of 10.2% after the financial crisis and Great Recession.
A recent survey by Manpower showed that while employment prospects were improving in the euro zone, a divergence remained amongst members.
Spain's unemployment rate soared to a 14-year high of 21.3% in the first quarter, more than double the euro zone average. But in Germany, the euro zone's top economic performer, it is only 7.0%.
