Three leading economic research institutes said today that the euro zone economy probably shrank for a second consecutive quarter in the period from July to September and predicted it would stagnate into next year.
Germany's Ifo, France's Insee and Italy's ISAE cut their joint estimate for euro zone gross domestic product (GDP) in the third quarter to a contraction of 0.1 per cent from a July prediction of an increase of 0.3 per cent.
"Although the impact of the financial crisis remains difficult to assess precisely, the resulting tighter credit access and higher risk aversion are likely to weigh on investment decisions," the think tanks said.
"The economic slowdown, worsening credit-access conditions, and the easing of pressure on productive capacity are expected to sustain the decline in equipment investment over the next three quarters," they added.
GDP shrank 0.2 per cent in the second quarter and another contraction in the third would mean technical recession.
The think tanks said they expected stagnation in the euro zone economy in the fourth quarter and an increase in GDP of 0.1 per cent during the first three months of next year.
"Euro-zone employment growth is expected to lose momentum in the coming quarters, as suggested by the deterioration of hiring prospects in business surveys," they said.
"Despite the inflation decline under way since Q2, household purchasing power is not expected to improve over the second semester," they added.
"This trend, coupled with consumers' growing concerns over economic prospects as expressed in recent surveys, should weigh on household expenditure."
Ifo, Insee and ISAE said they expected euro zone inflation to decline from 3.6 per cent at the end of the third quarter to 2.3 per cent at the end of the first quarter of next year, helped by a drop in food and energy prices.
Reuters