Europe shows 'tentative signs of stabilization', ECB president insists

Europe's economy contracted in the fourth quarter as investment declined the most since 2009 and exports and consumer spending also dropped.

Gross domestic product declined 0.3 percent from the third quarter, the European Union's statistics office said on Tuesday. Exports fell 0.4 percent after a 1.4 percent gain in the previous three months, while household spending declined 0.4 percent and investment dropped 0.7 percent.

While Europe is facing its second recession in less than three years, the economy shows "tentative signs of stabilization", European Central Bank President Mario Draghi has said. The central bank's two liquidity operations have helped ease concern about a credit crunch and won governments time to agree on measures to contain the debt crisis.

"We're probably seeing the bottom of the downturn right now with the late onset of winter," said Christian Schulz, an economist at Berenberg Bank in London. "We'll see a gradual improvement from the next quarter and thanks to the ECB cash and government progress on solving the crisis, the euro-area economy should grow again from the second half of the year."

European investor confidence rose for a third month in March, the Sentix research institute said on Monday.

The ECB lent 800 banks 529.5 billion euros ($698 billion) for three years last week in the biggest single refinancing operation in its history, taking total long-term lending above 1 trillion euros.

Eurozone finance ministers last week authorized the region's bailout fund to raise money for Greece's bond exchange, the first step in releasing funds from a 130-billion-euro rescue package.

ECB policymakers including Draghi and Ewald Nowotny from Austria said they expect the money will be lent on to households and companies, helping to boost the so-called real economy.

So far, the Stoxx Europe 600 Index has gained 8.8 percent and yields on debt of European sovereigns and banks have tumbled. Germany's Audi AG, the world's second-largest maker of luxury vehicles, said on Thursday that it is targeting 2012 profit "on par" with last year's record results as higher sales offset increased spending on new models and factories.

Even so, eurozone services output shrank more than estimated in February, led by Italy and Spain, a survey of purchasing managers showed on Monday.

The 17-nation euro economy may shrink 0.3 percent this year, driven by a contraction of 1.3 percent in Italy and 1 percent in Spain, the European Commission said on Feb 23. Germany's economy, Europe's largest, will expand 0.6 percent, according to the commission.

The ECB will leave its benchmark lending rate at 1 percent when policymakers meet in Frankfurt on Thursday, according to the median of 58 forecasts in a Bloomberg News survey, giving officials time to weigh the effects of the cash injection and consider new economic and inflation predictions.

Bloomberg News in London

(China Daily 03/07/2012 page16)