Economy better than markets show

  • 2011-08-31
  • From wire reports

TALLINN - Investors “overreacted” to signs the euro region’s economic recovery is losing momentum, as data have yet to confirm the situation is worsening, Estonian central bank Deputy Governor Ulo Kaasik said, reports Bloomberg. Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter, the least since the region emerged from recession in 2009. It’s too early to say whether the developments in the financial markets in recent weeks will affect the economy, Kaasik said in an interview last week.

“The euro region’s recovery has been fast and faster than what was expected a year ago,” Kaasik said. “Now, when growth has slowed in the second quarter, it has somehow surprised the markets, which have overreacted in a negative way. In fact, we don’t have clear data showing that the situation is worsening.”

Economic growth is slowing around the globe. The Federal Reserve in August pledged to keep interest rates near zero for another two years to bolster a recovery that’s moving “considerably slower” than expected. European policy makers are struggling to contain a debt crisis, while Japan has cut its annual growth forecast on weaker export prospects.
Given recent developments, a worse-than-expected development of the euro area’s economy can’t be ruled out, as “risks are significant and there is a lot of uncertainty,” said Kaasik.

Kaasik and Madis Muller, a former fund manager with the World Bank, were appointed in May as deputy central bank governors for five-year terms, replacing Marten Ross and Rein Minka. Estonia adopted the euro in January, with Governor Andres Lipstok becoming a voting member of the European Central Bank council.
Estonian President Toomas Hendrik Ilves said that the 17-member eurozone might come out of the ongoing debt crisis in a different form. “I think that the euro area might not be in the same form it is in today,” Ilves said in an interview to Bloomberg.
“I do not think that the euro area would collapse. It is clearly in the interests of the euro area’s financially responsible states for the euro to survive,” noted Ilves.

The Bank of Latvia President Ilmars Rimsevics said on a Latvian Radio program that he sees no threat to the eurozone, despite the problems in separate countries. Rimsevics said that the countries that are currently undergoing financial hardships have spent recklessly the past years, and are now forced to ask other eurozone members for assistance.

The president of the central bank added that even though the current situation remains jittery, with much speculation and rumors circulating, he is confident that the eurozone will continue to exist, but will have to undergo much change.
Rimsevics also reiterated that eurozone members currently going through financial hardships are not rushing to leave the common currency, because “‘they understand all too well that they will not be as secure outside, as within the euro-zone.”.