Hope rises for ECB help as outlook worsens

 
Julian Harris
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THE PLIGHT of the Eurozone was confirmed by a raft of weak economic data yesterday, yet investors continue to hope that the European Central Bank (ECB) will come to the rescue of the embattled single currency.

Most continental equity markets finished higher last night, on hopes its purchase of bonds issued by troubled member states Italy and Spain.

The day started badly for Italy with news that its economy shrank by 0.7 per cent in the second quarter, marking a full year of contraction that has wiped 2.5 per cent from the country’s GDP.

Meanwhile, industrial production dropped by 1.4 per cent from May to June, separate figures revealed.

Spain’s outlook was also hit by news that the number of companies operating within its borders fell by 1.6 per cent to 3.2m in 2011, a five-year low.

Germany, the Eurozone’s economic powerhouse is sharing the pain. Factory orders fell 1.7 per cent in June, twice as steep a drop as economists had expected. Orders from eurozone countries plunged by nearly five per cent.

“It would appear that investors are taking the view that the worse the data is the more likely it is the ECB will intervene in bond markets,” concluded analyst Michael Hewson of CMC Markets last night, explaining the resilience of equity markets.

Despite expectations of assistance from the ECB, the president of the Eurogroup – a group of Eurozone finance ministers – was coy when asked if he could rule out Greece leaving the single currency.

“It would be manageable but that does not mean it is desirable,” Jean-Claude Juncker said.