GDP data confirm worsening recession as pound and euro fall

03-27-2009 14:43

The final data of the last quarter of 2008 have been revised from -1.5% to -1.6%, which is a record quarter low since 1980. It’s difficult for the economy to grow due to exports falling by 3.9% and as a result of a drop in household spending by 1.0%. During last night’s session the GBP/USD fell 300 pips, reaching a level below 1.4300.

Additional quantitative easing in order to boost essential lending

The negative growth figures prove the depth of the present deterioration and show the required measures to improve UK’s economy. It is likely that the Bank of England is forced to come up with new quantitative easing actions to boost lending that is required to stimulate the return of growth. Nevertheless, due to the dramatic level of the Gilts, investors have lost appetite to sell them back to the administration and this could disturb their plans to increase liquidity on the markets and may hinder recovery. However, Spencer Dale, member of the Bank of England, remains optimistic and he said that "As we go through 2009, I believe that it is most likely the pace at which output is contracting will ease and that we will see some signs of recovery by around the turn of this year".

French economy deteriorates – German export reached record low

During last night’s trading the single currency reached a 1.3594 level and was stimulated by increasing risk appetite but weak fundamental figures caused a 140 pips fall. The French Gross Domestic Product (GDP) proved the deterioration of the French economy, by 1.1%, in the final quarter of 2008; the worst in thirty years. German export reached the lowest level in almost 10 years and dropped by 0.5%, which resulted in an annualized rate of -5.4%. Both indicators exceeded expectations but did not stimulate the euro while the gloomy UK growth data boosted the fall of the euro, which dropped below 1.3400. It becomes more likely that the ECB will take additional efforts to improve credit markets. One of the measures could be another rate cut and more off balance sheet attempts, which could affect the euro.

Dollar finds support

During the Asian trading session the dollar showed some weakness but later it recovered while decreasing risk appetite could give more support. US futures indicate a lower open while it appears that European stock markets are not inspired. It is to be expected that the personal income and spending data will result in -0.1% and 0.2% respectively. Considering the previous readings of 0.4% and 0.6%, the downfalls in February could reduce the prospects for potential internal growth and may boost the dollar.