Despite some indicators, including rises in stock markets, that things are getting better, the worldwide recession hasn’t eased its grip and the slump in the Eurozone has worsened, economists from three nations said. “Despite the deployment of government stimulus packages, the economic outlook remains gloomy,” said the joint report by the IFO Institute of Germany, Insee of France and the ISAE economic research institute of Italy. The group said the decline had become steeper since the start of this year and the Eurozone was now in a serious recession. They estimated the decline in the zone’s gross domestic product in the first quarter at 1.9 percent, greater than fourth quarter 2008’s decline of 1.6 percent, but suggested the fall would ease to 0.6 percent in the second quarter and 0.2 percent in the third. Private consumption was set to decline, mainly because real disposable incomes were set to perceptibly contract, they warned. The study added that investment which bumped sharply lower at the end of last year would keep declining, both because of continued strain in financial markets and because of the costs of running businesses at well below capacity. Basing their prediction on a world oil price averaging USD 45 a barrel and an exchange rate stabilising at USD 1.35 per Euro, they forecast inflation rates at the end of June and September of minus 0.2 percent. But the three nations’ economists said they did not anticipate any deflationary risk, since the “underlying” inflation rate was firmly positive.

No interest rate panacea

A senior European Central Bank (ECB) warned that cutting interest rates below one percent could severely hit money markets and result in lending between banks freezing up. In a speech delivered in Hamburg, Axel Weber, the president of Germany’s influential central bank the Bundesbank, said that trimming rates in the 15-member Eurozone to below one percent could mean banks lending with each other would become “completely paralysed.” Weber is also a member of the ECB’s governing council. The Frankfurt- based ECB reduced its key refinancing rate to 1.25 percent earlier this month with ECB chief Jean-Claude Trichet signaling that the bank could cut again possibly as early as next month in the face of dwindling inflation and the global recession. While Weber also indicated that he believed the ECB had room to trim borrowing costs again, he said in his speech he was “critical” of reducing the refinancing rate below one percent saying this would remove the catalyst for interbank lending. Trichet has consistently ruled out zero interest rates for the Eurozone, with the ECB considering following up moves by the world’s other leading central banks to use non-standing measures to help spur economic growth.

Sweden stays the course

Other EU countries were still trying to counter-act the effects of the recession as well. The Swedish government remains committed to “fiscal responsibility” and is prepared to tackle rising unemployment, Finance Minister Anders Borg said. Presenting his spring budget to parliament, Borg underlined that an additional 10 billion kronor (913.4 million Euro) was to be allocated for labour market programmes to help youth and people who have just become unemployed to find employment. Recent projections suggest unemployment could rise to almost 12 per cent in 2011. The economy is also facing a sharp contraction. Borg criticised the opposition for making too generous pledges, and warned against tax hikes and uncontrolled spending. Thomas Ostros, economic affairs spokesman of the opposition Social Democrats, said the spring budget was “insufficient.” Ostros called for more funds to “infrastructure, and to invest in the health sector, education and investments that strengthen people’s security.” The Confederation of Swedish Enterprise’s Chief Economist Stefan Folster said “too much was allocated to labour market programmes and local government” and called for investments that would increase jobs.

Germany falling

Europe’s biggest economy, Germany, will shrink by 4.9 percent this year, one of the nation’s leading economic research groups predicted. Dragging down German economic growth will be a 12.9 percent slump in exports, the Berlin-based DIW economic think tank said. Exports are a key pillar of growth in Germany, which is the world’s leading export nation. The DIW report underscores how the recession has deepened in Germany in recent months and followed a series of moves by economists to revise down the nation’s growth forecast. Only four months ago, the DIW predicted the German economy would contract by 1.1 percent. At the most, said DIW chief Klaus Zimmermann, Germany could look forward to only “a very weak and slow recovery” for 2010. However, the DIW decided against making a 2010 growth projection as the global recession tightens its grip on the country. In the meantime, the DIW said it expects investment in equipment and machinery in Germany to fall by 14.9 per cent this year. The scale of the downturn engulfing the German economy means that the nation would breach the key three percent budget rule for Euro member states and to report a budget deficit of about 3.3 percent of gross domestic product this year.

Dutch IT firms hit

Dutch technology firm ASML said it suffered a 117 million Euro loss in the first quarter of 2009. Releasing its first quarter results, ASML, which makes lithography systems for the semiconductor industry, said net sales in the first quarter of the year amounted to 184 million Euro - compared with 919 million Euro in the same period in 2008. “Semiconductor equipment demand collapsed in the first quarter of 2009,” ASML CEO Eric Meurice said in a statement. However, he added a drastic cost-saving program had freed up more than 300 million Euro in working capital, ensuring the company could maintain all its “strategic investments.” Meurice said that while the global economic recession would continue to affect ASML, the company has good expectations for the second quarter of 2009, with estimated net sales of between 210 to 230 million Euro. Headquartered in Veldhoven in the southern Netherlands, ASML has more than 6,700 employees, serving chip manufacturers in more than 60 locations in 15 countries. ANA/EPA/ANDY RAIN A elderly couple outside a store going out of business London, January 28, 2009, as the worldwide recession was strangling companies and putting scores of millions of workers on the streets ECONOMY