Asia Slowdown to Have `Serious Negative Impact' on Europe, EU's Rehn Says

By Sara Eisen and Meera Louis - Aug 24, 2010 3:12 PM GMT+0800


Business ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! BuzzPrint Slower economic growth in China, India or other Asian economies would have a “serious negative impact” on Europe’s growth, the European Union’s economic chief said.

Olli Rehn, the EU commissioner for economic and monetary affairs, said yesterday in a Bloomberg Television interview that a slowdown in the U.S. recovery and turmoil in the sovereign debt markets also could cause concern in Europe.

Strengthening global growth helped Europe’s economy show the fastest expansion in four years in the second quarter after the Greek budget crisis earlier damped confidence in the euro currency and forced governments to step up deficit-cutting measures. Euro-area growth is likely to decelerate in the second half of the year as signs of a slowdown in the U.S. and China dim export prospects.

In the U.S., the world’s biggest economy, the Commerce Department may revise lower its second-quarter growth rate to the slowest since the recovery began, according to the median forecast of economists in a Bloomberg News survey. China’s expansion eased to 10.3 percent in the second quarter and industrial production cooled more than forecast in June, data showed last month, signaling a deeper second-half slowdown.

“Any slowdown in Asia, in the emerging economies of Asia, China, India and others, would have a serious negative impact on economic growth in Europe,” Rehn said in the interview in New York.

Growth Prospects

Asian stocks dropped today and European shares opened lower on concern the global recovery is faltering. The MSCI Asia Pacific Index fell 0.7 percent as of 3 p.m. in Tokyo, and the Dow Jones Stoxx 600 Index declined 1 percent at 8:05 a.m. in London.

John Lipsky, the International Monetary Fund’s first deputy managing director, said on July 27 that the global recovery is likely to be “moderate” as renewed strains in financial markets pose risks to growth prospects.

While economic recovery is “under way” in Europe, Rehn said “it is essential that countries like Greece, Portugal and also Spain address their problems of competitiveness.” Even as gross domestic product in Germany jumped 2.2 percent in the second quarter, Spain’s economy grew just 0.2 percent and Greece, which was forced to seek an EU-led bailout in May, experienced a 1.5 percent contraction.

Greece

The EU said last week that Greece is ahead of schedule in meeting its deficit-cutting commitments under the 110 billion- euro ($139 billion) rescue package, putting the country on track to secure the next loan installment. Greek Prime Minister George Papandreou has cut wages and pensions and increased taxes to qualify for the loans, granted to stave off a default.

Greece’s budget cuts will convince investors that concerns about a debt restructuring are “unfounded,” Rehn wrote in an article published today in the Wall Street Journal.

“We are seeing signs of a gradual stabilization in market sentiment toward Greece,” Rehn wrote. “I am confident that risk perceptions will ease as the adjustment moves forward, which should lay the ground for an eventual orderly return to market access.”

To contact the reporters on this story: Sara Eisen in New York at seisen@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.