Eurozone GDP Expected To Show 0.6% Drop

By Roger Baettig | March 05 2013 9:11 AM

The euro continued to trade near $1.30 on Tuesday morning as speculation about the upcoming European Central Bank meeting led some to believe there could be an interest rate cut in the future.

Reuters

Euro retreats from one-month high vs dollar

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Italy's political stalemate continued to weigh heavily on the euro's value and create uncertainty throughout the bloc. The country hasn't made any real progress toward establishing any kind of government after the country's elections didn't produce a leader.

After one third of the vote went to Beppe Grillo, a former comedian who ran on an anti-austerity platform, the Italians' frustration with the current austerity driven recovery efforts became clear.

Now, many fear that sentiment could spread across southern Europe, where struggling countries have been forced to make difficult cuts on top of already dwindling economies. Many are expecting to see more leniency as governments attempt to repay massive loans to the EU.

According to Bloomberg, the European Commission forecast that the eurozone economy is expected to shrink by 0.3 percent in 2013. Should the prediction play out, it will mark the first time since the euro was born in 1999 that the region has posted two annual contractions in a row.

Eurozone GDP from the fourth quarter is expected on Wednesday, although preliminary estimates show a drop of around 0.6 percent from the previous quarter. Monthly purchasing managers' index data from the services sector in France, Italy and Germany will be released later on Tuesday as well.

Poor data could fuel concern that the ECB will lower interest rates, however most still believe Thursday's meeting will end with the 0.75 percent rate unchanged.