The European economy is still lying by

The European economy remains challenged, and even though things look brighter a couple of quarters ahead, one should not expect too much. This is senior analyst in Danske Invest Frederik Engholm-Hansen’s view in respect of the European economy.
 
”The European economy is still suffering, and despite the fact that we expect that the euro zone will be out of the recession at the end of the summer, there is a significant risk that it will be a lengthy affair. In general, many people have been forced to lower their expectations. Domestic demand is subdued by a tight fiscal policy and by banks not yet being prepared to provide loans,” explains Frederik Engholm-Hansen. Particularly the banks in the southern European countries are squeezed, and this has a severely negative bearing on the region’s small and medium-sized companies.
 
The banks are keeping unchanged their tight credit terms and referring to the weak economic prospects. This implies that the banks’ willingness to provide loans will typically not increase until the manufacturing sector takes a more optimistic view of the future.  Here the USA will be capable of lending a helping hand.
 
Short of the decisive push
”Europe is in a position in which increasing external demand could provide a decisive push for a region which has difficulties in bringing about a serious internal growth momentum. This is one of the reasons why we expect positive but weak growth in the second half year of 2013 at which point in time we expect that the US economy will show fight,” says Frederik Engholm- Hansen. 
 
It is, however, uncertain whether the weakness in Europe is extensive enough to motivate the European central bank to ease monetary policies. Currently, there are discussions whether the ECB will introduce negative deposit rates.  Frederik Engholm-Hansen does, however, mention that there is a significant risk as to the effect and possible negative consequences as well as great internal disagreement within the ECB as to the measure.
 
Disappointment with the absent progress
In addition, he states that the ECB appears to be disappointed with the lack of progress in respect of the banking union under establishment. The readiness to reform the institutional setup in Europe has decreased significantly now when the Eureopean fixed income markets have calmed down. Frederik Engholm-Hansen therefore expects that the ECB will rein in on monetary measures, until the European politicians again will return to the reform track.
 
Instead he is missing an initiative which could help the small and medium-sized companies to obtain access to credit. This may untie the locked in situation.
 
”Seen in light of the ECB ’s own statements, we should not expect that they initiate such a programme,” says Frederik Engholm-Hansen. He is of the opinion that such a measure is likely to be too controversial in a number of countries and that it would be close to the limit of the ECB’s mandate. Persistent economic weakness in combination with increased willingness to implement reforms within the euro zone could, after all, make the ECB take such an extraordinary step.