Deflation in Europe Could Signal Stagnation in 2014

Alarm bells are ringing again over the health of the European economy, after a surprising fall in inflation last month.
With eurozone unemployment stuck at record levels above 12% and the economy failing to generate momentum after emerging from recession earlier this year, some analysts are warning that the region is at risk of sinking into a Japanese-style era of deflation and stagnation.

Such talk has led to calls for the European Central Bank to cut interest rates to a new record low when it meets Thursday, or at the latest in December, to inject new impetus into the weak recovery and take some of the heat out of a rally in the euro.
The currency hit a two-year high of $1.38 last week before falling back after the October inflation numbers.

But it’s still up 5% since March — boosted by the return to growth and expectations that the Fed will delay any tightening of U.S. monetary policy until 2014 — and that makes it harder for struggling euro zone states such Italy, Spain and Portugal to export their way out of trouble.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza