[iForex]

The Euro area fell into a severe recession in late 2008 and continued to contract rapidly in early 2009. However, the pace of decline looks set to lessen soon.

Because exports and business investment can fall faster than consumers react to falling house prices and soaring unemployment, the export- and investment driven economies of core Europe (such as Germany) are shrinking even faster than the real estate boom-bust economy of Spain.

The rebound in real M1 money supply and some uptick in investor and business expectations support hopes that the recession could lose force over the summer and give way to a modest upturn in late 2009.

Risks to growth forecasts are still to the downside near-term.

The number of unemployed has already risen by 1.6 million since January 2008. Analysts expect an increase by almost 3 million during 2009 to push the unemployment rate to a peak of 10.6% in early 2010.

Inflation will likely fall below 0% in mid 2009 and return to 1% in 2010.

The fiscal deficit looks set to rise above 5%, with risks to the upside.

ECB: Market looks for a 1% trough in May 2009, accompanied by further unconventional measures such as 12-month refi auctions.