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Cheaper in the eurozone?

14th November 2008 | back to article listings BACK    print this article PRINT

One recent issue that may have held back British investors in eurozone property is the unfavourable price of the pound against the euro. Many who would have undertaken such activities in other times may have looked at the comparative cost and thought better of it.

Such a situation might be expected to persist, with the recent falls in sterling following the rate cuts of the last two months and the hint by the Bank of England that more may be required. However, the other side of the coin is that the eurozone is itself apparently heading into recession, something which in itself may weaken the euro. This will be more so if the European Central Bank (ECB) decides to make further rate cuts of its own.

Of the countries in the eurozone, Ireland has already been in recession for months. Germany has now declared that it is as well and others are expected to follow.

The Organisation for Economic Co-operation and Development (OECD) is particularly sure this will happen. In a new report the body has said that OECD countries as a whole will see recession in 2009, with the eurozone economy contracting by 0.5 per cent. Speaking ahead of the G20 summit this weekend, director of policy studies in the OECD's economics department Jorgen Elmeskov said the extent of the downturn is hard to be sure about, although house prices will certainly get cheaper.

Economists polled by Bloomberg took a clear view over the extent of Europe's contraction. The median estimate of the 39 experts who took part in the survey was that the third quarter of this year saw the eurozone economy shrink by 0.2 per cent, matching the second quarter fall of the same amount and thus matching the definition of a recession.

Of course, the circumstances of each country within the eurozone differ. Ireland is clearly (for now at least) worse off than the rest having gone into recession sooner. Some individual countries, in contrast, may not face recession themselves (the International Monetary Fund projection for Cyprus, for instance, is for growth to be 3.4 per cent this year and 2.8 per cent in 2009). However, it is the overall picture that the ECB will look at when setting rates.

As well as lowering the cost of the euro, more rate cuts could also help make mortgages cheaper as well, so any investors financing a purchase this way may also save money. All this while, the OECD has predicted, property prices fall. Recession may be bad news for many people, but there could be some silver linings for investors.

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