Last week, European Central Bank president Mario Draghi pledged that the ECB would do whatever is necessary to preserve the euro.

The markets rallied following this news, as it was interpreted as meaning the ECB would buy bonds of distressed counties, such as Italy and Spain, to cap their yields.

Credit rating agency Moody’s lowered its outlook for Germany, the Netherlands and Luxembourg to negative. Moody’s said this step was taken in the light of Europe’s debt crisis and increasing uncertainty.

With Greece becoming more likely to leave the eurozone as well as Spain and Italy asking for financial support, it was inevitable for Moody’s to cut these rating outlooks, as the burden of the costs related to this support would probably fall on highly-rated EU member countries.

Separately, according to London-based Markit Economics, euro area services and manufacturing output contracted, with the composite index for July coming in at 46.4. This was unchanged on the June reading.

A reading below 50 indicates contraction. This is the sixth month of contraction of these sectors and adds to signs of a deepening economic recession in the region.

Finally, according to the Office for National Statistics, the UK economy shrank more than expected in the second quarter of the year, leading to the biggest decline since 2009.

GDP fell 0.7 per cent when compared to the first quarter of the year. This decline in UK GDP exceeded analysts’ expectation of a 0.2 per cent decline in growth. The UK economy shrank by 0.3 per cent in the first quarter.

Separately, Britain’s budget deficit was also larger than forecast in June, putting in doubt the government’s fiscal targets.

The shortfall, which excludes government support for banks, was £14.4 (€18.3) billion, one billion more than a Bloomberg News Survey had predicted. In the same month a year ago, the budget deficit stood at £13.9 (17.7) billion.

This article was compiled by Bank of Valletta for general information purposes only.