Category Archives: Economics

Some Good News

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For once, small but good:

Growth in European service industries, which account for about one-third of the euro-region economy, unexpectedly accelerated in May to the fastest pace in seven months.

An index based on a survey of about 2,000 purchasing managers of companies including airlines and banks compiled by NTC Research Ltd. for Reuters Group Plc rose to 53.5 from 52.8 in April. The median forecast by 27 economists surveyed by Bloomberg News was for a decline to 52.5. A reading above 50 indicates expansion.

EU Manufacturing Declines

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And significantly. It will be worth looking at the US data this afternoon, but the trend is clear, off-shoring is, if anything, picking up speed.

Manufacturing in the dozen euro nations in May shrank the most in almost two years as unemployment near a five-year high and oil prices around $50 a barrel add to concerns about the outlook for expansion this year.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc fell to 48.7, the lowest since July 2003, from 49.2 in April, according to figures available on the Internet today. Economists had expected a reading of 49.2, according to the median of 30 estimates in a Bloomberg survey.

German Retail Sales Down

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This is not surprising, but it is hard to see how the German economy is going to generate GDP and employment growth in 2005. Remember global trade is slowing gradually, so it is hard to see who you can rely on exports.

Retail sales in Germany, Europe’s largest economy, fell in April as unemployment held near a post- World War II record and consumer confidence slumped.

Sales, adjusted for inflation and seasonal swings, fell 3 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today. Economists expected sales to be unchanged, the median of 13 forecasts in a Bloomberg survey showed. Sales in the first four months of the year fell 1 percent. The report did not give a seasonally adjusted comparison with the previous month.

EU Consumer and Business Confidence Fall

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Just another item to add to the list of bad news:

European business confidence dropped to a 21-month low in May and consumers were the most pessimistic in a year as oil prices around $50 a barrel and unemployment near a five-year high dimmed the outlook for economic growth.

An index gauging confidence among 35,000 executives in the dozen euro nations fell to minus 11 from April’s minus 9, the European Commission said today in Brussels. Economists expected minus 10, the median of 29 forecasts showed. An index of consumer sentiment dropped to minus 15 from minus 13, the commission said.

German Unemployment Remains At 11.8%

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Despite the recent surge in German GDP and export growth, and the ongoing structural reforms, German unemployment remains stubbornly high.

German unemployment was unchanged in May at close to a post-World War II high, dealing a blow to Chancellor Gerhard Schroeder’s chances of re-election.

The jobless rate, adjusted for seasonal swings, held at 11.8 percent, close to the postwar record of 12 percent recorded in March, the Nuremberg-based Federal Labor Agency said today. That was in line with the median of 31 forecasts by economists in a Bloomberg survey.

The Euro Continues Its Decline

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The euro fell to a seven-month low in Asia and had the biggest fluctuation of any currency on concern the rejection of a proposed European Union constitution will slow the region’s economic integration…………

Against the dollar, the euro fell to $1.2370, the lowest since Oct. 14. It bought $1.2390 at 2:05 p.m. in Tokyo from $1.2475 late in Asia yesterday, according to electronic currency- dealing system EBS. The euro will probably decline toward $1.22, Jacobs said.

Update I: Now it’s hit $1.2371.

The euro’s initially muted reaction to the French vote on a holiday-thinned Monday turned into a sharp fall when it broke below key $1.2450 levels, pushing as low as $1.2371.

Now it’s at 1.2315, and this is also becoming a dollar rise story as the yen is also begining to fall against the USD.

“The Euro lost support at 1.2450 in Asia on Tuesday and this pushed the Euro down to a low of 1.2315. The convincing break below 1.25 against the US currency will reinforce negative Euro sentiment and will raise speculation over a move towards the 1.20 level in the medium term.”

To be continued.

Euro Under Pressure

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The euro continues its fall against the dollar today after yet another opinion poll showed French opposition to the European Union constitution continues to strengthen before Sunday’s referendum. Against the dollar, the euro fell to $1.2545 at 8:33 a.m. in London, from $1.2601 late yesterday in New York. The euro wasn’t exactly strengthened by the fact that Sarkozy had to deny a reprot that he had already informed Chirac that the vote was lost.

In itself this decline – in fact the euro has fallen against the dollar by 7.9% so far this year – is relatively benign, and may even be beneficial for hard pressed exporters. Mathew Lynn provides a reasonably summary of the issues here.

The problem is that there are a confluence of problems – the constitution, the absence of growth, elections in Germany, Italy and Portugal and the Stability and Growth pact, and now, divisions and lack of solidity in the ECB. The danger is that uncertainty among politicians following from a ‘no’ hangover, could be just what it takes to turn a benign slide into a run.

OECD Recommends Reducing Eurozone Interest Rates

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The Federal Reserve should continue to raise U.S. interest rates but the European Central Bank should ease euro zone monetary policy, the OECD says in its semi-annual Economic Outlook out today. Euro zone growth forecasts of 1.2 % for 2005 and 2.0% for 2006 are based on the assumption that the ECB, which has maintained its core refinancing rate at 2.0% since June 2003, will cut rates by half a percentage point in mid-2005.

?With domestic demand sluggish, resilience feeble and possible upward pressures on the euro looming ahead, the balance of risks on growth and inflation is clearly tilted to the downside, calling for an early easing of monetary policy?.

Almunia’s Test Case

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Economics Commisioner Joaquim Almunia is reportedly rolling his sleeves up. He is apparently preparing to use Italy’s continuing excess deficit as a test case, to show the way the new SGP will be applied. Forgive me if I am a little skeptical, but then again a French no on Sunday may leave him with little alternative.

“Revisions to Italian data by Eurostat, the European Commission’s statistical agency, showed the country breaching the 3 per cent limit on budget deficits (in 2003 and 2004 Edward). The changes will be used by Joaquin Almunia, EU monetary affairs commissioner, to underpin a recommendation that action be taken against Italy under the stability and pact“.