Tag Archives: Economics

Optimism On The German Economy

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Both New Economist and MacroBlog seem very upbeat about the prospects for the German economy. Macroblog cites Bloomberg and says “Things are definitely looking up“. New Economist is rather more guarded, pointing to the IMF forecast, and the recent Federal Statistics Office announcement that second quarter growth came in at 0%. But New Economist find faith in an (old) Economist view that things are getting better in Germany’s surprising economy (ask Doug on the main page about the surprising bit 🙂 ). As New Economist says “Of course the Economist can get it wrong, but in thbis case maybe they’re onto something”, while as Edward replies “of course the IMF can get it wrong, but in this case maybe they’re onto something”

The Financial Times definitely comes down on the side of the optimism camp, but in their case with significant prudence:

However, fears Germany?s election system might result in a fractious ?grand coalition? between the CDU and Social Democrats may have damped expectations more recently and economists remain cautious about the strength of any German upswing. Holger Schmieding, economist at Bank of America, warned that expectations were fickle and that ?the economic upswings heralded by major surges in the ZEW in mid-2002 and early 2004 both turned out to be disappointingly shallow and short-lived?.

As for me, well, for my part
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France’s Trade Deficit On The Rise

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France has just clocked up a record trade deficit for the first six months of this year: 11.193 billion euros. This now adds the French to the eurozone BoP sick room along with Italy, Spain, Greece and Portugal. Of course oil imports form an important part of the picture, but that doesn’t make the headache any less.

The shortfall in June widened to 1.194 billion euros from 1.148 billion in May. The deficit for the first half of 2004 had been limited to 581 million euros.

The finance ministry said that at prices prevailing at the beginning of August France could face an energy sector deficit of more than 40 billion euros this year after 29 billion in 2004.

“The increased impact of the energy component has accounted for nearly half the deterioration in the overall trade balance for France” in the past year, the ministry said, citing rising oil prices.

Alexandre Bourgeois, an economist at Natexis Banques Populaires, said the trade deficit of the last 12 months — 20.6 billion euros — was the highest in French history.

UK Economy Slowing

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The UK economy showed its weakest year-on-year performance for 12 years during the second quarter of this year, and manufacturing seemed to enter recession. Gross domestic product (GDP) growth on a 12-month comparison stood at 1.7 percent during the second quarter — the weakest 12-month performance since the first quarter of 1993.

The annual growth rate dropped from 2.1 per cent to 1.7 per cent, which marks the lowest rate of growth since the first quarter of 1993 and almost half of the 3.2 per cent growth rate achieved only in 2004.

Output by manufacturing companies declined 0.7 per cent after a fall of 0.9 per cent in the first quarter, confirming that the sector had dropped into a technical recession, which is defined as two consecutive quarters of falling output.

China Imports To EU Continue Their Rise

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The latest EU25 trade data from Eurostat highlight the competitive challenge some European companies face from the fast-growing Chinese economy:

Imports from China in the first four months of this year, at ?45.3bn ($54.5bn, ?31.5bn), were 19 per cent higher than the same period a year before. Imports from the US remained almost flat at ?52.6bn. In contrast, EU exports to China fell by 1 per cent to ?15.2bn, while exports to the US rose by 2 per cent…..

China?s economic expansion suggests the rate of growth of exports to the EU is likely to be maintained. By the end of this year, imports from China could be almost three times higher than the level in 1999. That increases the pressure on domestic producers, as well as eurozone exporters.

Financial Times

EU25 trade was characterised by an increase in the EU25 surplus with the USA (+24.2 bn euro in January-April 2005 compared with +23.0 bn in Januar y-April 2004 ) and Switzerland (+ 6.0 bn compared with +3.8 bn). The EU25 trade deficit grew with China (-30.1 bn compared with -22.8 bn), Russia (-16.3 bn compared with -11.5 bn) and Norway (-10.0 bn compared with -8.0 bn), and fell with Japan (-9.9 bn compared with -11.5 bn).

Concerning the total trade of Member States, the largest surplus was observed in Germany (+ 55.0 bn euro in January-April 2005 ), followed by the Netherlands (+ 11.8 bn), Ireland (+ 10.8 bn) and Sweden (+ 5.8 bn) . The
United Kingdom (-30.7 bn) registered the largest deficit, followed by Spain (-22.6 bn) , Greece (-10.4 bn) and France (-9.9 bn).

Source: Eurostat

Germany’s Structural Budget Problems

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Bloomberg (didn’t I once promise not to have anything more to do with them, oh well, needs must) have obtained a copy of German Finance Minister Hans Eichel’s budget plans for 2006. The problem is a serious one since the big problems are structural not cyclical:

“Given the availability of financial resources, an adequate public infrastructure and a sound education system with everything that accounts for Germany’s future viability can no longer be guaranteed”

The room for manouevre – whoever is elected in the autumn – is extremely limited since “nearly two thirds of next year’s 256 billion-euro budget are slated for debt-servicing, state pensions and unemployment benefits as well as jobless-placement costs”…(while)..”Germany’s three-year economic slump and near-record joblessness have eroded tax revenue”.

Settling Accounts?

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I don’t know how many of you have seen the film The Insider, but Caesar Alierta, boss of Spain’s telecommunications near-monopoly Telefonica, has always seemed to me to fit the bill perfectly. Now the Financial Times announce that he is finally to be charged with an old insider-trading scandal:

“C?sar Alierta, executive chairman of Telef?nica, the Spanish telecommunications group, has been charged with insider trading in connection with alleged improper share trades when he was chairman of a tobacco company. The public prosecutor’s office is seeking a four-and-a-half-year jail sentence for Mr Alierta, the most senior executive ever charged with insider trading in Spain. The prosecutor’s office is also requesting the seizure of ?1.86m ($2.27m) of profits Mr Alierta is alleged to have made from trading in Tabacalera shares when he was chairman of the Spanish tobacco group in 1997.”

As the FT notes, the case also has a political dimension, since it forms part of the ongoing ‘feud’ between PSOE and PP. The reality is that ‘justice’ is still a very political issue in Spain. Still, you have no idea how happy it would make me to see Alierta finally convicted of something. Adding-on a few racketeering charges might not go badly amiss either.

More Evidence Of UK Slowdown

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The UK National Institute of Economic and Social Research suggest in a report published today that the U.K. economy may have grown at the slowest pace in almost four years in the second quarter.

Growth was probably 0.3 percent in three months through June, compared with 0.4 percent in the first quarter, the London-based institute, whose clients include the U.K. Treasury and the Bank of England, said in an e-mailed statement. That’s the slowest pace since the third quarter of 2001, according to government figures.

U.K. economic growth in the first quarter lagged expansion in the euro area for the first time in more than four years as manufacturing production shrank and consumer spending stalled, the government said on June 30. NIESR said the Bank of England, which meets today, should lower its benchmark interest rate from 4.75 percent, the highest in the Group of Seven Industrialized Nations.

The BoE which meets today is not expected to lower rates – although this move is not entirely excluded. Most likely a reduction will be in the offing soon.

Eurozone Outlook

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There is a pretty mixed bag of numbers coming in at the moment. The German economy shows some signs of a recovery of activity (here), as is the French one (here). It is important to understand however that trend growth in Germany is now extremely low, and the economy is very export dependent. The underlying performance of the Frech economy is essentially much better. However, the sick man of Europe continues (and will continue) to be Italy (here)

Levels of business activity in the Italian services economy continued to fall in June. However, rising from 47.3 in May to 48.9, the seasonally adjusted NTC Research/ADACI Business Activity Index indicated that the rate of contraction had eased and was only marginal.

A month-on-month decline in new business to Italian service providers was recorded for the third successive month. Furthermore, the rate of decline quickened again and was the sharpest in the survey history. Panel companies reported that demand for their services had continued to suffer as a depressed domestic economy led to subdued client spending.

Service providers reported that diminishing levels of new business had freed up capacity, leading to the sharpest reduction in backlogs of outstanding work in the seven-and-a-half years that data have been collected.

Employment levels in the Italian service sector fell for the fourth straight month in June. The rate of job shedding was again only marginal, although slightly sharper than in May.
Source NTCResearch

British Retail Sales Continue to Decline

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The latest survey by the British Retail Consortium suggests that retail sales declined in the UK for the third month in a row in June. This is definitely one to watch carefully.

Sales in stores open at least a year fell 0.5 percent compared with June 2004, the London-based lobby group said today. The drop followed a 2.4 percent slide in May and a 4.7 percent drop in April. Same-store sales declined 2.4 percent in the three months through June from a year earlier.