European Economic Highlights
Bert Colijn
Labor Market Economist
14 May. 2012
Nervousness in the European financial markets has continued in the past week. The elections in France and Greece have confirmed that views on austerity may be shifting. Francois Hollande, the new French president, is an outspoken supporter of stimulating economic growth. The outcome of the Greek election demonstrates that most voters oppose the harsh budget cuts that Greece has to undertake under the terms of its bailout package with the “troika”. After a moderate response on the first day trading after these elections, financial market concern grew on Tuesday after the Spanish bank Bankia had to ask for a bailout because of the large amount of toxic assets it is holding. Concerns regarding Greece’s possible exit from the euro and conditions in Spanish banks have been heightend by this week’s news. Still, markets did not react negatively to of the possibility of a growth oriented shift in policy in Europe has not been very ill-received by investors, creating space for stimulus actions. With an unemployment rate at an average of 10.9 percent in the Euro Area, and much higher in many of the most troubled economies, growth and job creation measures must be central to any effort to stabilize the European economy.
Some good news came out of Germany last week, with industrial orders growing by 2.2 percent and industrial production soaring by 2.8 percent, both figures exceeding analysts’ expectations. On top of that, confidence in Germany keeps rising despite ongoing concerns about the European crisis, indicating that Germany might have escaped a technical recession and has a relatively positive outlook for the coming months. French industrial production declined as energy use was negative due to the warmer weather in March, but manufacturing output actually increased by 1.4 percent. In Italy, production surprisingly increased by 0.5 percent, but that still results in a 2.7 percent decrease for the quarter.
Monday May 14
EURO AREA INDUSTRIAL PRODUCTION, Eurostat, March data, 11 AM CET
The largest European countries have already posted the data for industrial production. The 2.8 percent increase in Germany has to be watched carefully, because it includes construction, which rebounded after a cold February. As this is not included in the Euro Area data, the contribution is likely lower. This means that the number will likely show a very slight increase, which is encouraging for the contribution to GDP, but also indicative of the slow environment Europe continues to be in.
Tuesday May 15
FRENCH GDP FLASH ESTIMATE, INSEE, 1st quarter data, 7:30 AM CET
The French economy was a surprising exception to the contracting Euro Area at the end of last year. The second largest European economy expanded by 0.2 percent the fourth quarter making it the only large European economy that posted growth. The first quarter of 2012 has been slow for France, like any other Euro Area country, which makes a very small growth contribution like last quarter likely.
GERMAN GDP FLASH ESTIMATE, Destatis, 1st quarter data, 8 AM CET
The German economy has been the strongest in Europe throughout the debt crisis, but has also felt the burden of it on output. A contraction in the fourth quarter was the result of that, but the data for the first quarter have been relatively strong so far. Analysts expect Germany to avoid a technical recession, which would have to do partly with the shift of exports from within the Euro Area to countries outside of the zone.
THE CONFERENCE BOARD LEADING ECONOMIC INDEX FOR THE U.K., March data, 10 AM CET
With first quarter data in, it has become clear that the U.K. is now in recession. This shows that the countries surrounding the Euro Area are also not escaping the crisis. There does seem to be light at the end of the tunnel though. The Conference Board Leading Economic Index for the U.K. has been increasing both in January and February and another increase in March would add to a positive outlook for the summer.
EURO AREA GDP FLASH ESTIMATE, Eurostat, 1st quarter data, 11 AM CET
Amid the high uncertainty related to the European sovereign debt crisis, the last quarter of 2011 showed a decline in output in the Euro Area. Business and consumer confidence improved for most of the first quarter, but data on consumption and production has nonetheless remained sluggish. Growth will likely be around 0.0 for the first quarter, confirming the very slow economic environment Europe continues to experience.
GERMAN INVESTOR CONFIDENCE, ZEW, May data, 11 AM CET
Even though the German economy is currently fairly weak, relative to the storms that Europe is facing at the moment, its performance still causes optimism. Investor confidence rose to a 2-year high in April, suggesting that Germany is off to a strong start to quarter 2 and indicating that the German fundamentals remain strong. This month’s release will include the increased uncertainty about the Spanish budget situation and will therefore be interesting to watch.
Wednesday May 16
ITALIAN GDP FLASH ESTIMATE, INSEE, 1st quarter data, 10 AM CET
Italy is one of the countries that have been hit the hardest by the sovereign debt crisis, which has pushed the country back into recession. The sharp 0.7 percent decline in GDP in the last quarter is unlikely to be the last quarter of contraction as the harsh budget cuts by the technocrat government of Mario Monti will make a quick recovery very difficult. Whether this quarter will be very negative will become clear on Wednesday.
Friday May 18
THE CONFERENCE BOARD LEADING ECONOMIC INDEX FOR SPAIN, March data, 10 AM CET
The Spanish economy is once again a source of worry for the Euro Area, now that enormous budget cuts have been announced by the government, even though previous budget cuts have failed to bring the debt to GDP ratio down sufficiently because of economic contraction and job losses. In addition, the banking system has shown more cracks as Bankia had to ask for a bailout. The fundamentals in the Spanish economy remain weak on top of that, but the outlook for the months ahead shows some encouraging signs. The Leading Economic Index has increased in January and February and another increase in March would point toward somewhat milder conditions in the summer.
