European Economic Highlights
Bert Colijn
Labor Market Economist
20 May. 2013
The European economy fell for sixth consecutive quarter, contracting by 0.2 percent in the first quarter of 2013. This downward trajectory seems likely to continue in the coming months as well. The differences between countries are of course large though, as the Italian and Spanish economies are still experiencing large contractions, while France has entered a recession. Germany however has rebounded slightly from a contraction in the fourth quarter. All in all, with austerity continuing in many countries, credit constraints remaining high, and uncertainty among businesses only falling slightly, it seems that investment will remain low for the months ahead.
Another factor that is hindering a recovery is consumption. As confidence among consumers remains low despite a recent improvement and unemployment continues to rise at already record-high levels, it seems unlikely that there will be a quick recovery in consumption in the Euro Area anytime soon. The economy is will likely remain too weak to bring down the unemployment rate this year, resulting in continued pressure on final consumption in most European markets. However, wage increases in Germany could be a positive sign for consumption. There, engineers in the manufacturing sector saw a wage rise of 3.4 percent for the year ahead. These wage increases could influence other sectoral agreements in the Euro Area’s largest economy. Even though the Germans are not traditionally large consumers, higher wages could help spur consumption and help improve the outlook for spending for the Euro Area as a whole.
Thursday May 23
EURO AREA PURCHASING MANAGERS’ INDEX, Markit, May data, 10 AM CET
The PMI for the Euro Area improved at the end of last year, but has seen declines recently due to increased uncertainty about the Cypriot bailout and Italian elections. These declines suggest that the timing of a recovery has been delayed and therefore it will be important to see whether this indicator can continue improving in May.
EURO AREA CONSUMER CONFIDENCE, European Commission, May data, 4 PM CET
Even though the Cypriot bailout has had negative consequences for business confidence in Europe, consumer confidence has continued to increase slowly over the past months. This is a positive sign, but confidence among consumers across Europe remains at a very low level. The continued increases in unemployment in most European countries are darkening the outlook for consumption, but this has not prevented some improvement.
Friday May 24
GERMAN BUSINESS CLIMATE INDEX, IFO, May data, 10 AM CET
This indicator for the German business climate has seen strong improvements from October to February, but declined again in March and April. This is largely due to the increased uncertainty regarding the stability of the euro, which arose because of the Cypriot bailout negotiations. The German economy is likely to remain among Europe’s strongest, but that does not yet guarantee that a strong recovery is at hand. When this indicator goes up, it could have positive implications for investment, a weak area of performance in most of Europe.
