US and Europe

Eurozone - a mixed story

Monday May 14, 2012

The refinancing rate in the Eurozone was held steady at 4% in September, in line with decisions by monetary authorities in most major economies.  This was to counter the jitters caused by the subprime debacle.  This was in an environment, where, just weeks before the 6 September meeting of the European Central Bank (ECB), most economists had been predicting a 25 basis point rise.

Not only the subprime market can be blamed, however; inflation in the 13-nation Eurozone was down to 1.8% in August and July, from 1.9% in June, close to the 2% target set by the ECB.  Nevertheless, many economists still feel that rates may rise to 4.5% by the end of the year, as inflation may once again rear its head.

And then there’s GDP growth.  This halved in the Eurozone over the three months to June, up just 0.3%.  Still, most commentators believe the decline from 0.7% growth in the March quarter was just a blip.  The reasonable annual growth of 2.5% to June is set to continue, most feel.  Much of this decline was the result of lower investment spending, which was down 0.2% in the quarter.

Retail trade volumes were up just 0.5% over the year in July, and just 0.1% over June figures although these figures did not include data from the area’s second and third largest economies, France and Italy.  These values were well below forecasts for the month and year.  The biggest downward pull came from non-food consumer goods purchases.

Economic confidence also ebbed somewhat in August across Europe, led mainly by a deteriorating outlook in Poland, Italy and, to a lesser extent, Germany.  This was despite strong growth in industrial orders.  Orders rose 4.4% over May and almost 14% over the year before.  The figures were comfortably above the expectations of most economists.  Similar figures were seen in the broader 27-nation EU.

The Eurozone’s trade surplus surged nearly fivefold in June from May, against the background of the Euro maintaining its position of strength against the US$, Yen and Swiss Franc.  The June surplus reached €7.8bn.  Exports were up 9% in June 2007 compared to June 2006, while imports rose 4%.