EU Raises Growth Forecast for 2014, Says Recovery Has Take Hold - General

thenews 2014.05.05 18:32 #921

EU raises its growth forecast for 2014

The European Commission has raised its growth forecast for the EU, saying that "the recovery has taken hold".

The 26 nations of the EU are forecast to grow by 1.6% for 2014, a touch higher than the forecast of 1.5% made in late February.

The growth forecast for the 18-nation eurozone remains at 1.2% for 2014.

The Commission expects the jobs market to continue to improve, forecasting EU unemployment will fall to 10.1% this year. In March, the rate was 10.5%.

Unemployment in the euro-area is expected to fall to 11.4%, from 11.8% in March.

Siim Kallas, the Commission's vice-president, said: "The recovery has now taken hold. Deficits have declined, investment is rebounding and, importantly, the employment situation has started improving.

"Continued reform efforts by member states and the EU itself are paying off."

Europe's biggest economy, Germany, is expected to grow 1.8% this year.

But 2014 growth is forecast to be much more modest for the euro-area's other big economies:

Italy: 0.6%
Spain: 1.1%
France: 1.0%

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thenews 2014.05.05 19:35 #922

European Commission Sees 'Very Low' Deflation Risk In Eurozone

Eurozone is experiencing a more lasting recovery and any risk of deflation remains very low, the European Commission said Monday, while its latest projections showed that inflation will take more time than estimated earlier to return to the European Central Bank's target.

In its Spring 2014 forecast, the executive-arm of the EU projected 1.7 percent GDP growth for 2015, which was lower than the 1.8 percent predicted in February. The growth forecast for this year was retained at 1.2 percent.

"Risks to the growth outlook remain tilted to the downside," the commission said.

Inflation projections were lowered for both this year and next. "HICP inflation could turn lower than envisaged in the central scenario, if labor market conditions and commodity prices turned out weaker than expected," the commission said.

"However, the probability of outright deflation, defined as a generalized and self-enforcing fall in prices in the euro area as a whole, remains very low."

The inflation forecast for 2015 was lowered to 1.2 percent from 1.3 percent. The projection for this year was cut to 0.8 percent from 1 percent.

That is well outside the ECB's target of keeping inflation 'below, but close to 2 percent'.

Elsewhere today, producer price data released by Eurostat added to fears of deflation taking hold in the Eurozone. Producer prices dropped 1.6 percent year-on-year, after a 1.7 percent fall in February, which was the biggest decrease since December 2009.

Economists had forecast the pace of decline to remain unchanged. Month-on-month, producer prices fell 0.2 percent in March, same as in February. Economists were looking for a 0.3 percent drop.

ECB policymakers have maintained that there is no risk of deflation in the euro area. In April, headline inflation rose to 0.7 percent from a 52-month low of 0.5 percent in the previous month, but remained below the central bank's target for the fifteenth month in a row.

The central bank has indicated that its June meeting will be key to determining whether any further stimulus is needed or not. However, analysts expect the bank to unveil some measure at this week's meeting.

Stubborn high unemployment in the 18-nation economy is another cause for concern for policymakers. The European Commission today lowered this year's jobless rate projection to 11.8 percent from 12 percent. The outlook for next year was cut to 11.4 percent from 11.7 percent.

Among the Eurozone members, only Cyprus is expected to remain in recession this year with a forecast for 4.8 percent contraction, after a 5.4 percent shrinkage last year.

Germany's growth projections were left unchanged. The biggest euro area economy is expected to grow 1.8 percent this year and 2 percent in 2015.

The growth outlook for France for this year was maintained at 1 percent. However, the projection for 2015 was cut to 1.5 percent from 1.7 percent.

Meanwhile, this year's growth forecast for Spain was raised again to 1.1 percent from 1 percent. The outlook for 2015 was raised sharply to 2.1 percent from 1.7 percent.

Growth forecasts for Italy were retained at 0.6 percent and 1.2 percent, respectively.

Greece and Spain are expected to log the highest jobless rates of 26 percent and 25.5 percent this year. Both figures are expected to fall to 24 percent next year.

The entire EU economy is forecast to expand 1.6 percent this year, which is slightly faster than the 1.5 percent growth seen earlier. In 2015, the economy is expected to grow 2 percent versus the earlier prediction of 1.9 percent.

Within the EU, only Croatia is expected to remain in recession this year. The country's economy is expected to shrink 0.6 percent this year and grow 0.7 percent in 2015.

The U.K. economy is expected to grow 2.7 percent this year and 2.5 percent in 2015. These are slightly faster than the earlier projections of 2.5 percent and 2.4 percent, respectively.

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thenews 2014.05.06 05:43 #923

EUR/USD breaks 1.39 on good news from Spain

Two positive figures from Europe’s fourth largest economy came out in 15 minutes and were enough to wake up EUR/USD.

The pair rose from 1.3887 to 1.3914 and is holding on to the new round number. This is the highest in 7 weeks and quite close to the ECB’s “line in the sand” of 1.40. Will the stronger exchange rate force Draghi to act?

Spain reported a drop of 111,565 people from the lists of unemployment in April to 4,684,301 people out of work. This month is usually characterized by stronger employment as the tourism season begins. Nevertheless, also in seasonally adjusted terms, this is a drop of 50,202 people and the best April since the ’90s. Year over, the number of people looking for a job is down 304,892.

More good news came from Markit. The services PMI for the month of April made a big surprise: it posted a jump from 54 to 56.5 points, reflecting stronger growth. Expectations stood on a small rise to 54.3 points.

The Italian services PMI and final figures from France and Germany will complete the final services PMI. Later on, we also have retail sales from the euro-zone.

Important resistance awaits at the multi-year high of 1.3964, which precedes the round number of 1.40, a number which is carefully watched by the European Central Bank.

ECB president Mario Draghi already said several times that the exchange rate may force his institution to act. Will he follow up with action? We will know on Thursday.

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thenews 2014.05.06 07:19 #924

Draghi Grapples With Money Markets Showing Revival Too Soon

Mario Draghi may need to take action to stop money-market investors getting ahead of themselves.

For the first time since 2008, overnight interbank rates are starting to exceed the European Central Bank’s benchmark interest rate, signaling a return to pre-crisis behavior even as the economy remains fragile. That’s testing the ECB president’s promise that officials are ready to respond to any unwarranted monetary tightening.

While rising market rates could be a sign of normalization against the backdrop of a healing euro-area economy, the risk is that they increase loan costs for companies and households too fast and endanger that recovery. Draghi may steer against exuberance as soon as this week by deploying policies considered since last year, such as ending the absorption of cash from crisis-era bond purchases, according to banks including Societe Generale SA.

“The ECB believes only in a very gradual recovery,” said Anatoli Annenkov, senior European economist at Societe Generale in London. “From that perspective, they’d probably be happy to push money-market rates as low as possible.”

The average cost of overnight, unsecured lending between banks in the euro area was 0.254 percent last month, three times as high as a year earlier. The measure, known as Eonia, spiked to 0.457 percent on April 29, the highest excluding month-end volatility since 2011. The ECB’s main refinancing rate has been at a record-low 0.25 percent since November.

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