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Eurozone economy on course for modest recovery
The eurozone economy showed on Friday enough of improvement in the fourth quarter to suggest a modest recovery remains on track but problems remain, notably near-record unemployment and deflation risks.
The single currency bloc grew 0.3 percent in the fourth quarter of 2013, at the top end of forecasts, after it nearly stalled in the third when it expanded just 0.1 percent.
Analysts expected a fourth quarter gain of 0.2-0.3 percent.
"While still far from dynamic, it was a step back in the right direction," said Howard Archer at IHS Global Insight.
At the same time, the outcome still left the eurozone in negative territory for the year, shrinking 0.4 percent in 2013, Archer noted.
The eurozone escaped a record 18-month recession in the second quarter last year with growth of 0.3 percent but data since then has been very mixed, sparking concerns the recovery could run out of steam.
Friday's figures are reassuring on that count.
Not only the core countries led by Germany did well but "encouragingly, there were further signs of improvement in the long-suffering struggling southern periphery countries," Archer said.
There, Spain grew 0.3 percent while Italy made it into positive territory with 0.1 percent, the first time it has done so since second quarter 2011, he noted.
Germany showed a gain of 0.4 percent in the October-December period, better than analyst forecasts of 0.3 percent.
In contrast, the French economy grew 0.3 percent in the fourth quarter but this was short of official forecasts of 0.4 percent.
Non-euro Britain expanded 0.7 percent, compared with 0.8 percent in the third quarter, as it continued one of the stronger performers.
No all-clear yet
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Eurozone Economy Gains Further Momentum In Q4
Euro area economic growth accelerated more-than-expected in the fourth quarter, gaining strength from almost all major economies in the currency bloc. The positive data has reduced the pressure on the central bank to take any immediate remedial measures to cushion growth and counteract slowing inflation.
Gross domestic product grew 0.3 percent sequentially, which was faster than the 0.1 percent rise posted in the third quarter, flash estimates from Eurostat showed Friday.
The rate was also above the 0.2 percent forecast by economists. The economy expanded for the third successive quarter at the end of 2013, following six quarters of contraction.
On a yearly comparison, GDP rose 0.5 percent, reversing the 0.3 percent decline in the third quarter. The detailed breakdown of GDP will be available with the final data due on March 5.
Overall, the economy shrank 0.4 percent in 2013 and rose by 0.1 percent in the EU28, the report showed.
Nonetheless, growth is likely to remain a long way short of the rates needed to tackle the problems of sky-high unemployment and crippling debt levels in many euro-zone countries, observed Jonathan Loynes, chief European economist at Capital Economics.
The economist sees dangers of deflation in the currency union. The key interest rate remains at a record low 0.25 percent.
The modest better-than-expected pick up in growth eases some of the appreciable pressure on the central bank to take immediate stimulative action to counter the renewed dip in Eurozone inflation in January, said Howard Archer, chief European economist at IHS Global Insight.
Nevertheless, the economist expect persistent very low Eurozone inflation, ongoing difficulties in building growth momentum, and still tight Eurozone credit conditions to prompt further action from the European Central Bank.
Last week, ECB President Mario Draghi said policymakers are currently prevented from taking any action by the complexity of the current situation and it was more sensible to wait for the ECB staff macroeconomic projections due in March.
Most of the Eurozone nations today released upbeat fourth quarter GDP data. German and French growth exceeded expectations, while the Italian economy expanded for the first time since the second quarter of 2011.
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EUR/USD Forecast Feb. 17-21
EUR/USD managed to move higher within range as economic growth trumped inflation fears. Is a break out coming soon? German economic sentiment and purchasing managers’ indices are among the main market movers of the week. Here is an outlook on the major events and an updated technical analysis for EUR/USD.
Europe’s locomotive posted a solid growth rate of 0.4% in Q4 2013, beating forecasts for a 0.3% expansion rate thanks to a rise in exports and capital investment. Accompanied with stronger than expected GDP growth from France and other countries, the euro-zone recovery also accelerated and this boosted the euro. The good news beat worries of ECB action. A French ECB member said that the ECB is considering negative rates “very seriously” and the euro took a serious dive. In the US, weak retail sales alongside stood out in a streak of disappointing numbers. The effect of the weak weather is not so temporary, and the weakness is not only weather related.
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Europe sees first annual growth since 2011
Europe's economy returned to annual growth in the last quarter of 2013 as a recovery gradually picked up pace.
Eurozone GDP rose by 0.3% in the fourth quarter, compared with the third, and by 0.5% over the same period of 2012, according to figures released Friday by Eurostat.
It was the first quarter of year-on-year growth since the end of 2011, and helped reduce the overall decline in Europe's economy last year.
The fourth-quarter acceleration was driven by a return to growth in France and Italy, which saw its first quarterly expansion in two and a half years, and a stronger performance in key economies such as Germany, the Netherlands and Spain.
France managed growth of 0.3% over the quarter, slightly stronger than expected, after zero growth in the third quarter. Germany, the eurozone's biggest and strongest economy, reported growth of 0.4% quarter-on-quarter, coming in slightly ahead of expectations thanks to robust exports.
The improving outlook reflects the painful structural reforms undertaken across the region, new fiscal rules that should prevent a repeat of the debt crisis, and confidence in the financial safety net offered by the European Central Bank, according to Berenberg economist Christian Schulz.
"The foundations for growth are much stronger now than they were before the crisis, even though some countries like Italy and France still have serious homework to do," he noted.
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EUR/USD weekly outlook: February 17 - 21
The euro rose to three-week highs against the dollar on Friday as stronger-than-forecast euro zone fourth quarter growth data bolstered the outlook for the recovery in the euro area.
EUR/USD hit 1.3715, the strongest since January 27 and was last up 0.09% to 1.3691. For the week, the pair gained 0.35%.
The pair was likely to find support at 1.3640 and resistance at 1.3775, the high of January 2.
The common currency was boosted after data showed that the euro zone economy expanded 0.3% in the three months to December and expanded 0.5% from the same period a year earlier.
Market expectations had been for quarterly growth of 0.2% and a year-over-year increase of 0.5%.
Germany’s gross domestic product rose 0.4% in the fourth quarter, ahead of expectations for 0.3% growth, while France avoided falling back into a recession, posting growth of 0.3% in the final three months of 2013.
The data eased concerns that the European Central Bank could tighten monetary policy at its next meeting, after President Mario Draghi said last week the bank would wait for more information before taking any action.
The dollar came under pressure after data on Friday showed that U.S. factory output fell unexpectedly in January, clouding the outlook for the economic recovery.
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Draghi Vow to Act Splits Economists as Growth Picks Up
Mario Draghi’s signal that he may act to counter low inflation as soon as next month is dividing economists as the euro-area recovery shows signs of firming.
Nineteen out of 38 responses in the Bloomberg Monthly Survey of economists showed the European Central Bank president will ease monetary policy when officials hold their monthly rate-setting meeting in March, with the same number indicating he’ll stay on hold. While euro-area inflation matched a four-year low in January, the currency bloc’s economy grew faster than expected at the end of last year, according to data released on Feb. 14.
Draghi is trying to support the regional revival against the backdrop of subdued price pressures that threaten to undermine economic activity. Even so, he kept rates unchanged at a record low on Feb. 6 as he cited the “complex picture” of the economy and the “need to get more information” before deciding whether to take action.
“The ECB is probably happy to remain sitting on its hands,” said Duncan de Vries, an economist at Nibc Bank NV in The Hague. “The inflation rate is obviously low and is not expected to change significantly in the coming months, but policy makers are expected to look through short-term inflation developments against the background of slightly improving economic growth momentum.”
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German Investor Confidence Falls on Caution Over Outlook
German investor confidence fell for a second month in February, signaling concern that the fragile recoveries in neighboring countries pose a risk to Europe’s largest economy.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 55.7 from 61.7 in January, after reaching a seven-year high of 62 in December. Economists forecast a decline to 61.5, according to the median of 37 estimates in a Bloomberg News survey.
While German economic growth of 0.4 percent in the fourth quarter exceeded analysts’ estimates, investors are still cautious about the rest of the euro area, the nation’s biggest trading partner. Regional unemployment near a record high, shrinking bank lending and persistently low inflation have prompted the European Central Bank to say it may ease policy as soon as next month to support the subdued recovery.
“It’s more of a stabilization than a turn in sentiment,” said Thilo Heidrich, an economist at Deutsche Postbank AG (DPB) in Bonn. “We’re at very high levels, the highest we’ve seen since the financial crisis.”
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EU ministers make limited headway on new bank rules
EU finance ministers made only limited progress Tuesday to find a compromise with the European Parliament on how to wind up failing banks before they can damage the wider economy.
Ministers discussed the idea of allowing some leeway in talks with Parliament, but Greece, as current holder of the EU presidency, "has no new mandate," Finance Minister Yannis Stournaras said.
Going into the meeting, Stournaras warned that time was short and called for "some flexibility so that we can close the gap."
Parliament breaks up in April for elections in May and there are growing concerns that a hard-won deal on bank regulation sealed by EU leaders in December could hang fire if the required lawmaker approval is not reached before then.
The 28 EU leaders agreed a ground-breaking Single Resolution Mechanism which will step in to close banks in trouble in an orderly fashion.
The mechanism would work alongside a new regulator, run by the European Central Bank, that is set to supervise the eurozone's 130 biggest banks starting in November.
Closing down a bank is a costly and politically charged step and so EU leaders set up a multi-step decision-making structure which gives them the final say and minimises the role of the European Commission.
But MEPs say this could clog up the system when speed is essential.
They also add that an accompanying fund to pay for bank closures is unwieldy and at 10 years, takes too long to come into effect.
Additionally, this fund is to be set up through treaties between EU member states, not under EU law, meaning Parliament has no say over its implementation.
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Greece Logs First Current Account Surplus On Record
Greece recorded the first ever current account surplus in 2013, mainly due to a narrowing in the trade deficit that is attributable to record tourist receipts and falling imports.
The current account showed a surplus of EUR 1.2 billion versus a deficit of EUR 4.6 billion in 2012, the Bank of Greece said Wednesday. It is the first surplus since the series began in 1948. In 2011, Greece posted a deficit of EUR 20.6 billion.
Goods trade deficit shrunk to EUR 17.2 billion from EUR 19.6 billion a year ago. Imports fell 4.5 percent, while export receipts grew 2.3 percent.
Lower oil imports was the reason for the decline in the import bill and higher exports of oil products, food and beverages and non-metallic mineral products led export growth.
Higher net travel receipts led to the increase in the services surplus. Tourist spending grew 14.9 percent year-on-year.
For the month of December, the country recorded a deficit of EUR 215.4 million, which was narrower than the EUR 479.3 million shortfall logged a year ago.
Merchandise trade deficit widened to EUR 1.3 billion from EUR 978 million in the previous year. Services surplus grew to EUR 628 million from EUR 459 million.
The income account showed a shortfall of EUR 129.1 million in December versus an excess of EUR 18 million the year before.
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