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GROWTH
This sections gives a rapid run down of the "hard" statistics on growth in the euro zone. As these are published with some delay a more up to date, but less precise, view of the state of growth is provided by the surveys. The section concludes with consensus and Euroeconomics forecast of GDP.
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S U M M A R Y (updated 25 Jan'12)
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GDP growth: mini recession
likely in Q4'11-Q1'12 After robust GDP growth of 0.8% q/q in Q1'11, euro zone growth in Q2'11 and Q3'11 came to a mere 0.2%. The Jul-Dec'11 business surveys pointed to a progressive and steep weakening of growth (see surveys). Q4'11 may thus see a decline in GDP of the order of 0.4%. This quarterly pattern for 2011 indicated in the chart opposite adds up to 1.7% GDP growth. For 2012 minimal growth is now widely expected, in part because of the restrictive fiscal policies forced on an increasing number of indebted countries, in part because of weak bank lending. Because of a probably weak start to the year, even a progressive improvement in the course of the year may still bring modest growth rate for 2012 as a whole. For 2013 growth of 1.3% or less is now widely expected. Our own forecast is for 2.7%.
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| Industrial production:
inching lower Nov'11 100.4 (2005=100, s.a.): -0.1% m/m, -0.2% y/y; published 12 Jan; Dec'11 due 14 Feb. (source: Eurostat) |
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| Country developments:
weakness predominate Nov'11 results by country were mostly down, an exception is France where output rose by 1%. Results though vary widely by month. A good month often being followed by a poor month (and vice versa). Among Europe's problem countries, however, the downtrend dominated. In Italy, Spain, Portugal and Greece results in recent months have all been below year-before levels (table below). Only in Ireland is output up on the year (though results vary particularly widely from month to month). As the table below shows, results over the last three months period vary from boom to deep depression. A very diverse monetary union. Some core Europe countries (Germany, Austria and Belgium) and two small East European countries (Slovakia, Estonia) remain well in the lead, with output growing at solid y/y rates. But in a lengthening list of countries recent output levels are lower than a year earlier, often substantially so. |
Sector developments: weakness all
round Results by major industrial sectors were also mostly weak in Nov'11 Output in the capital goods sector, which grew robustly earlier in the year, was unchanged. On the year output was still up by 4%, a far cry from the double digit growth rates recorded earlier when the developing countries were major purchasers of capital equipment. The output of durable consumer goods has now declined in four successive months and output in Nov'11 was 4% down y/y. Output of non-durable consumer goods, mainly processed foods, is 1% down on the month and also 1% down on the year. The earlier strong growth recorded in the intermediate goods sector has gone into reverse. Nov'11 output was unchanged on the month, and down 1% on the year. |
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Industrial
Production growth
rates by country |
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Countries with high growth rates |
Countries with growth rates |
Countries with negative growth rates |
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Belgium 6.1* |
France
1.1 |
Portugal
-1.3 |
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*Aug to
Oct, Nov not yet published |
Euro area average 1.0 |
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| Industrial production s.a. %
change y/y: Nov'11 -0.2% (not s.a.: -0.3%) |
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The chart above shows industrial production in terms of y/y changes. In Oct'11 output, s.a., was 1.7% up on Oct'10. ( In non-s.a. terms the rise was 1.3%.)
| Value of industrial
new
orders: stabilising at low level Nov'11 106.1 (2005=100, s.a.) -1.3% m/m, -2.7% y/y; published 24 Jan; Dec'11 due 22 Feb. Source Eurostat |
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After plunging in Sep'11, industrial new orders
appear to have stabilised at a low level. The steep uptrend
since mid-2009 ended in May'11 and then went sharply into reverse. The business surveys foreshadow
further sideways movement at the current low level. (see
surveys). Trends by main industry sectors: all round weakness The capital goods sector, which earlier grew by double digit annual rates, showed in Nov'11 a 4% y/y decline. Monthly movements are irregular as this sector contains big ticket items (such as planes and trains). Nov'11 brought a 2% decline, offsetting a 2% gain in the previous month Most of the other major categories also showed negative results. New orders for durable consumer goods declined by 4% y/y, intermediate goods by 3%. |
Only orders for non-durable
consumer goods (mostly processed food) were in Nov'11
higher than a year ago, by 4%. The weak orders for intermediate goods in part reflects the stock cycle. At the start of the year they were rising at an annual rate of 20% plus, reflecting restocking. This petered out around mid year. Stocks are now being run down. Trends by country: steep declines predominate By country Nov'11 results were mostly negative. Even Germany suffered a decline. Broadly speaking, in core Europe orders are about unchanged on the year. In the problem countries, as expected, orders are sharply down on the year. An exception is Ireland which saw a jump in orders in Nov'11. |
In y/y terms euro zone industrial new orders (s.a.) in Nov'11 were down by 2.7% (Chart below).
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CONSTRUCTION
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Construction output:
modest improvement from depressed level Nov'11 82.4 (2005=100, s.a.): +0.8% m/m, +0.2% y/y; published 18 Jan; Dec'11 due 17 Feb. Source: Eurostat |
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Construction output in Nov'11 rose by
0.8% on the month and 0.2% on the year. The trend throughout 2011 has
been basically sideways at a depressed level.
Output is some
21% below its average level in 2007, the peak year for
construction. The rise in Nov'11 was due to a jump in construction output in Germany. Elsewhere results were mixed. Viewed somewhat longer term, growth in core Europe countries was strong in Q1'11 but diminished thereafter. In the indebted peripheral countries the steep declines early in the year flattened out somewhat in later months. The euro zone's heavily indebted countries experienced steep declines in H1'11. In Spain construction output in H1'11 was 32% lower than a year ago, though H2'11 is seeing a modest improvement. In Ireland the decline amounted to 20% in the first nine months of 2011, in Greece to 27% and in Portugal to 9%. |
The construction industry thus remains the weakest sector of the euro
zone economy. In recent months only seven of the seventeen countries have seen
output at levels exceeding even the 2005 level: Germany, Belgium, Austria, Finland, Luxembourg, Malta and
Slovakia. Germany and Finland stand out with output some 30% up on 2005. Surveys: the European Commission's survey indicated that sentiment in Dec'11 deteriorated a fraction. The slight upward trend in place from mid-2010 up to Aug'11 has been broken. Confidence in construction remains deeply depressed in the most indebted countries (Spain, Greece, Portugal and Italy; Ireland does not participate in this survey but confidence levels there are likely to be similarly low). See Surveys |
| Retail sales:
trend remains downward, may bounce in Dec'11 Nov'11 index 99.8 (2005=100, s.a.): -0.8% m/m, -2.0% y/y; published 6 Jan; Dec'11 due 3 Feb. (source: Eurostat) |
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| The slow recovery from recession seen in retail sales
came to a halt as long ago as mid-2010. Since the trend has been
downwards. Surveys suggest that the downtrend may persist for a while yet.
Though Dec'11 may see a bounce from the exceptionally poor Nov'11
result. By country results for Nov'11 were mostly negative. Sales declined in Germany and France and probably in Italy too (Nov'11 result not yet available). Retail sales were particularly hard hit in the most indebted countries as various taxes were increases and salary & wages cut. In Spain retail sales in the latest three months period were 16% below even their 2005 level. In Italy they were 5% below their 2005 level, in Portugal by 11% and in Greece by 16%. More austerity measures are being heaped on these countries. |
Another reason for the overall weakness in
retail sales is that in many countries wage and salary increases have been
outstripped by quite rapidly rising consumer prices. In
particular the surge in the oil price over the Nov'10-Apr'11 months has
eroded consumers' real purchasing power and explains much of the
weakness. The oil price receded in May-Sep, but not by
all that much. More recently the oil price has again risen, particularly
for consumers in the euro zone as the currency weakened. Surveys: weak outlook The Dec'11 survey of the European Commission indicated that consumer confidence and confidence in the retail trade sector declined again, if more modestly than in the summer months. Both indicators are now well below their historic averages. (see surveys). |
The chart below shows the y/y changes in retail sales volumes in
terms of 3-month moving averages (to even out the erratic monthly
changes).
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NEW CAR REGISTRATIONS
| Car registrations:
rising from low level Dec'11 new passenger car registrations (s.a.): 857k ,+3.6% m/m, +1.4% y/y published 17 Jan'12 (source: ECB) |
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New passenger car
registrations, after plunging through most of 2008, recovered
smartly in 2009 thanks to various incentive schemes. The peak for
the year was reached in Jun'09 with almost one million new vehicles registered
(s.a.). Once most of the schemes ended sales plunged. A low for 2010 was reached around mid year, with registrations 21% down on the previous year's peak. A partial recovery in H2'10 was not sustained in H1'11. In H2'11 sales were little changed at a historically low level until Dec'11 when they strengthened markedly. |
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| Unemployment: rising
more slowly Dec'11 10.4% s.a. (previous 10.4%). published 31 Jan; Jan'12 due 1 Mar. (source: Eurostat) |
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Unemployment is on a rising trend. After declining to 9.9% of
the labour force in Apr'11, the unemployment rate
rose steadily to reach 10.4% in Nov-Dec'11, thus above its post recession
peak of 10.2% of mid-2010. The business surveys suggest that
unemployment may continue to rise for a while yet, though there are
signs of some easing in the uptrend. Unemployment (s.a.) rose by 20 000 in Dec'11. In total 16.469m were unemployed (751 000 more than in Dec'10). The latest business surveys are still mostly pessimistic about employment prospects. According to the Jan'12 Purchasing Managers' surveys employment gains stalled in the private sector. Results varied by country: gains were still recorded in some core Europe countries, but in the indebted periphery jobs are being lost at a rapid rate. According to the Jan'12 surveys of the European Commission employers in industry, services, construction and retail trade all expect to hire fewer people than in the summer of 2011. But the latest surveys do show some easing in the decline in employment expectations. As before unemployment rates vary enormously from country to country as indicated below. Germany in Jan'12 again reported a larger than expected drop in unemployment (s.a.) The unemployment rate declined to 6.7% (national definition), a 20yr low. |
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Unemployment
rates by country |
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Countries with low unemployment |
Countries with unemployment near euro zone average |
Countries with high unemployment |
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Austria
4.1 (4.2) |
Slovenia 8.2
(8.0) |
Slovakia 13.4 (13.8)
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*excludes
layoffs paid by the cassa |
Euro area average 10.4 (10.0) |
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| Employment:
declining Q3'11: 146 866 thousand s.a. (Q2'11: 147 036 thousand) published 15 Dec; Q4'11 due 15 Mar. (source: ECB) |
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| Employment (s.a.) in the euro zone in Q3'11 stood at
146.9m, 170 000 down on Q2'11. After the steep losses during the
recession, only 543 000 new jobs have been created. Compared to peak employment in Q1'08 of 150.1m,
Q3'11 employment is still 3.3m less. Jobs created mostly in public sector Trends vary by sectors. Employment in Q3'11 increased modestly in the public sector and in manufacturing (+0.1% q/q). Quite steep declines were recorded in construction and real estate activities (-1.2% q/q), less steep ones in agriculture (-0.5%) and in some services sectors such as finance & insurance (-0.1%). Jobs created in core Europe, lost in indebted countries Q3'11 brought a clear divide between core-Europe and peripheral countries. Jobs were still being created in core Europe, but at a distinctly slower rate than in the previous quarter. Jobs were lost in Spain, Portugal, Ireland and Greece. Jobs were probably also lost in Italy (which has not yet reported). |
Job losses may accelerate in Q4'11 As noted above, the latest business surveys are mostly pessimistic about employment prospects. The Purchasing Managers' surveys found modest gains still being recorded in some core Europe countries, but accelerating job losses in the indebted periphery. The European Commission's survey found declining job creation in industry, services, construction and retail trade. Among consumers unemployment expectations have risen. |
| Extra-EA trade:
exports surge Nov'11 exports s.a. EUR149.2bn (previous EUR143.5bn), imports s.a. EUR143.0bn (previous EUR143.0bn); published 13 Jan;Dec'11 due 15 Feb. (source: Eurostat). |
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The steep uptrend in foreign trade ended in
mid-2011, followed by an irregular and more modest uptrend. After plunging in Sep-Oct'11, exports rose to a new peak in Nov'11. Exports (s.a.) in Nov'11 were 4% up on the month and 10% up on the year. The latest surge is mainly due to France (probably heavy transport equipment such as airbuses). Euro zone exports in 2011 grew particularly rapidly (by more than 20% y/y) to Russia, China and Turkey. Double digit growth rates were also recorded in exports to close neighbours (Switzerland, Poland, Czech Republic and Sweden). Relatively modest growth was achieved in UK and US markets. The business survey foreshadow only subdued export growth in the immediate months ahead. Imports, which exceeded exports in most months in 2011, failed to strengthen in Nov'11, resulting in an unusually large trade surplus (see below). On the year imports were up by 7%. |
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The chart below shows y/y changes in exports and imports in terms of 3-month moving averages (to smooth erratic monthly movements). Exports and imports rose particularly sharply in the first eight months of 2010, reducing the y/y rates of increase in the first eight months of 2011 (negative base affect).
TRADE AND CURRENT ACCOUNT BALANCES
| Trade
balance:
Nov'11 brings unusually large surplus Nov'11 trade balance s.a. EUR+6.1bn (previous EUR +0.5bn); published 13 Jan; Dec'11 due 15 Feb. Source: Eurostat |
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The surge in imports tipped the euro area's trade balance back into deficit
for most of 2011.
But the final quarter is bringing a return to surplus. After the EUR13bn surplus chalked up in 2009, 2010 brought a EUR14bn deficit. The deficit so far in 2011 amounts to EUR10bn. These are modest numbers. The US 2010 trade deficit amounted to USD498bn. (The chart above shows the trade balance as a 3-month moving averages to smooth the irregular monthly movements). |
Trends by country diverge widely: Germany sports a huge surplus.
Sizeable surpluses are also chalked up by Ireland,
Netherlands and Belgium.
Against this quite large deficits are
run by all the Mediterranean countries (France, Italy, Spain, Portugal, Greece). In the case of France, Germany and Italy the imbalances have grown. Progress is being made in Greece and, to a lesser extent, in Spain and Portugal in reducing the deficits. See Constitution about the problems potentially created by diverging current account balances. |
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Current account balance:
moderate deficit Nov'11 current account balance s.a. -EUR1.8bn (previous -EUR6.6bn); published 19 Jan; Dec'11 due 17 Feb. (source: ECB) |
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The current account
of the euro zone in Nov'11 was back in modest deficit after the deep
deficit in the preceding month.
(The chart above shows the balances as 3-mnth moving averages
to iron out irregular monthly movements.) The deficit for the 12 months to Nov'11 amounted to EUR45bn (0.5% of GDP), up from the EUR35bn deficit in the 12-months to Nov'10. |
The EUR45bn deficit for the latest 12-mnth period is due to a EUR103bn deficit on current transfers and a EUR6bn deficit on goods, partially offset by a surplus for services of EUR58bn and for income of EUR7bn. |
| GDP growth:
modest growth in Q3'11, decline expected in Q4'11 GDP Q3'11 (second estimate):+ 0.2% q/q , +1.4% y/y; published 6 Dec; Q4'11 flash estimate due 15 Feb. (source: Eurostat) |
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Weak GDP
growth followed robust first quarter GDP in both Q2'11 and Q3'11 rose by 0.2% q/q, sharply down from 0.8% in the previous quarter. Growth varied considerably by country Germany which grew strongly in Q1'11 with a 1.3% q/q spurt, grew by a more subdued 0.3% in Q2'11 and 0.5% in Q3'11. Growth in France collapsed from 0.9% in Q1'11 to -0.1% in Q2'11. Q3'11 brought a partial recovery to 0.4%. Growth in Italy and Spain was consistently weak. Greece experienced consistently steep declines. |
Q3'11 GDP
detail: growth driven by exports, consumer spending
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GDP growth
rates by country
in volume |
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Countries with high growth rates |
Countries with growth rates near euro zone average |
Countries with low or negative growth rates |
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Estonia 8.6 |
Malta
2.6* |
Ireland
0.8 |
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*Q4'10 to Q2'11 (Q3'11 not available) |
Euro area average 1.8 |
Source: Eurostat |
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GDP forecasts: steep downward revisions
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Among forecasters initial caution
about 2011 growth proved correct.
For 2011 forecasters initially expected
moderate growth of around 1.5%. The caution was based on fears that
slow progress only would be made in bringing the financial sector back to
health. The austerity measures forced on the deeply indebted
countries were
seen as a major negative. |
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Pre-crisis growth (2003 to 2007) was supported by favourable financial conditions (abundant availability of cheap credit) which proved unsustainable. Growth since is hampered by higher cost of capital due to higher risk premiums and lower leverage in private sector. |
Euro zone banks, facing major losses on their
holdings of the debt of the over indebted euro zone
countries are shrinking their balance sheets,
tightening lending conditions.
GDP growth is in the medium term is basically driven by the supply side, not the demand side. |
gdp.jpg) |
Euroeconomics 2013 forecast: greater emphasis
put on the positive factors:
Growth in the euro area is expected to be near
3% in 2013. |
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