Bloomberg News - Euro Area’s Recession Seen Over as Champagne Kept on Ice

 

David Ramos/Bloomberg

Pedestrians walk past old residential buildings in Bilbao, Spain. The nation’s economy shrank just 0.1 percent in the second quarter from the prior three months and unemployment fell from the highest levels in the country’s democratic history.

The euro-area economy probably edged back to growth last quarter for the first time since 2011, ending the longest recession since the single currency union started 14 years ago.
Gross domestic product in the 17-nation region expanded 0.2 percent in the three months through June after shrinking for the previous six quarters, according to the median of 41 forecasts in a Bloomberg News survey. The European Union’s statistics office in Luxembourg will release the data on Aug. 14. Germany probably grew about 0.75 percent, according to a government estimate, exceeding the 0.6 percent economists predict.


A year of relative calm on financial markets, budget cuts from Spain to Italy and accelerating growth in the U.S., the world’s biggest economy, have helped the euro area start to recover. While the overall outlook has improved, the recession has left the region with a youth unemployment rate of 24 percent, and parts of southern Europe remain mired in a slump.
“The external environment is really getting better, led by signs that U.S. demand is picking up,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow. We’re not getting the champagne out yet.”
The euro slipped 0.3 percent to $1.3299 as of 9:22 a.m. London time. The Stoxx Europe 600 Index declined 0.2 percent after advancing 0.6 percent last week to a 10-week high.

Slowing Contractions

European Central Bank President Mario Draghi has described progress as “tentative.” Against that backdrop, the ECB has cut interest rates to their lowest-ever level and Draghi has pledged they’ll stay there or lower for an “extended period.”
Spain’s economy shrank just 0.1 percent in the second quarter from the prior three months. Still, the country’s youth unemployment is 56 percent. In Italy, where Prime Minister Enrico Letta is easing last year’s budget austerity, GDP fell a less-than-forecast 0.2 percent.
Economic confidence in the euro area increased for a third month in July. Manufacturing expanded for the first time in two years, according to a purchasing-managers survey by London-based Markit Economics.
Adecco SA (ADEN), the world’s largest provider of temporary workers, reported increased profit for the second-quarter, and the Glattbrugg, Switzerland-based company said it sees more positive signs for business as Europe’s labor markets stabilize.

German Growth

As the pain in Europe’s periphery has eased, German growth has strengthened. The Economy Ministry said on Aug. 9 that the region’s biggest economy expanded “markedly” in the second quarter, driven by private consumption and industrial production.
Chancellor Angela Merkel will seek a third term as German leader on Sept. 22 on the strength of shielding her country from the worst effects of the euro area’s debt crisis. The Federal Statistics Office will release second-quarter GDP data before the euro-area number on Aug. 14.
Financial markets have largely avoided the volatility that marked previous years even as a change in Italy’s government stalled, Portugal’s coalition faltered, and Cyprus required a messy bailout. Draghi has cited the ECB’s unlimited bond-buying pledge, announced last year and so far untapped, as a reason for calmer markets. Yields on Spanish and Italian sovereign bonds have fallen in the past 12 months.
“It all looks a bit better than we thought,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “Our central case is a very modest recovery, and we’re still not overly bullish for the second half of the year.”

Lending Decline

One area of stress remains corporate access to credit. Lending to companies and households across the region fell the most on record in June. A review of banks’ balance sheets to be conducted by the ECB has probably been delayed until the first quarter of 2014 as the central bank says it can’t start preparing until EU lawmakers vote on the legislation, which won’t be before September.
The review is part of a plan to strengthen the region’s financial system by building a banking union comprising ECB oversight, a single resolution mechanism for winding up failing lenders, and common rules for deposit guarantees.
In the meantime, economic performance remains patchy. An unexpected 1.4 percent drop in French industrial production in June underlined the government’s struggle to revive growth in the region’s second largest economy. France is also due to release data for second-quarter GDP on Aug. 14.

‘Constrained’

“The upside for domestic demand in the euro zone is likely to remain constrained,” said Howard Archer, chief European economist at IHS Global Insight in London, citing “restrictive fiscal policy,” and “elevated” unemployment.
The euro area’s path out of recession will also be determined by conditions in major export markets such as the U.K., the U.S. and China. There, indications are improving.
In China, July industrial output rose more than expected after a larger-than-forecast rebound in exports eased concern that a credit squeeze in the world’s second-biggest economy would curb growth. The U.S. economy grew at a 1.7 percent annualized rate from April through June after a 1.1 percent pace in the first quarter.
For the whole of 2013, the ECB forecasts a contraction for the euro-area economy of 0.6 percent, before an expansion of 1.1 percent in 2014.
“There’s still some fiscal adjustment going on and that’s weighing on consumption, as well as banks in the south not being in a position to support the economy,” said Laurence Boone, chief European economist at Bank of America Merrill Lynch in London. “The consensus is for slight growth and we wouldn’t expect anything much more buoyant than that.”
 By Jeff Black

Bloomberg News - Bank of Korea Keeps Interest Rate on Hold After Growth Pick-Up

The Bank of Korea held its benchmark interest rate steady, as signs of stronger growth in the U.S. back its view that the economy will gather momentum.

Governor Kim Choong Soo and his board left the seven-day repurchase rate at 2.5 percent, the central bank said today in Seoul, in line with forecasts of all 16 economists surveyed by Bloomberg News.

An interest-rate cut three months ago and an extra government budget are helping to fuel an economy forecast by the central bank to expand next year at the fastest pace since 2010. Risks include a sluggish property market, China’s slowdown and the potential for volatile global capital flows when the U.S. Federal Reserve scales back monetary easing.

“The central bank is in wait-and-see mode after the May cut, especially as it’s too early to assess uncertainty over China’s slowdown and U.S. quantitative easing,” Park Jong Youn, a fixed-income analyst at Woori Investment & Securities in Seoul, said before the rate decision. “The Bank of Korea may raise the benchmark interest rate in the second half of next year should the global recovery gain steam.”

South Korea's economy grew at the fastest pace in more than two years in the second quarter, a gain of 1.1 percent from the previous three months.
 By Eunkyung Seo & Cynthia Kim

BBC News - Ex-IMF economist picked to head Reserve Bank of India

India has picked a former International Monetary Fund chief economist as the head of its central bank, as it works to revive its slowing economy.

Raghuram Rajan served as chief economic advisor to the government, working closely with the finance minister

Raghuram Rajan, 50, takes up the top job at the Reserve Bank of India on 4 September.

The announcement came as the rupee hit a new record low against the US dollar on Tuesday.

Mr Rajan, who is known for having predicted the 2008 global financial crisis, will replace D Subbarao.

His appointment comes with the rupee in free-fall because of India's current account deficit, a broad measure of trade, and the economy growing at its slowest pace in 10 years.

Investors have been taking money out of the country because of slowing growth, and a slew of corruption scandals have left the political process paralysed.

Mr Rajan, who served as chief economic advisor to the government working closely with Finance Minister P Chidambaram, has said that "all options were on the table" to stabilise the currency.

Reuters News - From manufacturing to car sales, Britain bounces back

Employee Wojciech Wisniewski gives a Rolls Royce Ghost its final finish polish at the Rolls Royce Motor Cars factory at Goodwood near Chichester in southern England April 24, 2013.

Credit: Reuters/Luke MacGregor

By Christina Fincher and William Schomberg

LONDON | Tue Aug 6, 2013 12:43pm BST

(Reuters) - British manufacturing grew much more strongly than expected in June, suggesting the country's recovery is broadening just as the Bank of England prepares to set out its plan for steering the economy back to health.

Car sales also rose, house prices continued to climb and British retailers had their best month since 2006.

Along with Monday's purchasing managers index showing the services sector growing at its fastest in more than six years, it all confirmed a rebound that was unheralded just a few months ago. There are some concerns, however, that much of it is being driven by easy lending and increased debt.

Manufacturing rose by 1.9 percent in monthly terms, stronger than even the highest forecast in a Reuters poll and its fastest growth since July of last year.

All 13 components of the manufacturing index showed growth for the first time since June 1992, the Office for National Statistics said.

Output in the industrial sector overall - which makes up about one sixth of Britain's economy - climbed 1.1 percent from May, well above forecasts for a 0.6 percent rise and also its strongest monthly pace since July 2012.

Yields on 10-year British government debt hit their highest level in a month after the manufacturing data and sterling rose.

Other data on Tuesday showed British house prices rose in July at their fastest annual pace in nearly three years and retail sales were 3.9 percent higher than a year earlier.

UK car sales, meanwhile, grew at an annual 12.7 percent for the month, prompting the trade industry group SMMT to increase its forecast for the year.

BUILDING

After two years of stagnation, Britain's economy has shown signs of recovery but nonetheless the Bank of England on Wednesday is expected to try to persuade markets, companies and households that interest rates are unlikely to rise soon.

George Buckley, an economist with Deutsche Bank, said the signs of recovery might actually provide more encouragement to Bank of England Governor Mark Carney to give so-called forward guidance about future interest rates in order to prevent a rise in yields from smothering Britain's still weak economy.

"He is likely to argue that low levels of output mean the economy is fragile, thus his desire to insulate the front-end from better growth outturns," Buckley wrote.

Britain's economic recovery so far has relied largely on higher consumer spending, itself helped along by easy finance.

Economists said the manufacturing data offered hope that the recovery was building a more solid foundation.

Victoria Clarke, an economist at Investec, said manufacturing surveys had hinted at a recovery in the sector in recent months and Tuesday's data "points towards the UK's recovery being a bit more broad-based - certainly moving away from a recovery that looked to be more services-dominated than anything else."

The ONS said on an annual basis, industrial output was up 1.2 percent, compared to forecasts for a 0.7 percent rise, its fastest yearly increase since January 2011.

The biggest contributor to the monthly rise in manufacturing was transport equipment, reflecting strong growth in the auto sector which has benefited from higher exports.

(Editing by Jeremy Gaunt)

Reuters News - Euro zone business expands for first time in 18 months -PMI

A man walks past a store that buys gold in the Pino Montano working-class neighbourhood of the Andalusian capital of Seville November 28, 2012.

Credit: Reuters/Marcelo del Pozo

By Andy Bruce

LONDON (Reuters) - Euro zone business expanded for the first time in 18 months in July, albeit very slightly, according to a survey on Monday that suggested the economy is slowly starting to stabilise. Markit's Eurozone Composite Purchasing Managers Index (PMI) rose to 50.5 last month from 48.7 in June, breaking above the 50 threshold indicating growth for the first time since January 2012. The headline figure was revised up a tick from a preliminary reading of 50.4.
The survey gauges how thousands of euro zone companies fare every month. Although new orders fell again in July, the rate of decline was the weakest since August 2011. Overall, the survey suggested the economy is starting to exit recession - even if healthy growth still looks like a distant prospect.
"Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around," said Rob Dobson, senior economist at PMI compiler Markit.
"The real sparks which will hopefully ignite the recovery are the increasing signs of stabilisation in domestic markets. This not only aided manufacturers, but also pulled the service sector right back to the cusp of recovery."
German business activity rebounded in July, while the downturns in the euro zone's next three biggest economies - France, Italy and Spain - eased.
The region-wide survey's jobs index rose to 48.6 last month from 47.4, signalling a slowing pace of job cuts.
The euro zone unemployment rate eased to 12.1 percent in June from May's 12.2 percent, although more than 19 million citizens are still out of work, with joblessness endemic in Greece and Spain.
"The labour market remains the main bugbear of the eurozone, as rising joblessness hurts growth and raises political and social tensions. But even here there was some better news, with the rate of job cutting easing to a 16-month low," said Dobson.
The services PMI, which covers firms ranging from banks to hotels, rose to 49.8 from 48.3 in June.
Optimism about the coming year rose to its highest since March last year, as the PMI backed a series of more upbeat sentiment indicators over the last week, among both investors and consumers.
Euro zone consumer morale hit its highest level in almost two years in July, just as economic sentiment hit a 15-month high.
- Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence. To subscribe to the full data, click on the link below:
http://www/markit.com/information/register/reuters-pmi-subscriptions
(Editing by Hugh Lawson)

BBC News - Australia unveils levy on bank deposits

Many leading Australian banks have criticised the move

Australia has unveiled a levy on some bank deposits to raise money towards a fund aimed at safeguarding against a banking collapse.

Deposits up to A$250,000 will have to pay a levy of 0.05% from January 2016.

It will be imposed on banks and not account holders. But banks have warned costs may be passed on to customers.

The move comes as the government warned of slower economic growth and a much bigger budget deficit than it had previously forecast.

In its updated economic statement, released by Treasurer Chris Bowen, the government said it expected a deficit of A$30bn ($26.7bn; £17.8bn) in the current financial year, compared with its previous projection of A$18bn.

'Not a crisis'

Australia's economic growth over the past few years has been powered mainly by the success of its resources sector.

Demand from countries such as China resulted in a commodities boom - which helped sustain the country's growth through the global financial crisis.

However, growth in those economies has slowed recently, driving down demand for commodities as well as their prices.

That has not only affected Australia's economic growth but also hurt the government's tax revenues.

On Friday, the government lowered its growth forecast. It now expects the economy to grow by 2.5% in the current financial year, down from its previous projection of 2.75%.

It warned that slowing economic growth was likely to result in a rise in unemployment.

"Australia is undergoing an economic transition. Not a crisis, but an economic transition that needs careful economic management," Mr Bowen said.

"This transition has been brought about by the China mining investment boom coming to an end."

He added that as expansion in the mining sector slows, "non-mining sectors of the economy will need to lead growth in future".

Revenue shortfall

The government said that the faster-than-expected drop in commodity prices, coupled with other factors such as lower growth in wages, would also hurt its revenues.

It has forecast a revenue shortfall of A$33.3bn over the next four years.

The government has announced new measures in an attempt to boost its revenues.

This includes a tax rise on cigarettes. Prices will rise by 12.5% a year for four years starting from 1 December.

The government said it expected to raise A$5.3bn from the increase.

It also announced changes to a fringe benefit tax applicable to cars, which it said would help raise another A$1.8bn.

Bloomberg News - Euro-Area Manufacturing Grows More Than Initially Estimated

Alessia Pierdomenico/Bloomberg

Employees work on the roof section of a Frecciarossa 1000 high-speed train carriage during manufacture at AnsaldoBreda SpA's rail-car plant in Pistoia.

Euro-area manufacturing expanded at a faster pace than initially estimated in July as the industry resumed growth after two years of contraction amid increasing signs the economy is pulling out of a record-long recession.

A manufacturing index based on a survey of purchasing managers in the industry increased to 50.3 last month, topping the 50 mark for the first time since July 2011, London-based Markit Economics said today. A reading above 50 indicates growth. The July reading was up from 48.8 in June and above an earlier estimate of 50.1 on July 24.

Europe’s economy is forecast to return to growth this quarter after being mired in a recession for more than a year. Economic confidence among executives and consumers in the euro area improved in July to a 15-month high, while manufacturers’ capacity utilization is at the highest in more than a year.

“Euro-zone manufacturing made a positive start to the third quarter,” Rob Dobson, senior economist at Markit, said in the report. “This hopefully places the sector nicely to provide a positive spur to the third quarter GDP numbers and help the euro area exit recession.”

The euro was lower against the U.S. dollar after the data, trading at $1.3235 as of 10:18 a.m. in Brussels, down 0.5 percent. The Stoxx Europe 600 Index gained 0.5 percent.

‘Extended Period’

European Central Bank President Mario Draghi has pledged to keep interest rates low for an “extended period” in his latest bid to encourage a recovery. The ECB is expected to keep the benchmark rate unchanged at a record low of 0.5 percent when policy makers meet today inFrankfurt, according to a Bloomberg survey of economists.

Draghi said last month that euro-area export growth “should benefit from a gradual recovery in global demand.”

In China, the world’s second-biggest economy, manufacturing gauges today gave a mixed picture and the government in Beijing pledged to prevent economic growth from slipping below a “reasonable” level.

Gross domestic product in the euro-area economy, which has contracted for six quarters, probably stagnated in the three months through June and is projected to return to growth in the current quarter, according to a separate Bloomberg survey of economists. The International Monetary Fund forecasts the bloc’s economy will shrink 0.6 percent this year.

Rising Confidence

“The hope for manufacturers is that current rising confidence in most euro-zone countries increasingly encourages businesses to invest more, and also encourages consumers to lift their spending,” said Howard Archer, chief European economist at IHS Global Insight in London. “Even so, conditions remain far from easy for euro-zone manufacturers with domestic demand still constrained by strong headwinds in a number of countries.”

The euro-area unemployment rate remained unchanged in June at 12.1 percent, data showed yesterday. That matched the highest on record after the jobless rate for May was revised down to that figure from an initially reported 12.2 percent.

In Germany, Europe’s largest economy, a manufacturing gauge moved into growth territory for the first time since February. France’s factory index rose to 49.7 from 48.4 in June, Markit said in a separate report.

PSA Peugeot Citroen, Europe’s second-largest automaker, yesterday reported a narrower-than-estimated loss in the first half as a tighter rein on costs offset a decline in deliveries that outpaced the economy’s contraction. The Paris-based company forecast that the European car market, on track for a sixth straight annual drop, will shrink by about 5 percent this year.

Markit’s services gauge for the euro area rose to 49.6 in July from 48.3 in June, according to an initial estimate on July 24. A composite index of manufacturing and services output increased to 50.4, an 18-month high. Final figures for the services and composite indexes will be published on Aug. 5.

By Patrick Henry