Bloomberg News - Euro-Area Growth Missing Forecast Keeps Pressure on ECB: Economy

Photographer: Krisztian Bocsi/Bloomberg

Germany, Europe’s largest economy, fueled the expansion with 0.4 percent growth in the fourth quarter, while French GDP rose 0.3 percent.

The euro-area recovery failed to gather momentum last quarter, as Franceunexpectedly stalled and economies fromItaly to the Netherlands shrank.

Growth of just 0.2 percent for the currency bloc, half as much as economists had forecast, adds pressure on the European Central Bank to deliver stimulus measures next month in its battle against weak inflation and anemic output. While German expansion doubled to 0.8 percent, that wasn’t enough to offset renewed weakness across the region, including a 0.7 percent drop inPortugal.

ECB President Mario Draghi primed investors last week for further stimulus in June, saying the 24-member Governing Council is “comfortable with acting” next month. With the euro area’s recovery from a record-long recession still fragile, officials are battling to revive price growth, with the inflation rate at less than half the ECB’s target.

“The recovery is still more or less in train in most countries, but the headline number is disappointing and the horror show was the Dutch number,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London. “We think the ECB is going to act in June, and we think it will be a package of measures.”

The euro pared losses against the dollar after today’s data were released, trading at $1.3674 at 11:21 a.m. in Brussels, down 0.3 percent on the day. The Stoxx Europe 600 Index was down 0.1 percent to 341.21.

‘Solid Demand’

Dutch gross domestic product fell 1.4 percent in the first quarter, the sharpest contraction in the euro area, Eurostat said today. The Italian and Finnish economies shrank 0.1 percent and 0.4 percent, respectively.

Still, four quarters of growth (EUGNEMUQ) have spurred some optimism among companies in the currency bloc.

Belgium’s Bekaert NV “expects sustained solid demand in Europe,” the world’s largest maker of steel cord for tires said on May 14. “The upward trend in demand from automotive markets in Europe as of the second half of 2013, continued at the start of 2014.”

ThyssenKrupp AG (TKA), Germany’s largest steelmaker, this week raised its full-year earnings forecast and reported the first quarterly profit in almost two years after selling assets and cutting costs.

Yet the euro zone continues to struggle with the legacy of the debt crisis. The unemployment rate was 11.8 percent for a fourth month in March, near the all-time high of 12 percent last year. The annual inflation rate was 0.7 percent in April, Eurostat said today in a separate report.

Potential Slowdown

The economy will probably expand 0.3 percent in the second quarter, according to the median of 28 economists’ forecasts in a separate Bloomberg survey.

Even in the euro-zone powerhouse, Germany, there are signs of a potential slowdown in the second quarter. The ZEW Center for European Economic Research in Mannheim, which aims to predict economic developments six months in advance, said this week its index of investor expectations slid for a fifth month in May to the lowest since January 2013.

The Bundesbank has warned that while the economy shows an upward trend, growth will slow “noticeably” in the three months through June.

The euro-area recovery is “proceeding at a slow pace and it still remains fairly modest,” Draghisaid last week in Brussels after the ECB left its benchmark rate at 0.25 percent and its deposit rate at zero. “There is consensus about being dissatisfied with the projected path of inflation.”

Multiple Tools

While officials have stressed that no decision on policy action in June has been made, economists from BNP Paribas SA to Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc predict the ECB will cut interest rates.

Should the ECB decide to act, it might deploy multiple tools rather than just reducing borrowing costs. Options include offering more long-term loans to banks or halting the sterilization of liquidity from crisis-era bond purchases under the Securities Markets Program.

“We never precommit unconditionally, but there is a row of possibilities,” ECB Executive Board member Yves Mersch said yesterday in Berlin.

Draghi will present revised macroeconomic forecasts when policy makers meet in Frankfurt in June. The ECB predicted in March that GDP will rise 1.2 percent this year, 1.5 percent in 2015 and 1.8 percent in 2016. Inflation is projected at 1 percent in 2014, accelerating to 1.5 percent in 2016.

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

Reuters News - German growth puts stagnant France and Italy in shade

A worker controls the cast at a blast furnace of German steel manufacturer Salzgitter AG in Salzgitter March 24, 2010.

CREDIT: REUTERS/CHRISTIAN CHARISIUS

(Reuters) - Germany posted strong growth in the first quarter of the year in stark contrast with France: the euro zone's second largest economy failed to expand at all and Italy, the third largest, went into reverse.

German quarterly growth of 0.8 percent marginally exceeded forecasts and was double the pace at the end of 2013. France was expected to pale in comparison but had still been forecast to grow by 0.2 percent.

Inventory changes and public spending were the only factors which kept the Frencheconomy from contracting while Germany's performance was driven largely by domestic demand.

 

 

The figure for the euro zone as a whole is due at 0900 GMT and forecast to show growth of 0.4 percent on the quarter.

France will now need 0.5 percent growth each quarter to meet a government forecast for subdued 1 percent growth in 2014, Natixis Asset Management chief economist Philippe Waechter said.

"France's public finance plan has been built on the 1 percent growth forecast. If we don't achieve it France will not meet its (debt and deficit) targets for 2014 and 2015," Waechter said.

France is not the only euro zone member in the doldrums.

Italian gross domestic product contracted unexpectedly by 0.1 percent, denting a fragile recovery begun at the end of last year when the country finally put an end to its longest recession since World War Two. Growth of 0.2 percent had been forecast.

The Dutch economy shrank sharply - by 1.4 percent quarter-on-quarter - and Finland fell back into recession as output fell 0.4 percent from the previous quarter, following a decline of 0.3 percent in the fourth quarter of 2013.

There were no such problems for Germany.

Berlin expects domestic demand to drive growth of 1.8 percent this year and German Finance Minister Wolfgang Schaeuble said after the data that everything pointed to a broad economic pickup.

"Positive impulses came ... exclusively from within the country," the German Statistics Office said in a statement. "By contrast, foreign trade put the brakes on economic growth."

To compound France's problems a public sector strike has been called by the hardline FO labor union over civil service pay freezes - a reminder of the difficulties of enacting economic reform.

The silver lining is the absence of pressure from the markets with borrowing costs for many euro zone countries at record lows. France will auction up to 9.5 billion euros of bonds later.

DON'T BLAME THE EURO

With recovery from years of economic crisis slow to materialize and prices barely rising - euro zone inflation was just 0.7 percent in April - the European Central Bank appears to be preparing to loosen policy at its June meeting.

A number of sources told Reuters that the ECB was working on a package of options, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.

"We have ... stressed that we are determined to act swiftly if required and do not rule out further monetary policy easing," ECB Vice President Vitor Constancio said on Thursday.

The ECB has flagged a strong euro as one of its concerns, given the downward pressure it puts on import prices and exports.

French President Francois Hollande's government wants euro zone governments to take action on the currency and has called for negotiations to weaken it after EU parliament elections next week.

The head of France's Medef national employers association said on Tuesday that Paris should not use its call for a weaker euro as a substitute for much-needed reforms.

Other euro zone countries which have taken strong medicine to improve competitiveness are starting to see the benefits.

Spain reported first quarter GDP growth of 0.4 percent two weeks ago, giving a year-on-year expansion of 0.6 percent, the strongest in three years. In response, the Spanish government upped its 2014 growth forecast to 1.2 percent from a previous 0.7.

In global terms, much depends on China but there are positive signs elsewhere.

Japan clocked its fastest pace of growth in more than two years in the first quarter, raising hopes the economy will have enough momentum to tide over an expected slump following an April 1 sales tax hike.

And the United States is expected to bounce back from a weather-ravaged start to the year.

Hollande's government hopes to revive companies' competitiveness with plans to phase out 30 billion euros ($41 billion) in payroll tax over the next three years in exchange for commitments to boost hiring and investment. ($1 = 0.7294 Euros)

(Additional reporting by James Mackenzie in Rome, Madeline Chambers in Berlin, Jussi Rosendahl in Helsinki and Anthony Deutsch in Amsterdam. Writing by Mike Peacock, editing by Toby Chopra)

Bloomberg News - German Investor Confidence Drops for Fifth Straight Month

Photographer: Krisztian Bocsi/Bloomberg

Industrial output unexpectedly declined in March, and manufacturing and services cooled in April.

German investor confidence fell for a fifth month in May in a sign of growing concern that threats from low inflation (ECCPEST) to a strong euro may undermine the recovery.

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 33.1 from 43.2 in April. The gauge is at the lowest level since January 2013. Economists forecast a decline to 40, according to the median of 33 estimates in a Bloomberg News survey. The index has dropped every month since reaching a seven-year high of 62 in December.

Investor caution in Europe’s largest economy reflects concern that the slow recovery in the 18-nation euro area leaves it vulnerable to shocks. European Central Bank President Mario Draghi has signaled he may add monetary stimulus in early June because policy makers are “dissatisfied” with the inflation outlook, in part due to an increase in the exchange rate.

“For a few months there has been negative news like problems in the emerging markets or the strong euro,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “ZEW expectations can hint at turning points in the GDP growth rate, so we should expect lower growth in the coming quarters.”

The euro declined after the report, dropping to $1.3748 at 11:19 a.m. Frankfurt time, down from $1.3771.

Slower Growth

A measure of the current situation climbed to 62.1, the highest reading since July 2011. A gauge of expectations for the euro area dropped to 55.2 from 61.2 the prior month.

The Bundesbank said last month that German economic expansion will slow this quarter after a strong start to the year. Industrial output unexpectedly declined in March, and manufacturing and services cooled in April. Gross domestic product probably rose 0.7 percent in the three months through March, economists said before data on May 15.

Commerzbank AG, the country’s second-biggest lender, reported first-quarter profit on May 7 that missed analysts’ estimates as net interest income dropped. The bank has been focusing on lending to German consumers and companies as it winds down soured shipping and real estate loans.

GDP in the euro area, which will also be released on May 15, probably climbed 0.4 percent in the first quarter. While that would be the fastest pace in three years, companies have struggled to raise prices, reducing the incentive to invest. Inflation was 0.7 percent in April, less than half the ECB’s goal, according to an initial estimate. A final figure will be published at the same time as GDP.

Ready to Act

Draghi said after the ECB’s policy meeting on May 8 that the strength of the euro is a “cause for serious concern.” The single currency has climbed almost 8 percent against the dollar since early July, curbing the price of imported goods and undermining the competitiveness of euro-area companies.

For analysts and investors in today’s report, “predictions are that the euro should devalue against almost all major currencies,” said Michael Schroeder, an economist at ZEW. “This has to be seen as a good sign concerning the inflation/deflation story because this would mean that the possible deflation tendencies are at least weakened.”

While Draghi kept rates unchanged at a record low last week, he said officials are “comfortable” with acting next time. Options range from a negative deposit rate to liquidity injections and large-scale asset purchases.

“The German economy is experiencing some headwind” from the euro, said Ralph Solveen, an economist at Commerzbank in Frankfurt. “But there is no need to dramatize. Given the good state of the global economy and the very expansionary monetary policy of the ECB, euro appreciation should hardly be enough to stop the upswing.”

To contact the reporters on this story: Paul Gordon in Frankfurt at pgordon6@bloomberg.net; Stefan Riecher in Frankfurt at sriecher@bloomberg.net

Reuters News - Rising U.S. economy could help Democrats stave off election loss

A general view of the U.S. Capitol dome as seen from a window outside the Senate chamber in Washington December 18, 2013

(Reuters) - Here's a riddle: Many Republicans deny it's happening. Some Democrats don't want to talk about it. What is it?

The answer is the growing U.S. economy, on pace to expand as much as 3.5 percent this year, about the best performance in the industrialized world. Unemployment has fallen from 10 percent to about 6.3 percent and consumer confidence is at a six-year high.

Better economic data could help persuade voters in November to look past President Barack Obama's weak approval ratings and his unpopular healthcare law and give Democrats enough lift to hold onto the Senate and limit their losses in the House, political strategists said. Yet a debate about the actual state of the economy, which Americans consistently rate in polls as among their top concerns, may be missing in the run-up to Congressional elections.

"It's bad for Democrats to make the argument the economy is improving. Bad, bad, bad," said Erica Seifert, a senior associate at Greenberg Quinlan Rosner, which advises many Democratic candidates.

Instead, many Democrats are focused on promoting ways to improve the economy -- raising the minimum wage, providing affordable college education and closing the pay gap between men and women -- all while ignoring the positive signs.

That's because even though the data is pointing higher, many American voters see an economic landscape still littered with long-term joblessness, stagnant wages and excessive personal debt, Seifert said.

It's not just strategists who advise keeping the good news on the down low - politicians who might have been expected to trumpet how the nation has emerged from the worst recession since the 1930s are focused on improvements still to be made rather than the better data for the economy as a whole.

BATTLE FOR SENATE

Between now and Election Day on November 4, the battle for the Senate largely will be fought in Louisiana, North Carolina, Alaska, Arkansas and New Hampshire.

The big prize in November's elections is control of the Senate, as Republicans see 2014 as their best chance in years to end the majority control Democrats have enjoyed since 2007.

For example, in Louisiana and New Hampshire, it would seem as if a 4.5 percent unemployment rate ought to hearten Democratic Senators Mary Landrieu and Jeanne Shaheen.

If it does, they are not acknowledging it.

Asked about the possibility of a buffed-up economy improving her re-election prospects, Louisiana's Landrieu said, "It's not going to change anything about my campaign." She added, "I'm going to continue to run hard and not take anything for granted." Landrieu is a client of Greenberg Quinlan Rosner.

Shaheen, asked about economic indicators that normally would make a politician smile, said: "One of the things I continue to hear from people is concern about the economy, about jobs, about student loans, about...retirement." She added that her campaign will focus on how she has tried to tackle those problems.

Republicans are expected to maintain their hold in the House of Representatives, and possibly expand it, as midterm elections typically favor the party not in control of the White House.

Republicans have not let the positive data stop them from attacking Democrats' record on the economy.

RYAN'S VIEW

"We are five years into Obamanomics and the economy is not improving," Representative Paul Ryan of Wisconsin said at an April 8 press conference. Ryan, the unsuccessful Republican vice presidential candidate in 2012, is a leading voice on conservative budget and economic matters.

Along those lines, Senate Republican leader Mitch McConnell, who faces a tough re-election battle in Kentucky this year, regularly talks about "the sorry state of the economy" under Obama.

However, Pete Brodnitz of Benenson Strategy Group, which advises Democratic candidates including Senator Jeff Merkley of Oregon, said it would be a "huge mistake" to ignore the economy's improvements during this year's campaigns.

"I personally think it's very important that Democrats talk about how we're making progress on the economy because if we don't, who will?'' he said. "If we don't, people will continue to believe" Republican claims that there has been no improvement, he said.

Consumer confidence already is building, according to surveys, and job creation has been showing gains.

There were 8.8 million jobs lost during the deep recession that began in December 2007. Now, employment is accelerating, with 9.2 million jobs added since February 2010, according to government figures.

Meanwhile, the national unemployment rate has declined to a 5-1/2 year low of 6.3 percent from a peak of 10 percent in October 2009.

HOLD SEATS

The anticipated economic upturn, Bowman said, "is not a game-changer" in the November elections, "But it could help a few Democrats" hold onto their seats, he said.

With Republicans needing a net gain of six seats to win control of the Senate, a few seats turning in Democrats' favor due to the economy could determine whether Obama spends his last years in office with a divided Congress like now, or with one fully controlled by opposition Republicans. Senate Democrats are trying to defend 21 seats, compared to 14 being defended by Republicans.

"There are some green shoots that could possibly portend a little difficulty" for Republicans going forward, said Karlyn Bowman, a senior fellow at the conservative-leaning AmericanEnterprise Institute where she studies public opinion.

And the pause in Washington's fiscal wars following last October's government shutdown has diminished the electorate's feeling of doom and gloom, Bowman said. That "will help incumbents" running this fall, she said.

"Signs of life in the economy could be a major plus for the Democrats," wrote Greg Valliere of Potomac Research Group in an April 21 note to subscribers. "Most Americans still think we're in a recession (it ended in June of 2009), but attitudes could change by Labor Day, which would give Democrats a crucial boost" in November, he said.

For now, too many Americans are not feeling the effects of an improving economy, said Ron Bonjean, a longtime Republican strategist and partner at Singer Bonjean Strategies.

"You need to have three or four months of solid job growth on the national and local level," he said, adding, "The number of people dropping out (of the labor force) needs to slow down" before Obama and his Democrats can even start touting it.

(Additional reporting by Lucia Mutikani. Editing by John Pickering)

Bloomberg News - Chinese Hubs Rise in Oxford Economics 2030 GDP Ranking: Cities

Photographer: Tomohiro Ohsumi/Bloomberg

Workers stand in a suspended platform ready to clean windows at the Shanghai World Financial Center in the Pudong area of Shanghai, China. Shanghai’s economy is projected to grow by $734 billion from 2013 to 2030.

Cities in China from Shanghai to Chongqing will grow the most among global metropolises in the next 16 years, according to a study by Oxford Economics Ltd.

By 2030, nine Chinese cities will join the world’s 50 biggest municipal economies, while eight in Europe will drop off the list, showed the paper released this week by the Oxford, England-based advisory firm. Of the 10 forecast to grow the most by gross domestic product, seven are in China, including Tianjin, Beijing, Guangzhou, Shenzhen and Suzhou.

China’s Premier Li Keqiang, who has advocated urbanization as a key to growth, is up against a shrinking pool of rural workers, rising local-government debt and mounting air pollution. Local governments have set up thousands of financing vehicles to fund projects from subways to sewage systems, which account for 80 percent of state capital spending and 40 percent of tax revenue, the World Bank estimates.

“China is already facing some challenges in its megacities, which include air quality, water quality and this is something that probably requires an even bigger effort to address if we want to make this process sustainable,” said Frederic Neumann, Hong Kong-based co-head of Asian economics research at HSBC Holdings Plc.

Shanghai’s economy is projected to grow by $734 billion from 2013 to 2030, while Beijing is expected to gain $594 billion in GDP over the same period, according to Oxford Economics. The projections were made using official national and sub-national data, and involved some estimation.

Ranked by the size of their economy, the biggest metropolitan area in the world in 2030 will beTokyo, New York, Los Angeles, London and Shanghai, Oxford’s report forecast.

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net

Reuters News - China April data to show growth stabilizing, for now

A forklift transfers a shipping container for export at a port in Lianyungang, Jiangsu province May 5, 2014.

CREDIT: REUTERS/CHINA DAILY

(Reuters) - Growth in China's factory output and investment likely stabilized in April as the government uses targeted policy measures to underpin growth, while the pace of declines in exports and imports may have eased, a Reuters poll showed.

However, the world's second-largest economy may only get a temporary boost from such policy support, as growth will inevitably slow while the government seeks to tackle high debt levels and excessive factory capacity.

China's industrial output may have grown 8.9 percent in April from a year earlier, slightly ahead of the 8.8 percent rise in March, according to the poll of 18 economists.

Fixed-asset investment growth likely grew 17.7 percent in the first four months from a year earlier, also slightly firmer than the 17.6 percent pace seen in the first three months. The government only publishes cumulative investment data.

The government has in recent weeks hastened construction of railways and affordable housing and cut taxes for small firms to support the slowing economy, but top leaders ruled out any forceful policy measures in favor of reforms.

"Economic growth is stabilizing but it's hard to see a rebound because policies that help stabilize growth are limited," Peng Wensheng, chief economist at CICC said in a research note.

"The economy still faces downward pressures in the future."

The government is trying to restructure the economy so it is driven more by consumption than the traditional engines of exports and investment, but wants to avoid a sharp slowdown that could fuel job losses and threaten social stability.

Recent official and private factory surveys for April pointed to initial signs of stabilization, but external demand likely remained weak.

Exports are expected to fall 1.7 percent in April from a year earlier, compared with a 6.6 percent fall in March. The pace of decline in imports may have moderated to 2.3 percent in April from 11.3 percent in March, the poll showed.

As a result, the April trade surplus is likely to widen to $13.9 billion from $7.7 billion in March.

Retail sales, a key gauge of consumption, may have grown 12.2 percent in April, the same as in March.

An earlier, separate Reuters poll showed China's economic growth could slow to 7.3 percent in the second quarter from 7.4 percent in the previous three months. The economy is expected to grow 7.3 percent in 2014 - the weakest showing in 24 years.

Analysts see the property sector as a key risk to growth as evidence mounts of a rapid cooling in what had been one of the few strong spots in the economy.

In April, banks may have granted 880 billion yuan ($140.90 billion) in new loans, down from 1.05 trillion yuan in March, while annual growth in the broad M2 money supply may hold largely steady at 12.2 percent, the poll showed.

Annual consumer inflation is expected to ease to 2.0 percent in April from 2.4 percent in March, while the producer price index is expected to drop 1.8 percent, falling for a 26th straight month but moderating from a decline of 2.3 percent in the previous month.

Trade data will be released on Thursday, followed by inflation data on Friday, while activity data will be released on Tuesday, May 13.

($1 = 6.2455 Chinese Yuan)

(Reporting by Kevin Yao; Editing by Kim Coghill)

BBC News - Portugal needs no more loans, says PM Passos Coelho

Portugal's prime minister has said the country will exit its three-year 78bn euros (£64bn) bailout on 17 May without needing a standby line of credit.

The loan had been granted in May 2011 by the European Union and the International Monetary Fund.

Since then Portugal has stuck to the tough measures required by the bailout.

"The government had decided to exit the assistance programme without turning to any kind of precautionary programme," Passos Coelho told national television.

The decision was the "best for the interests of Portugal" after the country "regained its credibility," he added.

The announcement was made after a meeting of the cabinet.

Bond sale

Portugal's economy is recovering from its worst downturn since the 1970s.

In April there was a sign of investor confidence in the country's economy, when yields on its 10-year government debt fell to an eight-year low of 3.58% at a bond auction.

Investor interest in the 750m euro (£617m) bond auction was such that it was three times over-subscribed.

The yield on 10-year bonds had stood at 5.1% in February.

The "clean exit" route was also undertaken by the Republic of Ireland in December, when it became the first eurozone nation to exit a bailout.