The euro-area economy
That shrinking feeling
Europe's economies are suffering more than the American one
EUROPEANS might be forgiven for feeling bruised. The housing bust across the Atlantic was the trigger for the credit crunch, so justice demands that America suffer most from the fallout. But America has not so far followed the script, weathering the storms better than it expected. Its GDP suffered a tiny decline at the end of 2007, but it grew at an annualised rate of around 2% in the second quarter of 2008.
Europe is struggling to stay above water. Figures released on Thursday August 14th showed that the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001. Nor are things likely to improve soon. A closely watched survey of purchasing managers in manufacturing and services slumped in July to its lowest level since 2001. Business confidence has turned down sharply in all of the three biggest economies in the euro area: Germany, France and Italy.
Indeed, in the second quarter GDP fell in all three countries, paring their annual growth rates (see chart). That Italy slipped is no surprise; even in brighter times for the world economy, it has struggled to maintain its growth. Meanwhile Spain’s GDP has predictably stuttered as it endures a painful shock from its burst housing bubble. More alarming is the step back by France and Germany, which seemed sturdier than their southern neighbours.
In truth, the 2.0% annualised fall in German GDP in the second quarter makes its economy seem in worse shape than it is. A warm winter allowed more construction work than usual, spurring an aberrantly large rise in first-quarter GDP. The second-quarter decline is partly a payback. Yet there are worrying signs that the export motor that drives the German economy is sputtering. Orders for German engineering goods fell in June by 5% from a year ago, according to VDMA, a Frankfurt-based industry group. Foreign orders fell by 7%.
Thomas Mayer, an economist at Deutsche Bank, detects feelings of dismay in Germany at the economy’s deterioration. After all, this was one of the few rich countries that skipped the global house-price boom. And unlike America, Germany is a supplier of global credit: its current-account surplus was a hefty 7.7% of GDP last year, according to the OECD. Mr Mayer thinks there is a belief in Germany that “we didn’t do all those bad things, so it’s not fair that we are suffering”. What is missing, he says, is any recognition that Germans profited from the credit-fuelled global boom, that “they were part of the game” as suppliers if not as consumers.
The rest of Europe was hardly immune from housing mania. House-price rises in Spain, Ireland and France during the boom years outstripped even America’s. Ireland’s housing bust may yet prove to be the most dramatic of all. Its GDP, which grew by 6% in 2007, is likely to shrink this year, according to the Economic and Social Research Institute, a Dublin-based think-tank. Ireland is too small for its economic troubles to pull down other countries much but Spain’s economy has enough heft to inflict collateral damage. Spain accounts for one-eighth of euro-area GDP but until recently was generating a much larger share of consumer spending and new jobs. Now the Spanish consumer is in retreat—retail sales fell by almost 8% in the year to June—and unemployment is rising.
The Spanish collapse has hurt firms in other euro-area countries. German and Italian exports to Spain have slowed sharply since last year, according to Julian Callow at Barclays Capital. French exports to Spain are now falling. Prospects for sales outside the euro area have darkened too. America’s economy is doing well partly because it is sucking in fewer imports. Britain, the euro-area’s other main export market, is on the brink of recession.
Hopes that spending by consumers in the thriftier parts of Europe would make up for lost exports have been dashed. In less troubled times, the marked acceleration in wages and salaries in the first quarter would soon push up spending. But because of sharp increases in food and fuel prices, fatter wage packets have barely kept up with inflation, which is now 4%.
Nor has thrift yielded much reward. When the economy was strong, most consumers were cautious about saving less and spending more (the euro-area saving rate has barely budged in the past three years). Now, when fears of jobs losses are rife, they are even less inclined to splash out. Retail sales across the region fell by 3.1% in the year to June. Even if there were a desire to borrow to finance spending, banks might be unwilling to meet it. Loan growth is wilting and a survey by the European Central Bank (ECB) suggests that lending conditions are becoming stricter.
No wonder business confidence is flagging and companies are pulling in their horns. Until recently, capital spending was one of the main drivers of economic growth. Firms were keen to invest on the back of healthy profits, solid foreign demand and hopes of a pick-up in consumer spending. Despite the credit crunch, banks seemed content to offer loans to companies for buildings and equipment, even as they recoiled from lending to households. But now loans to companies are slowing as well—a sign that firms are cutting back. Stronger wage growth and high commodity prices have squeezed profits, and export order books are suddenly thinner.
The economy’s downward lurch puts the ECB in an awkward spot. It raised its main interest rate to 4.25% on July 3rd to show that it was serious about controlling inflation, which is well above its target ceiling of 2%. The rate-setters’ fear was that inflation would persist if firms and households used today’s rate as a benchmark for future wages and prices. They are right to worry. In Italy and Spain, wage growth is picking up even as unemployment rises, because of contract clauses allowing workers to be compensated for higher-than-expected inflation.
The good news is that the drop in oil prices may mean that euro-area inflation has peaked. But it will start to fall back only towards the end of the year. The ECB will be reluctant to cut interest rates until it is sure that the inflation danger has passed. By then, the euro-area economy may already be in recession. Mr Mayer reckons that the ECB will attempt to revive it by cutting interest rates to 3.25% next year. But until then, it is hard to see what else might lift growth. Many Europeans will feel that they deserved better.
Bush condemns 'bullying' Russia
President Bush: "Russia must respect the freedom of its neighbours"
US President George W Bush has accused Russia of "bullying and intimidation" in its military actions inside Georgia.
Mr Bush demanded that Moscow respect Georgia's territorial integrity and withdraw the troops it sent in a week ago - or risk international isolation.
The crisis began when Georgia attacked the breakaway region of South Ossetia, sparking Russian intervention.
US Secretary of State Condoleezza Rice is visiting Georgia to present an EU-brokered ceasefire deal.
The Georgian President, Mikhail Saakashvili, has said he would need "a closer look" before signing.
The Russian President, Dmitry Medvedev, has demanded that Georgia sign the deal immediately - but said only Russia could guarantee peace in the region.
'Guarantor' of security
In a statement at the White House, Mr Bush said he would keep in close contact with Ms Rice.
"Bullying and intimidation are not acceptable ways to conduct foreign policy in the 21st Century," Mr Bush said.
 | PEACE PLAN  No more use of force Stop all military actions for good Free access to humanitarian aid Georgian troops return to their places of permanent deployment Russian troops to return to pre-conflict positions International talks about future status of South Ossetia and Abkhazia |
"Only Russia can decide whether it will now put itself back on the path of responsible nations or continue to pursue a policy that promises only confrontation and isolation."
Three days after a ceasefire was brokered to end fighting between Russia and Georgia, Russian troops remain deep inside Georgian territory.
Meanwhile, after talks with President Medvedev in the Black Sea resort of Sochi, German Chancellor Angela Merkel described the Russian response as "disproportionate".
But Mr Medvedev said Russia was the "guarantor" of the interests and lives of those in South Ossetia and Georgia's other separatist region of Abkhazia.
He said they trusted Russian troops, and that this had to be taken into account.
Mr Medvedev said the EU-brokered peace deal was key to solving the conflict
Mr Medvedev said he did not want to damage relations with other countries but that Russia had to fulfil its peacekeeping mandate, and that it would respond in the same way to any future attack.
He also added that Poland's deal - signed on Thursday - with the US to base part of a new US missile defence system on Polish soil was aimed at the Russian federation.
Washington - which says the timing is not linked to the Georgian crisis - has always assured Moscow that the shield is to protect against long-range attacks from "rogue states" such as Iran, rather than Russia.
But, says the BBC's Jonathan Beale in Washington, the US is now likely to be less worried about Russian objections and more anxious to send signals to European allies like Poland that it is prepared to guarantee their protection.
Operations continue
Moscow's troops continue to operate deep inside the Caucasus republic.
The BBC's Richard Galpin, in the Georgian port of Poti, says Russian forces have taken control of the naval dockyard - with the apparent intent to destroy or remove Georgian military and naval equipment.
|   |
Russian forces still control Gori, which lies some 15km (10 miles) from South Ossetia and on a key route to Tbilisi, and there is also a major Russian military contingent further inland near the town of Senaki, our correspondent says.
At a news conference, the Russian army earlier said it had seized a large depot of American-made arms near Senaki.
During her trip to Tbilisi, Ms Rice is to present Mr Saakashvili with the formal ceasefire agreement, which she was given by French President Nicolas Sarkozy on Thursday.
Mr Sarkozy, who negotiated the deal on behalf of the European Union, said France planned to submit a draft UN Security Council resolution incorporating the ceasefire agreement.
The deal includes a pledge to pull troops on both sides back to their pre-conflict positions, and a plan to begin international discussions about the future status of South Ossetia and Abkhazia.
The crisis began when Georgia attacked South Ossetia on 7 August, sparking Russian retaliation. Scores of people have died in the fighting.
Aug. 15 (Bloomberg) -- Gold plunged below $800 an ounce, platinum posted the biggest drop in almost seven years and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.
Crude fell as much as 2 percent to $112.37 a barrel, and coffee and wheat declined as the dollar headed for its longest winning streak in more than two years and on concern a spreading economic slowdown will reduce demand for raw materials.
Commodities, measured by the Standard & Poor's GSCI index, have tumbled 22 percent from their record July 3, descending into a bear market. Declining raw-materials prices may help ease global inflationary pressures. Consumer prices accelerated 5.6 percent in the U.S. during the year to July, the biggest jump in 17 years.
``Prices have made a peak,'' said investor Marc Faber, 62, who told investors to bail out of U.S. stocks before 1987's so- called Black Monday crash. ``Whether that is a final peak or an intermediate peak followed by higher prices, we don't know yet. It could go lower,'' he said by phone today from Chiang Mai, Thailand.
Gold fell as much as 4.2 percent to $772.98 an ounce, the lowest since Oct. 26, and traded at $791.69 as of 2:46 p.m. London time. Platinum dropped $125 to $1,365 an ounce, the biggest intraday loss since Sept. 25, 2001. Silver's decline of as much as 12 percent to $12.423 an ounce was the most since June 2006.
``There's a perception that demand for commodities might be weakening,'' David Jollie, editor of Johnson Matthey Plc's publication on platinum group metals, said today by phone from Royston, England. ``North America and Western Europe are struggling but the emerging economies remain strong.''
Gasoline Demand
Crude oil for September delivery dropped as much as $2.64 to $112.37 a barrel on the New York Mercantile Exchange, and traded at $112.82 at 9:47 p.m. local time.
Gasoline demand was down 2.1 percent in the first seven months of the year as record prices and slower economic growth cut consumer spending, the American Petroleum Institute said Aug. 13.
Europe's economy contracted in the second quarter for the first time since the introduction of the euro almost a decade ago, a report showed yesterday. According to a UBS AG report published Aug. 6, the world is ``precariously close'' to a recession in 2009.
``It's not just a U.S. problem, it's a global problem and it's taking its toll on commodities,'' said Peter Luxton, an energy analyst at Informa Global Markets. ``What's happening elsewhere is starting to take its toll.''
U.S. Output
There are signs of a pickup in the U.S., the world's largest economy. Industrial production unexpectedly rose in July, helped by gains in automobiles, metals and machinery, the Federal Reserve reported today.
Demand for autos increased for a third month, reflecting a continued rebound from a strike at an auto-parts supplier. Gains elsewhere signal demand from overseas continued to boost orders even as U.S. consumer and business spending weaken.
Crude oil will probably fall below $100 a barrel within weeks, nearing the $90 threshold that would trigger a production cut by the Organization of Petroleum Exporting Countries, according to Alfa Bank. The supplier of more than 40 percent of the world's oil is scheduled to meet in Vienna on Sept. 9 to review production targets.
``OPEC will likely defend $90 a barrel or higher,'' Alfa analysts led by Ronald Smith in Moscow wrote in an e-mailed report today. ``OPEC will remain firmly in control of the oil market for at least the next decade.''
Investment Flows
Asset under management of commodity indexes has almost quadrupled to $297 billion as of June, from about $76.7 billion in January 2006, according to an estimate by Lehman Brothers Holdings Inc. Some investors buy commodities as a hedge against inflation and against declines in the U.S. currency.
A ``buying orgy'' in commodities was inflating prices and increasing the risk of a collapse, Paul Touradji, founder of Touradji Capital Management LLC, said in March.
Gold may rebound from the latest slump and rally through 2010 as fabrication demand rises and on expectation the dollar will resume its slide against the euro, Citigroup Inc. said. It forecasts the metal will average $950 next year and $1,000 in 2010.
``Longer term, we would not be surprised to see gold double,'' the bank's analysts John Hill and Graham Wark wrote in a report. ``We would be aggressive buyers at current levels expecting gold to work higher through 2009/10.''
Copper fell 66 percent to $7,318 a ton on the London Metal Exchange and corn declined 3.4 percent to $5.5775 a bushel. Robusta coffee for September delivery fell $41, or 1.9 percent, to $2,172 a ton on the Liffe exchange in London.
No hay comentarios.:
Publicar un comentario