jyske bank-jul-07-eco outlook euro zone
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Economic Outlook, Euro Zone
7 July 2010
Please direct inquiries, if any, to:
Tina Winther Frandsen, Senior Macroeconomic Analyst
+45 8989 2550
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Summary - euro zone
The slow upturn will continue The sharp fiscal-policy tightenings will act as a damper on domestic
demand, but then we expect exports to act as a stronger driving force.
next.
The debt crisis widens growth differences in the euro zone Recession is threatening in Southern Europe, among other things due to strong fiscal-policy tightenings, whereas economic growth will be reasonable in countries likeGermany and France, which benefit more from the euro depreciation. Moreover,tightenings in those countries have been less sweeping.
We expect solid global growth and the weakness of the euro to ensure export growth. Weak domestic demand means that exports will play a bigger role as a growth engine.
Domestic demand still weak
Consumers have long been under heavy fire, and even if the labour market is showingsigns of stabilising, the low rate of wage growth and the announced fiscal-policy
tightenings will put a damper on consumer spending. We expect the important private
In our view, investment activity will slowly begin to grow due to the low investmentrate and the prospect of continued recovery. However, low capacity utilisation andtight credit conditions mean that investments will only grow at a moderate pace.
e s n no urry o ra se n eres ra es
Core inflation is low and falling, and the ECB is in no hurry to raise interest levels fromtheir record low of 1%. We expect the first hike in June 2011.
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The upturn is not impressive The upturn has been relatively weak. Yet the sentiment indi-
cators are still signalling progress, and economic growth in Q2looks robust.
A tighter fiscal policy and a relatively weak labour market mean thatdomestic demand will remain relatively weak while exports will act as a
stronger driving force., . . .
Euro zone: upturn in GDP is very subdued
100
101
197
98
99
Ind
ex100
=
2008:
94
95
96
91
92
93
Euro Zone Germany France Spain Italy
Source: Reuters EcoWin
2005 2006 2007 2008 2009 2010
90
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Business confidence indicators
still signal improvement
An index above 50 signals growing activity.
Euro zone: PMI-index
60
65
60
65
50
55
ex
50
55
40
45In
40
45
3535
Industry Service
Source: Reuters Ecowin
97 98 99 00 01 02 03 04 05 06 07 08 09 10
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Debt crisis w idens growth differences
In our view, the debt crisis will cause growth differences in theeuro zone to widen.
Recession is threatening in Southern Europe, among other things due tostrong fiscal-policy tightening, whereas economic growth will be sensible incountries like Germany and France, which benefit more from the euro depre-
ciation. Moreover, tightenings in those countries have been less sweeping.
-2
-1
0
Finland
ofGDP)
-6
-5
-4
-3 Germany
Euroland Belgium
Italy
dge
tbalance(
-10
-9
-8
-7
Portugal
France
Bu
-13
-12
-11Spain
Greece
Source: Reuters EcoWin
Debt (% of GDP)
25 50 75 100 125-15
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Emer enc sto in the south
Fiscal-policy tightening has been much more sweeping inSouthern Europe, where particularly Greece stands out.
,the North European countries will not tighten their policies until 2011.
Tightening of
Part of Euro zones total GDP:
Greecef iscal policy(% of GDP) 2010 2011
Greece 7,0 4,0
Spain Ireland
Spain 2,5 2,9
Portugal 2,5 3,1
Italy
Othercountries- , ,
France 0,0 0,6Portugal
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Exports w ill act as a growth engine Given weak domestic demand, exports will play a bigger
.weakness of the euro will ensure export growth.
This is of particular benefit to the North European countries, a higherro ortion of whose ex orts o to countries outside the euro zone.
3-month moving average
Euro zone: obvious progress in export
150
3-month moving average
Euro zone: particulary large progress in exports to Asia
29,5
130
140
24,5
27,0
B
ln.
euro
110
120
Bln.
euro
19,5
22,0
80
90
14,5
17,0
Export Import
2002 2003 2004 2005 2006 2007 2008 2009
70
Asia Europe ex. EU UK USASource: Reuters EcoWin
2004 2005 2006 2007 2008 2009 2010
12,0
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The manufacturing industry isclearly improving
We expect the manufacturing industry to show continuedprogress, because the business sentiment surveys remainrobust, just as the order intake is growing significantly.
But it is a long way up to the old levels.
3-month moving average
Euro zone: industrial production in obvious progress
110110
100
105
008
100
105
90
95
In
dex100
=
90
95
80
85
80
85
France Germany Italy Spain Euro zoneSource: Reuters EcoWin
2005 2006 2007 2008 2009 2010
7575
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Investments w ill soon sto fallin
We expect investment activity to begin to grow because ofthe low investment rate and the prospect that the recovery
However, low capacity utilisation and tight credit conditions mean thatinvestment will only grow at a moderate pace.
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Consumers are still hesitant Consumers have long been under heavy fire, and although
the labour market is showing signs of stabilisation, the slowwage growth and the announced fiscal-policy tightening willput a damper on consumer spending.
We expect the important private consumption to remain weak in 2010, but
to perform a little better in 2011.
Data from the National Accounts
Euro zone: Private spending is still weak
1110
Data from the National Accounts
Euro zone: High savings rate, low income growth
815,50
1090
1100
5
6
7
%14,75
15,00
15,25
Bln.
euro
1060
1070y/y,
%
2
3
4
S
avingsrate,
14,00
14,25
14,50
1030
1040
1050
-1
0
1
13,25
13,50
13,75
Source: Reuters EcoWin
2004 2005 2006 2007 2008 20091020
Savings rate
Households' disposable income (current prices)
Source: Reuters Ecowin og Eurostat
00 01 02 03 04 05 06 07 08 09
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The adverse effect of the
labour market is waning But a sharp rise in employment is not imminent since the
.
Euro zone: employment slump stopped, wage increases still low
3,25
3,50
0,75
1,00
,%2,50
2,75
,
,% 0,00
0,25
,
y/y
2,00
2,25q/q
-0,50
-0,25
1,50
1,75
-1,00
-0,75
Emploment Wage increasesSource: Reuters EcoWin
2002 2003 2004 2005 2006 2007 2008 2009
,- ,
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Flatter curve of unem lo ment
but major regional differences
Euro zone: unemployment rate
22,522,5
17,5
20,0
17,5
20,0
ercent15,0
ercent 15,0
10,0
12,5
10,0
12,5
5 0
7,5
5 0
7,5
Germany France Italy Spain Euro ZoneKilde: Reuters Ecowin
2000 2002 2004 2006 2008 2010
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The labour market remains weak- but there are si ns of
stabilisation in the north
Euro zone: house prices in selected countries
110110
90
100
90
100
2006=10
0
80
2006=10
0
80
Inde
60
70
Inde
60
70
5050
Spain France The Netherlands Ireland
00 01 02 03 04 05 06 07 08 09
4040
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The ECB is in no hurr
The important core inflation is low and falling, and the ECBis in no hurry to raise interest rates from their record low of 1%.
- ,1.75% by the end of the year.
The ECB's interest rate
55
3t
3
2
Percen
2
11
Source: Reuters EcoWin
2000 2002 2004 2006 2008 2010 00
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