Monday, June 11, 2007

'Plateauing' Growth in the Eurozone?

by Claus Vistesen

Cross posted from Alpha Sources

One of the most widely used adjectives on the Eurozone by analists recently have been how the growth is plateauing which signifies that momentum might be levelling off as an appreciating Euro, a slowing US, fiscal tightening, and to top it off a hawkish ECB begin to bite. Still, we should remember that market expectations have pretty much solidified towards an additional hike by the ECB come September. Inflation consequently remains the main bug and from the ECB point of view headline inflation, strong monetary growth, and future wage pressures remain fixed as targets for a refi rate which seems to be heading for 4.5% if you are to believe market expectations and futures. I am not so sure as I have articulated lately mainly because I expect the incoming real economic data to slow a bit sooner than is implied by the current expectations for the ECB refi rate.

On that note, the ECB also hinted during the last meeting that it is set to become more data dependant here going forward into 2007. On that note, the recent slew of economic data seems to be somewhat 'backward' looking but still they conform with the idea that, at best, the road from here on is going to be a bit more balanced and bumpy. As such, we learn that industrial production fell 0.8 % in France mainly on energy production and the stronger Euro. The decrease was on a monthly basis mind you while industrial production and manufacturing rose on a yearly basis.

(from Bloomberg)

French industrial production fell unexpectedly in April by the most in nine months as warm weather curbed energy output and a stronger euro crimped exports.

Production at factories, utilities and mines dropped 0.8 percent from March, when it grew 0.2 percent, Insee, the national statistics office, said today in Paris. Economists expected growth of 0.2 percent, the median of 30 forecasts in a Bloomberg News survey showed.

French economic growth is set to trail the expansion in the euro region for a second year as exporters lose market share. Companies are also feeling the pinch from an appreciating euro, which reached a record against the dollar last month, making French products less competitive in foreign markets.

``Industrial production won't be there as a source of growth,'' Laetitia Baldeschi, an economist at CPR Asset Management, said in an interview.

Manufacturing, which excludes energy, fell 0.5 percent in April from March. From a year earlier, it added 2.3 percent, while industrial production added 1.7 percent.

And in Italy industrial production also fell in April as well as the March increase was revised downwards ...

(from Bloomberg)

Italian industrial production unexpectedly declined in April the most in four months as a stronger euro damped exports and consumer demand fell.

Production on a seasonally adjusted basis declined 0.8 percent, and the March increase was revised lower to 0.2 percent, the national statistics office Istat said in Rome. Economists expected manufacturing to rise 0.2 percent, a Bloomberg News survey of 27 economists showed. Production fell a revised 0.9 percent in the first quarter.


``The drop is a surprise; still, we're not worried by the decline, which follows the March rebound,'' said Alberto Mussini, an economist at Aletti Gestielle Sgr in Milan. ``Most countries in the euro zone suffered a decline in industrial production in April.''

French industrial production unexpectedly fell 0.8 percent, a separate report said today. German output declined in April for the first time in six months, a June 8 report showed.

Production of Italian consumer goods fell 1.8 percent from the previous month on a seasonally adjusted basis, led by a 1.9 percent decline in non-durable goods, today's report said.

Whether this suggests that the ECB's hiking campaign will come to an end sooner rather than later is of course debatable but it does suggest that the outlook for the Eurozone in the rest of 2007 might be more balanced than markets as well as the ECB future course might lead you to expect.

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