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SEB report: Eurozone out of recession but slow recovery

SEB report: Eurozone out of recession but slow recovery

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Published by SEB Group
SEB’s economists see stabilisation in the Eurozone at the moment, but recovery is still a bit ahead.
SEB’s economists see stabilisation in the Eurozone at the moment, but recovery is still a bit ahead.

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Published by: SEB Group on Oct 08, 2013
Copyright:Attribution Non-commercial


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Euro zone: Out of recession but slow recovery
OCTOBER 8, 2013
After six quarters of recession, euro zone GDP finally grew again in the second quarter of2013. We foresee a
positive trend
in GDP, current account, government deficits andunemployment, but
very troubling levels
of these variables will hold back demand. Theeuro zone is on a less unstable footing, and the intensity of the crisis is lower, but it is farfrom over. We see
stabilisation at the moment; recovery is still a bit ahead of us
Developments so far since the August issue of
Nordic Outlook 
are in line with ourforecast. Following the 0.3 per cent quarter-on-quarter growth in the second quarter of2013, we expect zero q/q growth in the third quarter and 0.2 per cent in the fourth. Thefourth quarter of 2013 will be the first with positive year-on-year growth figures.
GDPwill decline by 0.5 per cent in 2013 and increase by 0.8 per cent in 2014 and 1.7 percent in 2015.
The European Central Bank has promised to do “whatever it takes” to save the euro, butpositive data showing that the euro zone has left its recession behind has had afavourable effect on financial markets. Since the start of 2013, government bond yieldshave continued to fall in the crisis-hit GIIPS countries. We expect that partly due to weakgrowth, low inflation, politicians not moving fast enough with reforms and problemsassociated with a still weak banking sector in southern Europe, the
ECB will cut its refirate by 25 basis points in December and that further LTRO lending is likely
SEB Research+46 8 763 85 94
GDP forecasts
Per cent
2012 2013 2014
Euro zone
 France 0.0 0.2 0.8Germany 0.7 0.5 1.7Italy -2.8 -1.7 0.6Spain -1.9 -1.4 0.4
Source: SEB
Key data
Percentage change
2012 2013 2014 2015
GDP* -0.6 -0.5 0.8 1.7Unemployment
11.4 12.1 12.0 11.5Inflation* 2.5 1.5 1.0 0.9Government deficit*** -3.7 -2.9 -2.5 -1.9
* Percentage change, ** Per cent of labour force, *** Per cent of GDPSource: Eurostat, SEB
Economic Insights
Indicators support the view that we will see a continuous but slow improvement.
For the big four (Germany,France, Italy and Spain), composite purchasing managers’ indices are close to the expansion threshold of 50. Inmanufacturing, the situation seems a bit brighter, with PMIs for the big four converging just above 50 (except thatFrance is just below 50). Since May, there has also been continuous improvement in the European Commission’sEconomic Sentiment Indicator (ESI). In August, the euro zone ESI rose to 95.2 from 92.5 in July. The differentstrengths of the economies are more visible in the ESI than the PMI, with Germany at a higher level than France, Italyand Spain. Also, the ESI is currently above its historical average in Germany but below it in France.
Consumer confidence has improved in France, Italy and Spain, although the figures are still clearly belowGermany.
In August, the increase in retail sales excluding autos was just above zero and vehicle registration wasstill falling (as it has been in all months of 2013 except July).
Germany’s IFO business sentiment index has trended higher since April.
Even if we expect growth in thesecond half of 2013 to be weaker than the strong figure for the second quarter, Germany will outperform most of itseuro zone partners in 2014 and 2015.
Economic Insights
The labour market is still weak and
unemployment has been stable at a historically high 12 per cent since thestart of 2013
. One positive sign is that the number of unemployed fell for the third straight month in August,although by only 5,000 people, with over 19 million unemployed (12 per cent, unchanged since July). On thenegative side, employment continued to fall during the first quarter of 2013 (-1,0 per cent) and there are signs thatdecreased labour force participation is contributing to unemployment not reaching even higher levels.
There is still a mixed picture in the labour market, with German unemployment showing strength (a historically low5,2 per cent in August, by Eurostat’s definition), in France levelling out at 11 per cent and in Spain and Italy just over26 and 12 per cent respectively. Ireland’s jobless rate seems to have peaked and but is only marginally down during2013, underscoring that making unemployment fall will be a long, drawn-out process for crisis-ridden countries.
In the second quarter of 2013, capacity utilisation improved but industrial production remained weak. In July,industrial production continued to fall but an improvement in manufacturing sector confidence indicators (both theEuropean Commission measure and PMI) is signalling that performance will improve during the rest of 2013.
Portugal and Spain have seen their exports grow surprisingly strongly in recent months: a positive sign that internaldevaluations are paying off, but it is still too early to say that this is an improving trend.

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