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SEB cuts eurozone growth forecasts

SEB cuts eurozone growth forecasts

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Published by SEB Group
SEB’s economists have cut their GDP growth forecasts for the eurozone since, with a few exceptions, indicators have been weaker than expected over the past six weeks. The economists do not yet see solution to the financial crisis in sight, which implies substantial risk of a recession. A statement by Angela Merkel Nicolas Sarkozy last week about bank recapitalisation is mildly encouraging.
SEB’s economists have cut their GDP growth forecasts for the eurozone since, with a few exceptions, indicators have been weaker than expected over the past six weeks. The economists do not yet see solution to the financial crisis in sight, which implies substantial risk of a recession. A statement by Angela Merkel Nicolas Sarkozy last week about bank recapitalisation is mildly encouraging.

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Published by: SEB Group on Oct 13, 2011
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10/13/2011

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Euro zone: Darkening growth outlook but norecession
THURSDAY
13 OCTOBER 2011
 
Since
Nordic Outlook 
was published on August 30, euro zone data have, with a fewexceptions, been weaker than expected. Indicators (Economic Sentiment Indicator, PMIcomposite) point to a marked slowdown in economic growth.
 
Consequently, GDP forecasts for the euro zone have been revised downwards. GDP isexpected to grow 1.7% in 2011, 0.5% in 2012 and 1.3% in 2013.
 
A solution to the financial crisis is not yet in sight, which implies substantial risk of arecession. However, the statement by Merkel/Sarkozy presented last weekend that a planfor bank recapitalisation and a solution to the Greek crisis will be presented in time forthe G20-meeting on November 3 is mildly encouraging.
 
Inflation rose unexpectedly in September to 3.0% from 2.5% from the preceding monthdue to temporary effects. However, inflation is expected to recede as a result ofdecreasing capacity utilization and slowing growth. Inflation is expected to be below theECB target in 2012 and 2013.
GrowthInflationLabour-market
Andreas Johnson,
SEB Economic Research
 +46 8 763 80 32
Key data
Percentage change
2010 2011 2012 2013
GDP* 1.7 1.7 0.5 1.3Unemployment
**
10.1 9.9 9.8 9.6Inflation* 1.6 2.6 1.5 1.6Government deficit*** -6.0 -4.4 -3.5 -2.7
* Percentage change, ** Per cent of labour force, *** Per cent of GDPSource: SEB
 
 2
 
Economic Insight
INDICATORS AND GDP
 
Both the ESI (Economic Sentiment Indicator) and the composite purchasing managers’ index (PMI) indicate amarked slowdown in growth. PMIs have fallen and are below 50 for Italy and Spain. Germany’s IFO sentiment indexhas also decreased but is still well above its long-term average.
 
The euro zone is expected to avoid a recession, but GDP growth has been revised downward to 0.5% for 2012 (1.0%in
Nordic Outlook 
August). Zero growth is expected during Q4 2011 and Q1 2012. As for individual economies,Germany is expected to be the best performer. Economic activity in Germany is holding up and growth is expectedto pick up in Q3 after Q2’s disappointing 0.1% increase. Growth in Italy and Spain will be weak however, withnegative growth in Italy in 2012.
 
Exports have recovered from their decline in 2008-2009 but recent performance has been shaky. Retail sales havestagnated, slowing down from an already very weak rate of growth.
GDP forecasts
Per cent
2011 2012 2013
 
Euro zone 1.7 0.5 1.3France 1.6 0.7 1.4Germany 3.0 1.0 1.7Italy 0.8 -0.2 0.5Spain 0.8 0.4 0.8
Source: SEB
 
 
 3
 
Economic Insight
LABOUR MARKET AND INFLATION
 
Unemployment remained at 10% in August and is nowhere near its pre-crisis level. The slowdown in growth impliesthat stagnation in the labour market will continue.
 
The German labour market is still improving; the rate of unemployment declined to 6.9% in September and demandfor labour is strong. However, since the labour market is a lagging indicator it is likely to turn worse in 2012 asgrowth slows down.
 
Inflation rose unexpectedly to 3.0% in September from 2.5% the preceding month. Capacity utilisation is below thelong-term average and is likely to decrease further as growth slows down. Inflation is forecasted to remain below theECB target in 2012 and 2013.
Per cent
No real improvement in the labour market
TotalLess than 25 years
Source: Eurostat
00 01 02 03 04 05 06 07 08 09 10 115.07.510.012.515.017.520.022.55.07.510.012.515.017.520.022.5
 
Hundreds of thousand and per cent
The German rate of unemployment is decreasing
Change in number of unemployed (LHS)Unemployment rate (RHS)
Source: Deutsche Bundesbank
00 01 02 03 04 05 06 07 08 09 10 11678910111213-1.0-0.50.00.51.01.52.02.53.0
 

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