JYSKE Bank-JUL-07-Eco Outlook Euro Zone

8/9/2019 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

[email protected]


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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


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


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.


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


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


2000 2002 2004 2006 2008 2010 00


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JYSKE Bank-JUL-07-Eco Outlook Euro Zone