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Apr-28-2008Euro Rises On Wings Of Inflation Hawks(topic overview)
CONTENTS:
- April 28 (Bloomberg) -- The European economy will slow for a third year in 2009 as faster inflation weighs on consumer spending and discourages the European Central Bank from cutting interest rates, the European Commission said. (More...)
- For Slovakia, which has formally applied to join the euro zone at the start of 2009, the commission is forecasting inflation of 3.8 percent for 2008 and 3.2 percent for 2009. (More...)
- Over the past ten years, the inflation rate in the euro area has remained on average in a tight vicinity of 2%, although it has occasionally risen above levels that the ECB considers consistent with conditions of price stability. (More...)
- Since the start of EMU, around 15.7 million people have been added to the number of employees in the euro area, in comparison to approximately 5.5 million in the nine preceding years. (More...)
- Slovakia would be the first euro member from the former Soviet bloc and has met key euro benchmarks, including those on current inflation and the public deficit. But questions remain about whether it can keep price rises low in the long run. (More...)
- Public sector investment in motorways and railways remains strong and private spending is also expected to rise, the report says. (More...)
- Looking ahead to 2009, the commission predicted that economic activity would pick up towards the end of the year to about 2.0 percent in the eurozone at an annualised rate. (More...)
- Inflation will come down, and then we will all be normal again. (More...)
- Quebec's economic growth accelerated to 2.4% from 1.7% in 2006. (More...)
- First Trust expects the first report on Q1 real GDP to show a growth rate of 1.5%, which is near the high end of what economists are forecasting. (More...)
- The Commission also expects that inflation will increase substantially, from two-point-six to three-point-two percent. (More...)
- The Commission will recommend on May 7 whether Slovakia should adopt the euro on Jan. 1, following Slovenia, Cyprus and Malta, which, like it, joined the EU in 2004. (More...)
- Far from suppressing growth and entrenching divergences, the euro has spurred a spectacular drive of job creation virtually everywhere in the Union ' a trend to which I shall return later in my remarks. (More...)
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April 28 (Bloomberg) -- The European economy will slow for a third year in 2009 as faster inflation weighs on consumer spending and discourages the European Central Bank from cutting interest rates, the European Commission said. Economic growth in the euro region will slow to 1.5 percent next year, the commission said today in its spring economic forecast, 0.6 percentage point less than it projected in November and below the 1.7 percent expansion expected for 2008. Inflation will jump to 3.2 percent this year, 0.6 percent more than the commission's February forecast, before easing to 2.2 percent in 2009. "I'm surprised they felt the need to bring it down so far,'' Jonathan Loynes, chief European economist at Capital Economics Ltd. in London said. "It's very early days, there are an awful lot of uncertainties.'' [1] The projection, provided in the EC's spring economic forecast, is 0.6 percentage points lower than the 2.1% 2009 GDP forecast projected in November 2007, and below the 1.7% growth rate anticipated for 2008. Further the EC expects euro-zone inflation to increase to 3.2% this year, up from 2.6% in 2007, and then decline to 2.2% 2009. It's that higher, projected inflation for 2008 that in part led to the EC's more-modest growth expectations for 2009: the EC does not expect the European Central Bank to lower interest rates in the near future, as it attempts to reign-in rising inflation. Higher oil, grain, and other commodity prices have amped-up inflation in both the United States and the European Union.[2]
The European Commission sharply raised its 2008 inflation estimate for the eurozone to 3.2 percent while trimming back only slightly its growth forecast to 1.7 percent. In February, the European Union's executive arm had forecast that inflation in the 15 nations sharing the euro would reach 2.6 percent this year and that growth would be 1.8 percent. While record oil and food prices were taking their toll on growth and inflation, financial market turmoil and a U.S. slump were proving to be worse than previously expected, the commission said in its spring Economic Forecast. In the 27-nation European Union, the commission forecast inflation would reach 3.6 percent, this year instead of the 2.9 percent previously expected, but stuck to its estimate for 2.0 percent economic growth.[3] The commission forecast that the second quarter would prove to be the weakest point of the current slowdown, with quarterly growth of only 0.2 percent before the economy started picking up again. While record oil and food prices were taking their toll on growth and inflation, financial market turmoil and a U.S. slump were proving to be worse than previously expected, the commission said. In the 27-nation European Union, the commission forecast inflation would reach 3.6 percent this year, instead of the 2.9 percent previously expected, but stuck to its estimate for 2.0 percent economic growth.[4]
The European Commission has sharply raised its 2008 inflation estimate for the euro zone to 3.2%. In its Spring economic forecast, it trimmed back its growth forecast only slightly to 1.7%. In February, the body had forecast that inflation in the euro zone would reach 2.6% this year and that growth would be 1.8%. For Ireland, the commission is predicting GDP growth of 2.3% this year. While record oil and food prices were taking their toll on growth and inflation, financial market turmoil and a U.S. slump were proving to be worse than previously expected, the commission said.[5] EU GDP rose by 2.8 per cent in 2007, while euro area GDP increased by 2.6 per cent in the same year. The EU executive had issued more positive estimates for 2008 in its autumn forecast. The commission Monday blamed the European slowdown on the persistent turmoil on the financial markets, soaring commodity prices and the poor performance of its main trading partner, the United States. "Economic growth is moderating in the EU and euro area and the current, imported inflationary pressures are a matter of concern," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia in presenting his spring economic forecasts.[6] 'Economic growth is moderating in the EU and euro area and the current, imported inflationary pressures are a matter of concern,' economic and monetary affairs commissioner Joaquin Almunia said of the commission's latest set of economic forecasts. The European Union's executive arm is now expecting growth of 1.7 percent this year rather than the 1.8 percent it predicted in its interim forecasts published on Feb 21. For next year, it has cut its growth projection to 1.5 percent from the 2.1 percent given in its autumn forecasts published on Nov 9.[7] The European Commission on Monday slightly lowered its forecast for economic growth in the euro zone this year to 1.7 percent. It was cut down further from 1.8 percent predicted by the European Union's (EU) executive arm in its previous forecast in February.[8] BRUSSELS: Growth forecasts for world's largest economy, the European Union (EU) were Monday cut by about half a percentage point to 2 per cent this year and 1.8 percent in 2009, according to latest estimates by the European Commission.[6]
Brussels inflicted a double embarrassment on Alistair Darling today, challenging his economic forecasts as too rosy and launching disciplinary action against Britain for allowing its finances to slide too deep into the red. In the latest blow to the Chancellor, the European Commission threw its weight behind the attacks of other leading institutions on his upbeat Budget prediction that Britain's economy will rebound strongly next year after a lacklustre 2008. Brussels cut its forecast for UK growth this year from 2.2 per cent to only 1.7 per cent -- although this was still just in line with the bottom of the Treasury forecast of 1.75 per cent to 2.25 per cent. In the latest challenge to Mr Darling's claims that the economy will enjoy a 2009 resurgence, in a potential election year, the Commission also cut its forecast for next year to just 1.6 per cent.[9]
The latest Treasury survey shows that the average view among City forecasters is for the economy to grow by only 1.8 per cent next year, only fractionally stronger than an average prediction of 1.7 per cent for 2008. The Chancellor will be left still more red-faced after Brussels coupled its questioning of his economic forecasts with an attack on his financial management. Although the Government's measure of its planned level of borrowing for the new 2008-09 financial year is only 2.9 per cent of GDP, the Commission uses slightly different calculations prescribed by the Maastricht Treaty. On that basis, Britain's finances are expected to be in the red this year by 3.2 per cent - above the 3 per cent ceiling set in the Treaty.[9]
FRANKFURT, Germany The International Monetary Fund said last week that the global credit crisis and persistent gloom over the U. S. economy have dampened the outlook for European economic growth. "Europe has so far been relatively resilient to the U. S. slowdown and the global financial turbulence, but the historical record suggests these will increasingly take their toll," said Michael Deppler, director of the IMF's European Department. The IMF forecast that the fallout from the credit crisis would combine with the near-record strength of the euro and soaring food and energy prices to knock inflation-adjusted GDP growth across Europe to 2. 6 percent this year from 3. 9 percent last year "with growth rates in the advanced economies projected to fall well below potential for some time.” The IMF broke down its forecast in two categories.[10] The euro rose to $1.5686 on Monday afternoon in Europe from $1.5635 in late Friday trading in New York. The euro's 15.0% rise against the dollar over the past year is particularly painful for the continent's manufacturing companies, whose already-high labor costs rise relative to those in other currency zones. In its semiannual forecast, the Commission said that soaring prices of food, oil and metals would raise the cost of producing other goods, sending inflation soaring well above last year's figure of 2.1% and the European Central Bank's target of 2.0%. The commission also offered mediocre forecasts for economic growth this year of 1.7% and 1.5% for 2008.[11] European policy-markers were out in force, talking about inflation risks and the European Central Bank's role in the crisis. The European Commission released its economic growth forecasts on Monday and acknowledged the uncertainty regarding the economic outlook. In its economic forecast report, the European Commission has revised up its euro area inflation forecast to 3.6% from 3.2% for 2008 and to 2.4% from 2.2% for 2009. The Commission also revised down its growth forecasts for the euro zone in 2008 to 1.7% from the 1.8% previously expected. In 2009, growth is projected at 1.5%, down from its previous forecast of 2.1%.[12] Canadian Finance Minister Jim Flaherty said Monday that the Canadian economy is going through a difficult period, but that economic fundamentals remain strong. He said Canadians were reaping the fruits of a balanced budget and that the recent tax cuts would provide a huge economic stimulus to the country. He also called on Ontario to follow suit to cut taxes at the provincial level. There was more data released overnight, including the European Commission's economic growth forecasts in which it revised up its euro area inflation forecast to 3.6% from 3.2% for 2008 and to 2.4% from 2.2% for 2009. The Commission also revised down its growth forecasts for the euro zone in 2008 to 1.7% from the 1.8% previously expected. In 2009, growth is projected at 1.5%, down from its previous forecast of 2.1%.[13]
The European Commission has upheld its forecast that Poland's economic growth in 2008 will be at the level of 5.3 percent. The European Commission upheld its forecast that Poland's economic growth in 2008 will be at the level of 5.3 percent, Monday, but warned against inflation, which may reach 4.3 percent over the whole year.[14] Brussels, 28 April (STA) - The European Commission has downgraded its economic outlook for Slovenia for this year in its spring economic forecast. According to the document released on Monday, Slovenian economic growth is to stand at 4.2% and inflation at 5.4% this year.[15]
'Nonetheless, the balance of risks for the growth outlook continues to be tilted to the downside, especially for 2009, while the risks for inflation are somewhat on the upside,' it said. The commission based its forecasts on assumptions of an average euro level of $1.55 in 2008 and $1.57 in 2009. It is assuming short-term interest rates of 4.3 percent in 2008 and 3.8 percent in 2009, with long-term rates of 4.0 percent for both years. It said the tightening in credit conditions has been partly offset by the decline in benchmark interest rates in recent months. 'This reflects among other things the weakened growth outlook, especially for the U.S., the flight to quality and a shift in expectations towards a looser monetary policy,' it said.[7] The weakness we expect in Q2 is primarily due to inventories, with the other components of GDP (such as consumption) generally rebounding. With their forecasts in Q1 and Q2 driven largely by an inventory cycle - and inventories being the part of GDP where the government generates the least timely data - they think it's best to look at our forecast for these two quarters in tandem. The economists remarked, if real GDP ends up being lower than their forecast in Q1, it's likely to grow faster than 0.5% in Q2. Another potential source of error in their forecast is inflation, they said, remarking that they estimate that the GDP deflator went up at a 3.7% annual rate in Q1, versus a 4.3% rate of increase in consumer prices and a 9.0% rate for producer prices. In their view, the economy has been slow in the first half of 2008 due to an almost irrational level of fear and risk-aversion. This risk aversion can be seen in very rapid growth in money market mutual fund assets - from $2.4 trillion a year ago to roughly $3.5 trillion today. Fed rate cuts, they said, which are likely to end this week, have temporarily created a self-fulfilling prophecy of economic slowness, as some businesses and consumers postpone activity until they are confident rates have hit bottom.[16] Slovakia The Spring Forecast of the EC was eagerly awaited by the markets especially because Slovakia is planning euro adoption in 2009. Analysts have previously been concerned about the sustainability of Slovakia's inflation path, but the fresh figures delivered good news as they foreshadow a moderation of inflation pressure. According to the EC's projection, Slovakia's harmonised consumer price index will come in at 3.8% this year and drop to 3.2% in 2009. This makes the country's accession to the euro zone even more probable. The EU's finance ministers will have the final say on Slovakia's euro adoption plan in June this year. Hungary The EU executive raised its inflation forecast upward and its GDP projection downward for Hungary. According to the updated prognosis, Hungary's economy will grow by 1.9% yr/yr this year and GDP growth will tick up to 3.2% in 2009.[17]
Analysts said the forecasts also showed that figure was below the target likely to be set according to the Maastricht criteria for joining the euro zone. 'This makes it very likely that the commission's report will be favourable and will recommend Slovakia to be allowed to join the Eurozone,' said Goldman Sachs (nyse: GS - news - people ) economist Istvan Zsoldos. The commission is due to give an initial verdict on Slovakia's efforts to meet euro criteria next month, but markets expect the European Central Bank will also maintain that there are concerns over its ability to keep price growth under control after adoption. The country's bid is seen as a key test case for its bigger neighbours Poland and the Czech Republic's prospects of adopting the single currency some time in the next decade. Zsoldos said he also expected Slovakia's central bank and the ECB to revise up the crown's central parity against the euro within the next few days.[18] The procedure is designed to cap budget deficits of EU members, but while fines can be imposed on countries that are members of the euro, there are no real sanctions for EU states outside the eurozone. Brussels also downgraded its forecasts for the rest of the EU and eurozone today. In a rejig of its projections that again underlined the dilemmas facing the European Central Bank (ECB) and other policymakers over economic prospects, the Commission said that the eurozone now faced a troublesome combination of weaker growth but stronger inflation.[9] The European Union's top economic official, EU Economic and Monetary Commissioner Joaquin Almunia, said Europe predicts inflation in the euro economy will rise more than a full percentage point to about 3.2 percent, from 2.1 percent last year, above the European Central Bank's recommended guideline.[19] "We are facing a very challenging time regarding inflation," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters in Brussels, describing soaring consumer prices as a "major problem." Despite the sharp upward revision to inflation, the European Union's executive arm only trimmed its eurozone growth estimate in its spring Economic Forecast to 1.7 percent from its last forecast of 1.8 percent in February.[4] Growth in the European Union is expected to ease to 2% in 2008 and 1.8% in 2009 from 2.8% in 2007 (1.7% and 1.5% in the euro area from 2.6% in 2007), according to the Commission's spring economic forecast released on Monday. The moderation in growth results from the persisting turmoil in the financial markets, the marked slowdown in the United States and soaring commodity prices, all of which are taking their toll on global activity.[17] Growth of 1.7% in 2008 would represent a sharp fall from last year's 2.6% increase. "The moderation in growth results from persisting turmoil in the financial markets, the marked slowdown in the U.S. and soaring commodity prices, all of which are taking their toll on global activity," the Commission said in its latest update. Outside the eurozone, Brussels now believes the UK economy will grow 1.7% this year, well below the government's own 2.25% forecast. The European Commission's forecast could be seen to be on the optimistic side after the IMF predicted growth of just 1.4% this year.[20]
The final results for 2007 were 2.8% for the EU and 2.6% for the euro area. With regard to the EU-27, Slovakia's growth is projected to be the biggest (7%) and Italy is to come in last (0.5%) this year. External shocks are taking their toll. The weaker economic outlook follows from continued distress in the financial markets, a marked slowdown in the U.S. - which the Commission expects to grow 0.9% this year and 0.7% in 2009 versus 2.2% in 2007 - soaring commodity prices and a resulting cooling of global growth. "The Commission's baseline scenario assumes that uncertainty about the size and location of credit losses will prevail until the end of this year, before gradually petering out during the first half of 2009.[17]
"The figures from the first quarter of 2008 are far from being bad," the source insisted. The European Commission earlier Monday said France might need an early warning on its public finances, predicting that the French deficit was slipping dangerously towards an EU limit. It said the public deficit, which covers central and regional government spending as well as the social welfare administration, would likely reach 2.9 percent this year before widening in 2009 to 3.0 percent -- the maximum allowed under EU rules. In light of those forecasts, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the situation "is a clear case for using the instruments that are at hand in such cases," which is to say, an early warning.[21] Anything over 3.0 percent and France will expose itself to EU procedures over excessive deficits, with first a series of recommendations on how to plug the hole and then later, the possibility of penalties. France late last month revised upwards its own forecast for the public deficit this year to 2.5 percent of GDP. However Paris is facing mounting pressure from its European partners to slash its total public deficit -- which stood at 1.2 trillion euros at end 2007 -- as it prepares to take over the six-month presidency of the European Union in the second half of the year. Paris has acknowledged it will be unable to balance its books by an agreed-upon eurozone target of 2010. French President Nicolas Sarkozy last week said that France expected to balance its budget by 2012 through staff cuts in the public sector. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.[22] The deterioration in its public accounts could put Paris on a collision course with the commission as France prepares for its much anticipated presidency of the European Union starting in July. France's budget deficit is set to rise higher than the government has predicted, hitting 2.9 percent of grosss domestic product (GDP) this year, the commission warned in its spring Economic Forecast.[23]
BRUSSELS (Thomson Financial) - The European Commission forecast a deterioration in the outlook for public finances in the euro zone, particularly France. The commission is now expecting a deficit for the bloc as a whole of 1.0 percent of GDP this year rather than the 0.9 percent predicted in its autumn forecasts published on Nov. 9.[24] PARIS (Thomson Financial) - The French government is keeping its forecasts for GDP growth and public sector deficits for both 2008 and 2009, despite Monday's downgrade of estimates by the European Commission, the finance ministry told Agence France-Presse. The Commission raised its 2008 deficit forecast for France to 2.9 percent of GDP from 2.6 percent and lifted the 2009 outlook to 3.0 percent from 2.7 percent.[25]
In 2009, economic activity is projected to remain lackluster, with GDP growth picking up only very moderately in the second half of the year," the Commission said. For public finances, the gap between the government's target and the Commission forecast "stems both from lower revenue and from slightly higher expenditure," the Commission said. French President Nicolas Sarkozy is coming under increasing pressure from voters to boost growth and increase purchasing power, as he promised to do during last year's electoral campaign that brought him to power. He faces increasing discontent from European peers, who are calling on France to stick to its promises to balance the budget by 2012.[26] While the commission's forecasts were based on "the conventional assumption of unchanged polices," it warned that a deteriorating economic situation and an increase in social spending could pinch the finances even more than planned. Paris will probably also not be able to count on a strong economy pumping bumper revenues into the state coffers, with the commission cutting its growth estimate for the French economy to 1.6 percent in 2008 from 1.7 percent previously. France has long struggled to meet EU public rules but in the past could count on company from Germany in its bouts of rule-breaking. Germany has since returned to budget orthodoxy and has even balanced its books, leaving France with few allies to provide support on the deficit front. All EU countries are forecast to have deficits under the 3.0 percent limit this and next year. This material is intended solely for personal use. Any other reproduction, publication or redistribution of this material without the written agreement of the copyright owner is strictly forbidden and any breach of copyright will be considered actionable.[23] "In our hypothesis, which is to say under unchanged policies, the deficit will be 3.0 percent next year, which means that France is dangerously approaching the reference level," Almunia told reporters. "Any deviation, even the slightest, would result in an excessive deficit again," he said. France late last month revised upwards its own forecast for the public deficit this year to 2.5 percent. Paris is facing mounting pressure from its European partners to slash its total public deficit -- which stood at 1.2 trillion euros at end 2007 -- as it prepares to take over the six-month rotating EU presidency. While all 15 eurozone countries committed last year to balancing their books by 2010, French President Nicolas Sarkozy has acknowledged that France might not be able to do so. Last week, the French leader said that France expected to balance its budget instead by 2012, mostly through staff cuts in the public sector.[23]
By country, the commission raised Germany's 2008 growth outlook slightly to 1.8 percent from 1.6 percent, but cut the 2009 forecast to 1.5 percent from 2.2 percent. France is now expected to post growth of 1.6 percent this year and 1.4 percent in 2009 rather than the commission's previous forecasts of 1.7 percent and 1.8 percent respectively. Italy had its 2008 growth forecast cut to 0.5 percent from 0.7 percent and its 2009 outlook halved to 0.8 percent from 1.6 percent. Outside the euro zone, the UK's growth forecast was cut to 1.7 percent from 2.2 percent for this year and to 1.6 percent from 2.5 percent for 2009.[7] The annual rate in the euro zone hit 3.6% in March, the highest since the euro was launched in 1999. The commission report was not all doom and gloom, as it raised its growth forecast for Germany this year from 1.6% to 1.8%.[5] The adoption of the euro contributed only 0.3 percentage points to the inflation rate, the Commission says. The Commission's forecasts are near to those predicted by Slovenia's main government think tank, the Institute for Macroeconomic Analysis and Development (IMAD), which predicted growth of 4.4% and inflation of 5.2% for this year in a recent report.[15]
Prospects for 2009 were cut more drastically, with growth now expected to be only 1.5 per cent, compared with a 2.1 per cent figure in Brussels's November assessment. At the same time eurozone inflation is now forecast to be higher, at 3.2 per cent for this year, up from the 2.6 per cent foreseen in February. Inflation in 2009 is expected to ease to 2.2 per cent, but this forecast is up from the 2.0 per cent the Commission expected in November, and above the ECB's target of "close to, but under 2 per cent".[9] The warning by EU Monetary and Economic Affairs Commissioner Joaquin Almunia came ahead of an expected May 7 ruling by European authorities on whether Slovakia is ready to become the eurozone's 16th country. In the latest indicator, a European Commission economic outlook Monday said Slovakia's average inflation will spike to 3.8 per cent this year from 1.9 per cent in 2007, but retreat to 3.2 per cent in 2009.[27] The EU report on Monday showed the trend for Slovakia running well above current eurozone countries, where average inflation was pegged at 3.2 per cent in 2008. Analysts said the forecast of easing inflation after this year's expected spike could work in Slovakia's favour.[27] "Whilst our economies have proved resilient to the external shocks so far, and we expect continued, albeit slower, job creation, we need to stick to sound macro-economic policies and carefully avoid starting an inflation spiral that would particularly affect low income families," Almunia said. The EU's latest figures, which were broadly in line with its February interim forecasts, were not entirely negative, however. For instance, the EU's largest economy, Germany, was predicted to grow by 1.8 per cent this year and by 1.5 per cent the next. This is more optimistic than the German government's own forecasts of 1.7 and 1.2 percent respectively.[6]
Officials in Brussels said that despite the slowdown, the EU economy remained "in a relatively good position to weather the global headwinds" thanks to sound fundamentals. Both its average public deficit and current account position, for instance, were below 1 per cent of GDP in 2007, while the unemployment rate was expected to drop from 7.1 per cent last year to 6.8 per cent this year.[6] Slovak leaders insist that adopting the euro will not lead to an inflation burst as happened in Slovenia after that country joined the eurozone last year. For Slovakia to join, EU authorities also need to close a probe against Bratislava for its past overshooting of the limit on budget deficits for countries that want to use the euro - 3 per cent of gross domestic product (GDP).[28]
Slovakia's average 2008 inflation will rise to 3.8 per cent in 2008 from 1.9 per cent last year, the European Union's spring economic forecast said.[28] In a twice-yearly forecast, the European Union executive said Slovakia's annual inflation would fall to 3.2 percent in 2009 on the EU measure (HICP), after peaking at 3.8 percent in 2008. This compared with 1.9 percent last year.[29]
The Commission also forecast Slovakia would have the highest economic growth rate of the EU's 27 nations, with gross domestic product expected to expand 7.0 percent in 2008 and 6.2 percent in 2009, compared with 10.4 percent last year.[29] In the 27-nation EU, the Commission's forecast economic growth would reach 2.0 percent in 2008 and 1.8 percent in 2009, down from2.8 percent last year.[8]
The Commission's economic forecast published today projects economic growth at 2.0% in 2008 and 1.8% in 2009 in the EU (1.7% and 1.5% for the euro area). This is 0.5 percentage point lower than predicted in the autumn forecasts.[17]
The market has so far expected 32.50, according to a Reuters poll. EU Monetary Affairs Commissioner Joaquin Almunia, who will draft the report on Slovakia, declined to comment on Slovakia's euro bid but reiterated the country of 5.4 million people should cut its budget deficit more, considering its fast economic growth. "We consider among other things, the fiscal consolidation should be more ambitious in Slovakia to help the authorities fight inflation more successfully," he told a news conference. Analysts and politicians have said Slovakia's uncertain inflation outlook is its only obstacle to adopting the currency now shared by 15 nations.[29] In a news conference following the forecasts, EU economic and monetary affairs commissioner Joaquin Almunia said France had the 'most worrying deficit in the euro zone' along with the United Kingdom, Hungary and Romania. He added that there is a risk the French government will not keep to its predictions on deficit and that failure to strictly control its budget 'would lead to a possible excessive deficit in France'. 'I think this is a clear case where we could use the instrument we have at our disposal to deal with the situation,' he added. Almunia also said he would introduce disciplinary measures against the United Kingdom. 'We will launch again a report to start an excessive deficit procedure,' he said. 'I intend to present this report for the adoption of the college (of EU commissioners) on June 11,' he said.[24] In a news conference after the forecasts, EU economic and monetary affairs commissioner Joaquin Almunia said France had the 'most worrying deficit in the euro zone'. He said there is a risk the French government will not keep to its deficit predictions and that failure to strictly control its budget 'would lead to a possible excessive deficit in France'. 'I think this is a clear case where we could use the instrument we have at our disposal to deal with the situation,' he added. Lagarde added that Brussels seems 'not to have taken account of the effects of the law on economic modernization' that she presented in a cabinet meeting Monday, and 'took very little account of the RGPP,' a plan to reform public policy by which the government aims to save several billion euros. Lagarde added that she is 'calm' concerning a possible official warning from the EU over the French deficit.[25]
For Slovakia, which has formally applied to join the euro zone at the start of 2009, the commission is forecasting inflation of 3.8 percent for 2008 and 3.2 percent for 2009. Almunia has said the country's membership was not yet a done deal and that the commission will closely watch its inflation figures. On Europe-wide inflation, Almunia said the area is'suffering a very strong inflationary shock,' he said, reiterating that this would have 'very different consequences' for Europe to other areas. 'I hope that we will be able to avoid second round effects,' he added, noting that he is 'optimistic' this will happen. 'The most difficult issue is that we have to face three shock at the same time,' he said, referring to the U.S. slowdown, the global credit crisis and the rising inflation rate. Asked if the commission would revise its forecasts down again, Almunia said 'these are uncertain times. to forecast is not impossible, but it is a dangerous activity'. [7] BRATISLAVA, April 28 (Reuters) - The European Commission forecast on Monday that Slovakia's annual inflation rate would peak in the third quarter of 2008 and ease next year, boding well for the country's 2009 euro zone entry bid.[30] "The European Commission forecasts confirm we are able to meet the inflation criterion in a sustainable way," Pociatek told reporters, referring a key area of concern from the Commission's over Slovakia's euro zone entry bid.[31]
BRUSSELS (Thomson Financial) - The European Commission trimmed its 2008 and 2009 growth forecasts for the euro zone and hiked its inflation outlook for the bloc.[7] The European Commission has again downgraded its forecast for eurozone growth this year, blaming weakness in the U.S. economy and financial turmoil. Brussels now believes the 15-nation eurozone will grow 1.7% this year, below its previous projection of 1.8%. It believes inflation will accelerate to 3.2% for the year as a whole compared to 2.1% in 2007.[20] PARIS (Dow Jones)--The French economy will post "lackluster growth" this year and it won't pick up before the second half of 2009, while public finances keep deteriorating, the European Commission said Monday in its spring forecast.[26]
The central bank said that the change in the interest rate will be effective from April 29. Monday, the European Commission said in its Spring 2008 forecast that the 15-nation economy is expected to record 1.7% growth in 2008, much smaller than the 2.6% expansion in 2007. The EC lowered the outlook by 0.5-percentage point from its Autumn 2007 forecast.[32] Just yesterday, ECB Chief Mr Trichet, responding to a decline in investor confidence in Europe, suggested that a major part of the problem for European growth was the low value of the dollar. I guess he was too embarrassed to state the obvious ' that the weakness in the dollar is mirrored one-for-one in the strength of the euro; and that interest rate inflation-fighting hikes would further strengthen the euro, and further weaken the European economy. Maybe the strength of the euro does (did) manage to lower inflation? That empirical evidence goes against the ECB ' the euro has appreciated by a large amount (25 per cent), and inflation in Europe has accelerated (almost doubled) by 1.5 percentage points (ppt) ' from 1.8% per annum to 3.3% p.a.[33] The fastest inflation since 1992 is preventing the ECB from cutting interest rates to support economic growth. "These things will have an impact on the economy over a long period of time,'' said Stephane Deo, chief European economist at UBS AG in London.[1]
Overall, the ECB's timely liquidity operations have contributed to ensure a smooth functioning of the short end of the money market without ' of course ' eliminating the causes of the tensions, originating outside the money market. It is imperative to stress that the ECB conducted these money market operations without changing its monetary policy stance, which the Governing Council determines on the basis of its economic and monetary analysis and in full accordance with the ECB's primary objective of maintaining price stability over the medium term. In view of safeguarding its credibility and firmly anchoring long-term inflation expectations, it is crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term. Once the appropriate level of the key ECB interest rates has been set, the Executive Board of the ECB implements monetary policy so that the effects of its interest rate decisions are transmitted to the financial markets and the real economy effectively. The ECB had to act swiftly and decisively to deviations of money market rates from its policy rate to support its monetary policy objective and to avoid that tensions in the money market would spill-over to other markets and adversely affect the real economy.[34] Guiding inflation and interest rate expectations requires not only precise and consistent communication of the central bank's ultimate objective and the strategy, but also consistency between words and deeds. In the end, only a track record of monetary policy decisions can support the central bank's credibility. Looking back in time, the ECB is also gradually building up its own track record ' something which, as a new institution, simply did not exist when we started operations. Since its inception, the Eurosystem has been tested by a series of events and challenges, some of which we shared with the other major economic areas in the world, and some which were characteristic of our European environment.[34] Unlike some other major central banks, the Frankfurt-based ECB has so far opted not to cut interest rates in the face of weakening growth, concentrating instead on keeping a lid on inflation. In Vienna, ECB chief Jean-Claude Trichet described the current economic environment as "very challenging" but voiced confidence the ECB "will meet those challenges thanks to its stability-orientated monetary policy strategy."[4]
Speaking in Vienna at the 36th Economics Conference organized by the Austrian National Bank on Monday, European Central Bank President Jean-Claude Trichet said that the current situation is very demanding and that upside risks to inflation in the medium term exist, but that current ECB rates will help achieve price stability. Trichet also said that he was concerned about exchange rate fluctuations and highlighted the importance of coordination within the euro area.[12] Euro-zone inflation hit a rate of 3.6% in March, the highest rate since the introduction of the euro in 1999. "The ECB is the inflation-fighting machine we wanted it to be," he said, but governments need to proceed with structural reforms and other measures to make the economy more resilient. Juncker noted he is the only finance minister still in office to have signed the Maastricht Treaty. Governments need to take an "intensive" look at inflation, he added. Juncker added that he shares the ECB's concern about excessive foreign exchange rate volatility, but urged politicians to be more disciplined in commenting on foreign exchange. He also said competition between the euro and the dollar as a global reserve currency isn't desirable. "This isn't in our interest," Juncker said. He was delivering a speech at an economic conference sponsored by the Austrian central bank.[35]
Consumer confidence in Germany rose against economists' expectations today and inflation slowed across the five German states that have reported April data. Growth in the French economy will slow to 1.4 percent in 2009 from 1.6 percent this year, while the U.K. economy will expand 1.6 percent after 1.7 percent. ECB policy makers said that the inflation pressures stemming from the rise in global oil and food prices preclude a cut in borrowing costs after the governing council left its benchmark rate at 4 percent this month. "We considered that was the best policy to prevent all this inflation imported from outside being passed on and producing second-round effects,'' Bank of Spain governor Miguel Angel Fernandez Ordonez said last week.[1] London-based economist Mark Chandler told BloggingStocks Monday Europe and the ECB can afford to maintain current interest rate levels, for now, to fight inflation, but that the hawkish stance may have to change, if EU growth declines conspicuously in 2H 2008. "Right now there's just enough growth not to force the ECB's hand, so their focus will be on Europe's level of inflation," Chandler said. "But if growth starts to drop off the table in the second half of the year, they'll have no other choice but to cut rates.[2]
In some euro area countries, short, medium and long-term market interest rates fell to levels that had not been seen since the long-gone days of the gold standard. They have remained at those levels ever since. How can a new currency with no historical credentials secure such trust and confidence? Preconditions were sound institutions, and the Community's determination to lay the monetary union on the steady foundations provided by the most credible national central banks and the best public policy available in Europe.[34] The new single monetary authority was to be indisputably devoted to the maintenance of price stability in the euro area. Safeguarding stable prices is a necessary condition for serving the other Community objectives, such as non-inflationary economic growth, job creation and social cohesion. In order to accomplish this goal, the new central bank was to be guaranteed full independence, in close continuity with its forebears, in an international Treaty.[34]
Speaking in Vienna, Austria National Bank Governor Klaus Liebscher stated that the ECB must act preemptively to contain inflation risks if necessary, adding that the ECB's focus on price stability was not at odds with ensuring economic growth.[12]
Europe's economic growth will slow for a third straight year in 2009, to 1.5%, as higher inflation on the continent cuts into consumers' disposable income, the European Commission announced Monday.[2] BRUSSELS -- The European Union said Monday that euro-zone economic inflation would surge more than expected this year as growth slows down from a recent boom. It insisted that Europe was resilient and so far saw "no firm signs of a credit squeeze."[36] BRUSSELS, April 28 (Reuters) - Slovak inflation will ease in 2009 after hitting a peak this year, the European Union forecast on Monday, cementing expections in the country that it will be allowed to join the euro zone next January.[29]
The Commission, the EU's executive arm, forecast that Slovak inflation would peak in the third quarter next year and fall in 2009, boding well for the EU newcomer's euro zone entry bid.[31] The commission predicted that consumer prices growth would peak in the second quarter and cool down over the rest of the year and into 2009, bringing inflation in the euro zone down to 2.2% next year.[5]
Any hopes that the dollar could regain some of its lost ground against the euro were dashed on Monday as the European Commission warned that it expects inflation within the 15 nation euro zone to rise to 3.2% for the year. This adds to pressure on the European Central Bank to refrain from a confidence-boosting interest-rate cut.[11] Some analysts said the forecast was narrowly within the target range for showing the European Commission and the European Central Bank (ECB) that Slovakia's inflation will stay low in future - the key remaining issue. Almunia urged Slovakia's government to tighten spending, which he said was a homegrown reason for rising prices - in addition to the global price shock, a reference to food and energy prices. 'We have said several times to Slovak authorities that. the fiscal stance of the Slovakian policies is not as ambitious as desirable,' he told reporters.[27] "The European Commission forecasts are more-or-less in line with our prognosis," Sevcovic, who also heads the NBS's monetary policy department, told Reuters. "This confirms the view of the National Bank of Slovakia that Slovakia is able to meet the inflation (condition) in a sustainable way."[30]
BRATISLAVA, April 28 (Reuters) - The European Commission's inflation forecasts confirm Slovakia can meet the criterion to adopt the euro next year,.[31] The crown gained almost half a percent against the euro before settling to 32.25, after the European Commission's newest forecasts showed it believed average annual inflation would fall to 3.2 percent next year.[18]
BRUSSELS (AFP) — The European Commission on Monday hiked its 2008 eurozone inflation forecast to 3.2 percent from 2.6 previously in the face of record oil and food prices but predicted that growth would suffer only slightly.[4] The commission attributed the expected moderation in growth to persisting turmoil in the financial markets, the marked slowdown in the U.S. and soaring commodity prices. On the inflation front, it hiked its 2008 inflation forecast to 3.2 percent from the 2.6 percent expected in February.[7] The economy of the eurozone grew by 2.6% last year. "The moderation in growth results from the persisting turmoil in the financial markets, the marked slowdown in the United States and soaring commodity prices, all of which are taking their toll on global activity," the Commission said on Monday.[11]
The euro-zone's second-largest economy is expected to grow by 1.6% in 2008 and by 1.4% in 2009, a marked downgrade from the 2% and 1.8% respectively forecast in autumn. That compares with government expectations that the gross domestic product will grow by 1.7%-2%. The Commission hiked its forecast for French deficit this year to 2.9% of GDP, barely below the limit allowed by the Growth and Stability Pact, and up from 2.6% of GDP forecast in autumn.[26] "In 2009, economic activity is expected to remain subdued, under the influence of a still unfavorable external environment." Slower growth should contribute to a rise in Italys budget deficit, which the commission sees at 2.3 percent of GDP in 2008, up from 1.9 percent of GDP in 2007, but below its 3 percent of GDP ceiling. Italys debt is expected to edge lower to 103.2 percent of GDP this year from 104 percent of GDP in 2007.[37]
The Commission had previously pegged Austria's GDP growth at 2.7 percent for 2008 and 2.4 percent in 2009, the Austrian press agency APA reported. 'The still buoyant activity at the beginning of 2008 is set to gradually slow down over the course of the year,' the Commission wrote as part of its annual Spring economic forecast.[38] VIENNA (Thomson Financial) - The European Commission lowered its GDP growth forecast for Austria to 2.2 percent in 2008 and 1.8 percent in 2009 to reflect the influence a weakening external environment is likely to have on the country's economy.[38] Three percent is the maximum deficit allowed under the EU stability and growth pact. The commission also cut its GDP forecasts for France, lowering 2008's outlook to 1.6 percent from 1.7 percent and 2009 to 1.4 percent from 1.8 percent.[25] The euro zone is forecast to post a 2009 deficit of 1.1 percent of GDP compared with the previous forecast of 0.8 percent. France had its 2008 deficit forecast raised to 2.9 percent of GDP from 2.6 and its 2009 outlook upped to the stability and growth pact threshold of 3.0 percent from 2.7 percent.[24]
Economic growth in the euro zone was expected to slow down further to 1.5 percent in 2009, according to the latest forecast.[8] The European Commission has adjusted downward its economic growth expectations in the Euro zone countries by half a percentage point.[39] Almunia added that appreciation of the euro is linked to narrowing the gap between import and export growth. He was speaking at a news conference following the European Commission's economic forecasts.[40] BRUSSELS (Thomson Financial) - Here are the European Commissions spring economic forecasts for inflation as measured by the harmonised index of consumer prices (HICP).[41] WARSAW (Thomson Financial) - Slovakia's crown currency rose Monday after EU economic forecasts showed it is on track to meet goals on inflation needed to smooth the road to adopting the euro from the start of next year.[18]
The fact that we have not seen much of an effect so far could imply either than transmission lags are longer than expected or that the resilience has improved further than we think in the EU," the EC said. making inflationary pressures a clear worry Headline inflation increased significantly since the autumn to reach 3.8% in March, in annual terms, in the EU (3.6% in the euro area). This reflects a sharp increase in global energy and food prices partly cushioned by the stronger euro. In view of this, the Commission is now forecasting average inflation this year at 3.6% in the EU and 3.2% in the euro area.[17] The EU economy is holding up relatively well thanks to sound fundamentals and is expected to create 3 million new jobs in 2008-2009 on top of the 7.5 million in 2006-2007. Consumer price inflation is expected to surge temporarily to 3.6% this year in the EU against 2.4% in 2007 due to soaring energy and food prices, before coming down to an expected 2.4% in 2009 ( equivalent figures for euro area are 3.2% and 2.2% versus 2.1% in 2007), the EU executive said.[17]
Investment growth is weakening due to a cooling-off of overvalued housing markets and the cyclical slowdown. Private consumption growth is also set to slow with employment and real wage growth decelerating this year and consumer confidence in steady decline. Improvements in the labour market and public finances come to a halt Following on the strong improvement in 2006-2007 momentum, the labour market is now softening and employment growth is expected to be halved this year, down from 1.7% in 2007 to 0.8% this year and 0.5% next. The unemployment rate should bottom out at 6.8% in the EU this year (7.2% in the euro area). Despite the easing in the labour market situation, wage growth is expected to accelerate from 2.9% in 2007 to 3.8% this year, temporarily boosted by some catching-up measures in e.g. Germany, before decelerating again to 3.5% next year.[17] The EC added that "the EU economy will not escape unscathed. Investment growth is weakening due to a cooling-off of overvalued housing markets and the cyclical slowdown," also noting that it expects employment and real wage growth to decelerate this year, and consumer confidence to decline. Chandler said the ECB will also monitor Europe's small-to-medium sized companies and their hiring plans. "They're the most flexible and dynamic aspect of Europe's economy. If they end hiring plans or telegraph that they're pulling back on business initiatives, that will be another economic danger signal for the ECB."[2]
Not all was doom and gloom in the commission's report, with regional economic powerhouse Germany expected to perform better than the last time Brussels made forecasts in February. Europe's biggest economy was forecast to grow 1.8 percent this year, rather than the 1.6 percent the commission predicted in February.[4] Economists expect 1.5 percent. Business confidence in Germany, the world's biggest exporter, dropped to its lowest level in more than two years in April while investor confidence fell to close to a 15-year low. Germany's growth rate will decline to 1.8 percent this year and 1.5 percent in 2009, the commission forecast today, after 2.5 percent expansion last year.[1] The commission's forecast for euro-region growth next year is more pessimist than the 1.7 percent median estimate in a Bloomberg News survey of 21 economists. The commission forecast a 1.7 percent expansion this year, compared with the 1.8 percent expansion forecast in February.[1]
In 2009, growth should come to 1.75-2.25 percent, with a deficit reduced to 2.0 percent, according to Paris. The European Commission meanwhile predicts French growth this year of only 1.6 percent and a shortfall in public finances of 2.9 percent.[21] Slower growth will see public finances deteriorate across the single currency area, the commission said. The aggregate budget deficit for the region will widen to 1.1 percent of gross domestic product after 1 percent this year.[1]
On Ireland, the commission said the picture was heavily influenced by the construction slowdown, and the extent and duration of the downturn remained uncertain. It expected the unemployment rate to rise to 5.6% this year and 5.8% next year, but said inflation would drop in 2009 as the effect of higher mortgage payments receded. The commission said weaker growth and tax revenues meant the Government deficit could be worse than projected this year, and a projected slowdown in Government spending in 2009 might not be enough to stop this worsening in 2009.[5] Tight monetary policy (non-food credit growth has decelerated from 30 plus per cent to only 20 odd per cent) has ensured an across-the-board decline in growth. At the peak year-on-year growth in credit (last several years), inflation was at its trough; at the slowest growth of credit in several years, inflation is at its peak. What better proof is needed about the damage that ideology can do? In addition, India had a 10 per cent appreciation of its currency to fight inflation. The 'credit' for this ideology most likely goes to the Ministry of Finance, which believes (believed?) that exchange rate appreciation not only reduces inflation but does so massively, i.e. each 10 per cent rise in the value of the currency leads to a 2 per cent decline in the rate of inflation. Snake oil salesman have better evidence; but then, they don't have a blinding ideology. The author is Chairman, Oxus Investments, a New Delhi-based asset management company.[33] Without firm guidance on the strategy and the objective of monetary policy, a central bank risks that temporary adverse price shocks result in a reappraisal of the expected inflation rate by the public. Disorientation about the true intentions and determination of the monetary authorities can force upon the central bank an overly aggressive pattern of reaction to inflationary risks in order to state its intentions by the force of facts. This, in turn, can lead to unnecessary volatility in both output and inflation. We thought that this pattern could be avoided if the potential disconnect between expectations formation and central bank priorities was addressed and solved in the founding act of our central bank, the act that defined its mission and the strategic means to accomplish its mission.[34] If it is inflation, the European Central Bank (sometimes affectionately known as Extremely Confused Bankers) should be the first stop. The ECB cast is known to believe that inflation everywhere and every time is a monetary phenomenon. Their response is to tighten money and credit to slow down inflationary expectations. This is what they have been doing for the last several years. One of the strong links in this anti-inflation policy has been the appreciation of the euro.[33] European Central Bank sources have previously said the ECB is worried about Slovakia's inflation outlook. The ECB will also report on Slovakia's euro readiness on May 7, but its findings will not be binding under EU rules.[29]
The forecast shows that inflation will exceed the 2.0% cap set the European Central Bank and that Slovakia is to meet the CPI criterion.[17]
Hesse, Brandenburg, Baden Wuerttemberg and Saxony all experienced 0.2% month-over-month price declines, with inflation in the North Rhine-West region falling 0.3%. Speaking with the Austrian national public service broadcaster'sterreichischer Rundfunk (ORF), European Central Bank President Jean-Claude Trichet said he was concerned about the impacts of exchange rate volatility on the economy.[13] Driven ever higher by record commodities prices, 12-month eurozone inflation hit 3.6 percent in March, the highest since the 1999 launch of the shared currency and well above the European Central Bank's comfort level of just under 2.0 percent.[4]
Eurozone money supply growth, a leading indicator of inflation, slowed sharply in March, provisional data from the European Central Bank showed.[42]
While the financial market crisis is expected to marginally impact the euro zone, Mersch, also a member of the European Central Bank's Governing Council, added that the euro zone economy is fundamentally healthy.[12] By comparison, the commission said the 15-country euro zone economy is expected to grow 1.7 percent down slightly from Februarys forecast of 1.8 percent. It has trimmed the Italian forecast from 0.7 percent in February and 1.4 percent in November.[37] The Commission also revised down its growth forecasts for the euro zone in 2008 to 1.7% from the previously expected 1.8%. In 2009, growth is projected at 1.5%, down from its previous forecast of 2.1%.[43]
"The forecast is set in a way that the report coming next week should say Slovakia is meeting all the criteria (for euro zone entry) and in a sustainable way." "These forecasts are positive news for Slovakia. The other report from the ECB will not be as positive, but this one from the Commission is more important and will probably outweigh it."[30] "We did not come here with champagne and fireworks, but the European Commission's forecasts are a significant step towards meeting the goal of adopting the euro," Slovakia's leftist Prime Minister Robert Fico told a news conference. It later dipped to 32.245 at 1509 GMT. Fico said he would aim for the strongest possible switchover exchange rate. "My personal view is that the rate should be as favourable for the people as possible, that people would pay as few crowns for a euro as possible," he said. He said he expected the rate to be set in the first week of July.[29] Prime Minister Robert Fico said the numbers bolstered Slovakia's case for joining the euro. 'The European Commission's economic forecast confirms. that Slovakia is on a good path,' he said in Bratislava, the capital.[27]
Monday, the European Commission said in its Spring 2008 forecast that the 15-nation economy is expected to record 1.7% growth in 2008, much smaller than the 2.6% expansion in 2007. The EC lowered the outlook by 0.5-percentage point from its Autumn 2007 forecast.[44] Expected eurozone growth for 2008 was trimmed to 1.7 per cent from 1.8 per cent in the Commission's latest forecasts.[9] Gross domestic product (GDP) growth forecasts for the 15-member euro area were similarly cut to 1.7 and 1.5 per cent respectively.[6] That was sharply lower than its previous projection of 2.5 per cent growth and far below Mr Darling's hopes for GDP to expand by 2.25 to 2.75 per cent. Most other independent forecasters are also much gloomier than Mr Darling over recovery prospects for next year -- even before the full scale of this year's downturn is clear.[9]
Bankers managing the sale of RBS Insurance are preparing to send out sales memorandums to prospective buyers, including private equity firms and trade buyers, over the next few weeks. Aviva, the UK insurer that owns Norwich Union, has reported a better than expected 5 per cent rise in first-quarter sales, with strong growth in the U.S. and Asia compensating for a downturn in the UK. The group said its life and pension sales for the three months to March 31 rose to £8.2 billion, from £7.6 billion last year. F&C; Asset Management said that its total assets under management for the first quarter declined to £101.8 billion, because of significant challenges created by volatile equity markets, illiquid credit conditions and a general deterioration in retail investor sentiment.[42] The European Union approved Tata's $2.3 billion (£1.16 billion) purchase of Jaguar and Land Rover yesterday. Ultra Electronics, the electronics designer and manufacturer, said that its first-half trading performance had been encouraging and in line with the company's expectations. The company said that demand in its main markets remains strong and that it had room for further growth. Vernalis, the biotechnology company, has reported a narrower full-year operating loss of £31.7 million, down from £40.8 million last year, and said that it considers the sale of Apoklyn, its Parkinson's disease drug, and its U.S. operations to be "highly probable". GlaxoSmithKline has received a second positive indication for its Tykerb breast cancer treatment from the European Medicine Agency, which recommended conditional marketing approval for the product in European Union countries. Nippon Steel Corp, Japan's biggest steelmaker, has reported its first annual pretax profit fall in six years, to 564.12 billion yen (£2.7 billion), saying that profit margins for the year ended March were under pressure from surging costs of raw materials such as coke and ore.[42]
The first was advanced European economies, including the 15-nation euro zone, Denmark, Sweden and Britain. The second was emerging European economies, including Russia, Croatia, Albania, Turkey and Ukraine, among others. The agency said that the advanced European economies would see a decline in real growth to 1. 5 percent this year from 2. 8 percent in 2007.[10] The emerging economies' GDP would drop to 5. 5 percent from 6. 9 percent in 2007. In the euro zone, GDP is expected to be at 1. 4 percent this year and 1. 2 percent in 2009.[10] Germany's deficit is now expected to be 0.5 percent of GDP for 2008 rather than 0.1 percent, and 0.2 percent for 2009 instead of a surplus of 0.2 percent. Italy's deficit forecast was unchanged at 2.3 percent of GDP for this year, but increased slightly to 2.4 percent from 2.3 percent for 2009.[24] According to the Commission, the same factors, together with an expected rise in wages, are to cause inflation to reach 4.3 percent in 2008. The Polish finance minister, Jacek Rostowski, said last week that he sees no reason to change the inflation forecast of the ministry yet, according to which the annual average inflation in 2009 will be 2.9 percent, compared to 3.5 this year.[14]
The Commission emphasized that the European economy was'still in a relatively good position' and that inflation was being partially buffered by a strong currency. It is forecasting the euro to fall to $1.55 this year and $1.57 in 2009.[45] Vienna - Slovakia's headline inflation will spike well above the eurozone's this year, the European Commission said Monday, casting a shadow over Slovak hopes to join the currency club on January 1.[28]
Over the past ten years, the inflation rate in the euro area has remained on average in a tight vicinity of 2%, although it has occasionally risen above levels that the ECB considers consistent with conditions of price stability. It is remarkable that even amidst such adverse and potentially unsettling disturbances, financial markets and the public at large have not lost faith that, in line with our strategy, we would reaffirm price stability over the medium term. [34] The smooth introduction of the euro in 1999 and the success of the cash changeover in 2002 were the result of years of thorough preparatory work involving the ECB, the NCBs and a large number of public and private institutions which represent the core of the financial sector in the euro area. This has been reflected in the open and positive way in which the general public and financial markets have received the euro.[34]
Since the start of EMU, around 15.7 million people have been added to the number of employees in the euro area, in comparison to approximately 5.5 million in the nine preceding years. The euro area unemployment rate has fallen to its lowest level since the early 1980s. These are encouraging developments, which show that the structural reforms and the degree of wage moderation necessitated by the new economic environment have helped to overcome some of the constraints on growth stemming, in particular, from still rigid and over-regulated markets in a number of economies. [34] 'Economic growth is moderating in the EU and euro area and the current, imported inflationary pressures are a matter of concern,' EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.[5] BRUSSELS (Thomson Financial) - European economic and monetary affairs commissioner Joaquin Almunia said, according to International Monetary Fund (IMF) tests, the euro is over-valued when compared to other currencies. 'If you ask all those who in the work of preparing estimates of (foreign exchange) equilibrium, most of them, including the IMF. say that the euro area exchange rate, now, both in real and effective exchange rate and bilateral tests with some other currencies reflects an overvalued euro,' he said.[40]
At the moment Slovakia meets all the euro zone entry criteria on inflation, the budget deficit, public debt, long-term interest rates and currency stability.[29] The forecast did not include the 12-month average inflation rate which is used to assess whether countries are fit to adopt the euro. It offered some reassurance about Slovakia's ability to keep price growth in check.[29] French consumer spending plummeted unexpectedly in March, but was still posting a 1.2% yearly gain. That happened in spite of higher inflation, with prices up by 3.5% on the year last month. The decline in the unemployment rate, one of the main boosts to consumption, is projected to slow down this year. After falling from 9.2% in 2006 to 8% this year, unemployment is forecast to rebound to 8.1% in 2009.[26] Commodity prices continue to rise. That has pushed inflation measures higher and raised broad inflation concerns. The Fed is perceived to be at the end of their interest rate reduction cycle. It is expected that after the late April meeting they will keep rates stable for the foreseeable future and that the next move might be to raise rates later this year.[46]
Overall retail trade failed to deliver the expected 0.7% growth, expanding 0.5% month-over-month. As expected, the Hungarian Central Bank hiked its benchmark interest rate 25 bps to 8.25% on Monday morning following a 50bp hike at the previous meeting on March 31.[13] The news piled pressure on the European Central Bank, which has remained consistently hawkish over interest rates. Because key commodities are priced in dollars, they have been rising against the U.S. currency as the greenback weaknes on foreign exchange markets.[11] Inflationary fears have led the European Central Bank (ECB) to keep interest rates on hold at 4%.[20] We sprung into action as the seriousness of the hardships in markets and the need for the central bank support became evident. It did not take long ' a few hours ' for us to identify the degree of stress that was gripping the markets and to clearly state that the ECB intended to remain in command of the shortest term interest rates in the money markets, close to our policy rate.[34]
The ECB's policy response to the tensions in financial markets I left the recent financial turbulence as my last point. Well before the financial turmoil erupted in August last year, the ECB, as well as other central banks and institutions, have pointed out regularly in their communications that there was a significant underpricing of risks in a large array of markets.[34] Mersch also stated that the risks of underpricing had become the real crisis in financial markets. He emphasized that the central bank has not changed its stance since its policy meeting on April 10, adding that the ECB does not react to single data points.[12]
Over time, the risk that the central bank periodically might be forced to clamp down in the attempt to ensure price stability is capitalised in higher financing costs, making the job of the central bank in controlling inflation all the more difficult.[34] Research has shown that the inflation process becomes less persistent and more forward-looking when the economy internalises the central bank's objective firmly. This is what we observe in the euro area.[34]
After peaking in the second quarter of 2008 in the EU, inflation is nevertheless expected to come down to lower levels to 2.4% in 2009 on average (2.2% in the euro area).[17] After recording the best result since 2000 at 0.9% of GDP (0.6% in the euro area), the average public deficit is expected to increase again in 2008 to 1.2% of GDP in the EU (1.0% in the euro area) due to more moderate activity in general and tax cuts in some countries.[17] In the economic forecasts for EU countries published on Monday, the EC also assessed that the Polish public finance deficit in 2008 will increase to 2.5 percent of the GDP, from the estimated 2.0 percent in 2007.[14] Next year, the shortfall in the French public accounts would widen to 3.0 percent -- the maximum allowed under EU rules. In light of those forecasts, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the situation "is a clear case for using the instruments that are at hand in such cases," which is to say sending an early warning.[23]
For the whole of 2009, it forecast eurozone growth would slow to 1.5 percent while activity in the overall EU economy would ease to 1.8 percent.[4]
A steady monetary policy course has substantially contributed to stabilising medium to long-term inflation expectations at a level consistent with our definition of price stability, while, at the same time, protecting our economy from the corrosive influence of policy-induced volatility. As I mentioned earlier, growth and employment were undeterred by this.[34] A transparent monetary policy framework, comprising of a quantitative definition of price stability, and of a candid display of our strategy based upon tow pillars, an economic analysis and a monetary analysis, provide a strong anchor for inflation expectations and facilitates markets' understanding of the systematic responses of monetary policy to the evolution of macroeconomic conditions. There is compelling empirical evidence that the ECB's open and timely communication on its objectives, strategy and assessment of the economic outlook has been reflected in a high level of predictability for its monetary policy decisions.[34] By formulating and publishing the definition of price stability, the overriding objective of monetary policy, in quantitative terms, in total continuity with the definition existing, before the euro, in the countries of the core currencies, namely less than 2 %, the ECB has provided the basis for market participants to form expectations efficiently and to reduce the sensitivity of inflation expectations to short-term shocks.[34] As I have said on behalf of the Governing Council of the ECB, we believe that the current monetary policy stance will contribute to achieving our objective of price stability in the medium term and of firm anchoring of medium to long term inflation expectations.[34]
When I say 'more rigid' I mean relative to the United States where the frequency of price changes is almost twice as high as in the euro area. It is not the stability-oriented monetary policy framework of the ECB alone that has made the successful transition to the euro possible.[34] A completely new monetary policy framework was introduced in Europe, with the ECB conducting a single monetary policy for the entire euro area consisting of eleven and soon twelve countries.[34]
The euro and our monetary policy are providing a positive impetus for the euro area economy, vindicating the soundness of the institutional setting of EMU. Since the launch of the euro, most euro area countries enjoy much more favourable financing conditions than in the 1990s, supporting private and public investment as well as fiscal consolidation.[34] There is no reason to be complacent: the present circumstances continue to be very demanding. I am confident that the Eurosystem, through its stability-oriented monetary policy strategy, will stand up to these challenges and be successful in maintaining price stability in the euro area.[34]
My memory goes to the bursting of the dot-com bubble, the aftermath of the tragic terrorist attacks on 9/11, the persistence of sizeable global imbalances, the surge in global commodity and energy prices and, more recently, the surge of food prices and the financial turbulences that originated from the sub-prime crisis. These shocks were very significant and quite persistent, but the ECB has not hesitated to take firm and timely actions to pursue a monetary policy that best serves the ultimate objective of maintaining price stability, while at the same time trying to minimise unnecessary macroeconomic disruptions.[34]
Liquidity interventions aimed at restoring orderly trade conditions in money markets and maintaining short term interest rates close to our policy rate were not compromising in any respect the longer-term achievement of the price stability or being complacent with imprudent behaviour by market participants. This distinction is particularly important at the current juncture taking into account the upside risks to price stability over the medium term and observing that the adjustment of financial markets is an ongoing phenomenon.[34] In preserving a solid anchoring of medium to long-term inflation expectations at levels consistent with our definition of price stability, it contributes to appeasing tensions and volatility in the financial markets whilst paving the way for future sustainable growth and job creation in Europe.[34] While Liebscher suggested that price growth would slow to 2.0% by the end of 2008, he stressed that inflation would remain above that level for longer than expected.[47]
France's sluggish growth will be mainly driven by private consumption, the Commission said. Despite higher inflation affecting consumers' purchasing power, households are reducing their savings this year to smooth purchases.[26] The commission predicted that consumer price rises would peak in the second quarter and cool down over the remainder of the year and into 2009, bringing inflation in the eurozone down to 2.2 percent next year.[4]
Austria's inflation rate is likely to rise to 3.0 percent in 2008 before declining to 1.9 percent in 2009, according to the new forecast published by the European Union's executive arm.[38] By contrast, the report pegged average inflation for the 15 countries using the euro at 3.2 per cent, with the entire European Union - of which Slovakia is a member - at 3.6 per cent.[28]
Almunia also said the Commission on May 7 would close a probe for Slovakia's past overshooting the limit on budget deficits for countries that want to use the euro - 3 per cent of gross domestic product (GDP).[27] GDP rose by 0.4 per cent in the first three months of the year, after a 0.6 per cent increase in the final quarter of 2007, giving the slowest expansion since the start of 2005, the figures showed.[42]
Bank of England The Bank of England's scheme to free up Britain's home-loan market by injecting £50 billion into the banking sector could be disrupted by European regulators because it gives unfair advantage to British banks over rivals, competition lawyers said yesterday. Economic growth fell to its weakest in three years in the first quarter as the credit crunch sapped activity in key parts of the services sector, official figures showed yesterday.[42] The anticipated economic growth is to drop by 1.9 percentage points from last year's 6.1%, which was the highest growth rate in Slovenia since independence.[15]
Looking ahead to 2009, the commission predicted that economic activity would pick up towards the end of the year to about 2%, but the average growth rate would slow to 1.5%.[5]
The finance ministry source argued that as "the Commission's growth forecast is more pessimistic" than that of the government, "its deficit expectations are as well." He added that the Commission in its latest Economic Forecast report "did not mention the cost-cutting decisions announced earlier this month."[21] The Finance Ministry said that the Commission's projection was similar to that of IMAD in terms of growth and inflation. It added that it did not agree with the Commission's projection of the general government deficit for 2008.[15]
The government sees growth this year of between 1.7 and 2.0 percent, with a public deficit of 2.5 percent of output.[21] The plans failed to impress private sector economists who said it was unlikely to eliminate the public deficit even by 2012. Private economists foresee French growth of 1.5 percent this year and 1.7 percent in 2009.[21]
Outside of financials, first quarter earnings growth has been surprisingly good. That measure could be up as much as 10% when all the reports are in. The big question going forward is to what degree do financial earnings recover in the second half of this year? That uncertain outcome will have a major impact on how the market ends the year.[46]
"The growth rate will be not catastrophic, but weak." The euro extended its gains against the dollar following the release of the report, rising as much as 0.53 per cent. It traded up 0.4 per cent at $1.5664 at 2:10pm.[48] "The growth rate will be not catastrophic, but weak.'' The euro extended its gains against the dollar following the release of the report, rising as much as 0.53 percent. It traded up 0.4 percent at $1.5664 at 1:10 p.m. Brussels time.[1]
Under EU rules, a country wanting to join the euro must have inflation no higher than 1.5 percent percentage points above the average of the three EU members with the lowest inflation rates.[29] The Commission said euro zone inflation was expected to leap to 3.2 percent before slowing to 2.2 percent in 2009.[29] Outside the euro zone, the UK's deficit forecast was raised to 3.3 percent of GDP for 2008 from 3.0 percent and to 3.3 percent from 2.8 percent for 2009.[24] The forecasts are compared with the commissions spring forecasts issued on November 9, except for 2008 forecasts for the euro zone, EU, Germany, France, Italy, the Netherlands, Spain, the UK and Poland. Interim 2008 forecasts for these economies were published on February 21.[41] The EU Commission highlighted the sound economic fundamentals of Europe and suggested that Slovakia could be the fastest growing member state in the euro zone.[45]
The Commission is due to make a recommendation on Slovakia's readiness for euro zone entry on May 7.[49]
Slovakia would be the first euro member from the former Soviet bloc and has met key euro benchmarks, including those on current inflation and the public deficit. But questions remain about whether it can keep price rises low in the long run. [28] 'Fiscal consolidation should be more ambitious so as to help the authorities fight inflation more successfully,' Almunia said. Slovakia would be the first euro member from the former Soviet bloc and has met key euro benchmarks, including those on current inflation and the public deficit. But questions remain about whether inflation will rise once the country adopts the euro.[27]
Public sector investment in motorways and railways remains strong and private spending is also expected to rise, the report says. The document also highlights that Slovenia is facing pricing pressures, which should put inflation for this year at 5.4%. [15] The factors fuelling prices increases are to cool off somewhat next year, allowing the inflation rate in Slovenia to abate to 3.3%, the report adds.[15] The EC noted a significant rise in inflation in Poland during the last quarter of the previous year, caused by the increase in the prices of food and energy carriers.[14]
"With the present level of oil prices above 100 dollars per barrel and with the high increase in food and other commodity prices, we are suffering a very strong inflationary shock," Almunia said. "Inflation is distorting our capacity to weather in the best conditions possible the financial turmoil and inflation is. a big punishment on the weakest sectors of our society," he added.[4] Inflation The April Citigroup/ YouGov inflation expectations survey shows that inflation is expected to reach 3.8 per cent over the next 12 months. This was the highest level since the series started, in 2005, and is substantially above the Bank of England's target inflation rate of 2 per cent.[42] Japan's core inflation hit a ten-year high of 1.2 per cent in March, in line with analysts' expectations, up from 1 per cent in February, official figures showed. Royal Bank of Scotland is considering selling a strategic stake in its insurance business and running the owner of Direct Line and Churchill as a partnership as it moves to raise capital to repair its tattered balance sheet.[42]
Average inflation, which had remained just above the 2 per cent mark since 2004, was predicted to peak in 2008 to 3.6 per cent in the EU and 3.2 per cent in the eurozone before returning to more traditional levels in 2009.[6]
"We are facing a very challenging time, particularly concerning inflation,'' EU Commissioner for Economic and Monetary Affairs, Joaquin Almunia, said today in Brussels.[1] The EU Commission also stated that it was paramount that Europe 'avoids starting inflation spiral' and that inflation expectations were'somewhat on the upside'.[45] Mr Almunia said that Europe was "suffering a very strong inflationary shock". "The most difficult issue is that we have to face three shocks at the same time," he said, referring to the U.S. downturn, the global credit crunch and rising inflation triggered by soaring prices for oil, foodstuffs and other commodities. Asked whether the Commission would be likely to revise its forecasts down again, Mr Almunia said: "These are uncertain times. to forecast is not impossible, but it is a dangerous activity."[9] "The European Commission forecasts confirm we are able to meet the inflation criterion in a sustainable way in the future," Finance Minister Jan Pociatek told reporters.[30] "It's broadly positive, although the forecasts don't completely rule out a suprise decision in my view." "It's not such a clear cut case. (The Commission) still projected above three percent (inflation).[30] For 2009, it is now expecting inflation of 2.2 percent rather than the 2.0 percent forecast in November.[7]
Consumer prices have been driven up by the rising cost of fuel and food although the ECB's own forecasts suggest inflation will hit 2.9% for 2008 as a whole.[20] The inflation and the real unit labour cost forecasts were increased, so that signals there is a gradual increase in demand led pressures."[30]
Annual retail trade rose 1.1% compared to forecasts for a 1.0% rise and the previous month's 3.2% increase. The Central Bank of the Russian Federation raised its refinancing rate by 25 basis points to 10.5% on Monday. While this 25 basis point jump is the second in a row since its last decline in January 2007, the rate is still significantly lower than the peak seen between Oct. 15, 1993 and April 28, 1994 when it had reached 210%.[12] Speaking in Vienna on Monday, Luxembourg Finance Minister Jean-Claude Juncker said that it makes no sense to continue questioning the European Central Bank. He also stated that the appreciation of the euro reflects good economic data and that the euro has positively affected oil prices.[12] Food and energy prices have had significant impact on prices, European Central Bank Governing Council member John Hurley said at a conference in Luxembourg on Monday. He added that he expected oil and food prices to moderate next year. The GfK German consumer confidence survey came in at 5.9 for the month of May, higher than both the forecasted figure of 4.5 and the previous month's reading of 4.8.[12]
Our institutional framework and the inner workings of the Eurosystem will be my principal theme. Examples will include the successful transition to the euro, both at the outset of monetary union ' our first operational challenge ' and as part of an ongoing process of continental integration and inclusion which the European System of Central bank has taken upon itself as a mission.[34] Central banks' liquidity operations cannot address the underlying causes of the financial turmoil. Careful reflection has taken place at the European and global level with regard to the policy lessons that need to be drawn on a co-ordinated basis by public authorities with regard to the measures necessary to avoid the recurrence of such major turbulent episodes in the future. In this respect the recent report released by the Financial Stability Forum embodies the consensus of the international community on the recommendations that we consider among the immediate priorities for addressing the underlying causes of the financial turmoil.[34] VIENNA (Dow Jones)--The European Central Bank is tasked with fighting inflation, but governments must also do their part, Eurogroup President Jean-Claude Juncker said Monday.[35] Speaking at a press conference following the announcement, Andr's Simor, governor of the Hungarian Central Bank, emphasized that the focus was on fighting inflation and preventing second-round effects.[13] According to the statistical office, Hungary's annual inflation accelerated to 6.7% in March, exceeding the central bank's medium term target of 3%.[32]
To devise the best possible monetary policy for the new currency, we built on the wisdom and the wealth of experience that had been accumulated in the preceding decades by central banks and the academia.[34] Year-over-year, the consumer price index had increased 8.7. Earlier in the month, the Central Bank of Iceland raised its policy rate to 15.5% to help slow the depreciation of its currency.[12] Subsequent measures that were launched since August 2007 were designed to ensure that very short term money market rates remained close to the ECB's policy rate and to contain spreads in the longer-term segment of the money market. During this turbulent period, the Eurosystem remained, as usual, in close contact with other major central banks and joined a concerted liquidity providing measure in December 2007.[34] Speaking in Luxembourg, ECB Governing Council member Yves Mersch emphasized that the central bank has not changed its stance since its policy meeting on April 10. He also stated that the ECB does not react to single data points.[50]
The world economy can easily absorb the losses that it has incurred, Central Bank of Luxembourg Governor Yves Mersch said in the central bank's stability report published on Monday.[12] The decision was in line with expectations. The central bank had hiked its base rate by 50 basis points to 8% in March.[32]
Looking ahead to 2009, the commission predicted that economic activity would pick up towards the end of the year to about 2.0 percent in the eurozone at an annualised rate. [4] Households and enterprise balance sheets have improved markedly in recent years and the unemployment rates for the EU and euro area are the lowest in more than 15 years.[17] A relatively high unemployment rate, about 1 percentage point above the euro area average, will contribute to wage moderation, the forecast said.[26]
"The persistently negative growth gap with the average for the euro area will widen further, despite the relatively modest exposure of the Italian banking system to the financial turmoil," the commission said.[37] The negative growth gap in Italys export markets will widen as exports are hit by the global slowdown stemming from the international financial market crisis, coupled with the euros strength, the commission said.[37]
"The risk of second-round effects on wages from the flare-up in prices seems relatively limited," the Commission said, adding that productivity growth is expected to increase slightly.[26] The balance of risks for the growth outlook continues to be tilted to the downside, especially for 2009, while the risks for inflation are somewhat on the upside.[17] Sub-prime and slow growth is pass'; inflation, 'anchoring of inflation expectations', and targeting inflation is the new policy concern. This is the case around the world ' from the U.S. to India, from China to South Africa.[33] Italian growth is expected at 0.5% in 2008 and at 0.8% in 2009 with inflation at 2.0% and 2.2% respectively.[12]
Real GDP growth in the first quarter is expected to be slightly on the positive side. At least as important, the component trends will suggest that second quarter real GDP is also likely to be positive.[46] The March economic numbers were much better than expected. That has raised first quarter GDP expectations and indicated that the economy is not experiencing a broad deceleration.[46] Consumer spending remains flat to up, exports are booming, and business investment has been surprisingly resilient. The economy may well get through this business cycle without a single down quarter for GDP. For more on this, please see our Economic View page.[46]
EU economy proves resilient The EU economy is still in a relatively good position to weather the global headwinds on the back of improved fundamentals, reflected e.g. in the absence of macroeconomic imbalances and healthy public finances. Both the average public deficit and current account position were below 1% of GDP in 2007, even though differences across Member States remain large.[17]
The general government deficit is decreasing, which is a consequence of increased revenues in spite of the tax reform. Last year it stood at 0.1% of GDP and is expected to increase this year to 0.6%, while revenues are to drop due to further effects of the reform.[15] For 2009, the EC forecasts a further increase of the deficit to 2.6 percent of the GDP.[14] For 2009, the EC assumes that not all of the planned further savings in government consumption (especially price subsidies and the public wage bill) and in subsidies on products will be achieved, since "it may be difficult to continue to contain spending". The forecast does not include any possible takeover from the debt of M'V, the state-owned railway company (around 1% of GDP), nor any additional capital injections to M'V. It also does not consider any consequence of the ongoing restructuring of M'V on the sectoral classification of the company's successor units.[17] Based on the usual no-policy-change assumption (including as regards the tax code), the forecast projects a modest budget deficit improvement in 2009 to 3.6% of GDP, "thanks to a continued expenditure moderation in government consumption achieved by a series of structural reform measures to streamline the public sector".[17]
In 2007, only Greece, with a deficit of 2.8% of GDP, had a bigger deficit as a percentage of GDP than France in the euro zone.[26] "The forecasts, especially for 2009 -- that seems to be the important one -- are not that bad. They rather make me an optimist regarding the euro zone entry."[30] The forecast boded well for Slovakia's efforts to be allowed to adopt the euro next year.[49] The EU treaty also says the criterion has to be met in a sustainable way. "It's broadly positive, although the forecasts don't completely rule out a surprise decision," said Dresdner Kleinwort analyst Raffaella Tenconi. "I'll stick with my view (that there is a) 70 percent chance Slovakia is in, and 30 percent that they aren't."[29] Next year, the shortfall in the French public accounts would widen to 3.0 percent -- which is also the maximum allowed under EU rules.[22]
The International Monetary Fund has predicted French growth of 1.4 percent in 2008 and 1.2 percent next year.[21] Without the clear directions and the constructive goals offered by the Stability and Growth Pact, the inbuilt bias in favour of budget deficits could undermine a stable monetary constitution, elevate real interest rates, crowd out capital spending and lower productivity growth.[34] Market interest rates at all maturities converged to the lowest ' not the average ' interest rates prevailing prior to the euro. This caught by surprise those observers who had long anticipated that the yield curve after aggregation would translate into a sort of arithmetic average of the curves defined on the legacy currencies, rather than into the benchmark set by the most credible previous national currencies.[34]
Inflation will come down, and then we will all be normal again. The second area of concern is the soon to be announced monetary policy (April 29). [33] When the euro was set up back in 1999, it was born as a credible currency thanks to the provisions governing the ECB's mandate and its full independence as laid down in the Maastricht Treaty as well as the wisdom and credibility of the ECB's monetary policy framework.[34] Experts in international macro-economics feared that a single monetary policy would not suit a group of countries deemed diverse in many respects. A single currency would be a hindrance for growth stars ' which would suffer from chronic overheating ' and laggards ' no longer able to devalue their currency ' alike.[34]
Wesbury and Stein wrote, "But that scenario makes us confident in a sharp rebound in the second half of the year. With rates days away from their bottom, the full force of the Fed's loose monetary policy is about to be unleashed.[16] Reduced market volatility in recent years also supports the view that the understanding of the ECB's monetary policy framework and its communication has improved over time.[34]
Scholars of political economy found the coexistence of sovereign national fiscal policies and a single monetary policy a precarious combination.[34]
Quebec's economic growth accelerated to 2.4% from 1.7% in 2006. In Ontario, the economy expanded by 2.1%, matching its increase in 2006. [13] Economic growth will still be sluggish through 2008. That means moderate corporate revenue growth.[46]
First Trust expects the first report on Q1 real GDP to show a growth rate of 1.5%, which is near the high end of what economists are forecasting. At this point, we are forecasting 0.5% growth in Q2, with a sharp rebound in the second half of 2008 to real growth rates near 4%. [16] Newfoundland and Labrador chalked up GDP growth of 9.1% on strong increases in oil and mineral extraction, more than triple the 2.7% GDP growth posted by the country as a whole and nearly three times the province's growth rate in 2006.[13]
Japanese large retailer surprised with a 0.2% annual growth rate in March despite forecasts for a 0.2% decline.[12] Monday's forecast marks the latest downward revision to growth in recent months as the prospects for the U.S. economy have worsened and the credit crunch has deepened.[20] The French economy was projected to grow 1.6 percent in 2008 instead of 1.7 percent and Italian growth was cut to 0.5 percent from 0.7 percent previously.[4] According to the Commission, Slovenia's economy will see a considerable decrease in investment in fixed assets, which was exceptionally high in 2007. This will be the main reason for the slowing in growth in 2008.[15] The end of the housing boom in the U.S. economy has also substantially slowed the world's largest economy to near-recession levels, while Europe, with fewer housing-related problems to-date, has managed to maintain a modest growth level.[2]
Growth of the ECB's broad M3 measure fell to 10.3 per cent in March, from 11.3 per cent in February.[42] UK pay deals remained steady at 3.5 per cent in the three months to March. Pay deals have been at 3.5 per cent in the quarters to January, February and March this year, according to Industrial Relations Services, the pay specialists.[42] The company, which posted first quarter revenues up 14.1 per cent to £1.56 billion, said that although January and February were strong across the group, March was "somewhat surprisingly" slower in continental Western Europe, particularly in Germany, France and Spain.[42]
La Senza, the specialist lingerie chain, plans to open 20 new stores and launch a range of cosmetics in the coming year after seeing profits jump by more than 40 per cent to nearly £16 million.[42] SCi will use the funds to pay down debt and for working capital. LM Ericsson, the Swedish telecoms group, has reported a 46 per cent fall in its adjusted pretax profits from a year earlier, to SKr4.5 billion (£379 million), as weakness in the U.S. dollar hit operating margins, which shrank to 9.7 per cent, from 19.3 per cent.[42]
Dame Marjorie Scardino, the chief executive, was paid £2.3 million last year, up 18 per cent. The company said that trading was in line with expectations, and appointed C. K. Prahalad and Will Ethridge to its board. BP has confirmed that its Forties Pipeline System (FPS) will be completely shut down by tonight, because of a planned two-day strike at Ineos's Grangemouth refinery.[42] Gallaher and Imperial Tobacco, the tobacco companies, along with 11 retailers, have been accused of unlawful coordination of prices by the Office of Fair Trading. Heineken, the Dutch brewer, is being tipped by analysts to sell its 42.5 per cent stake in Asia Pacific Breweries to avoid a conflict of interest with United Breweries, the Indian brewer in which it will shortly acquire a 40 per cent interest as part of its takeover of Scottish & Newcastle.[42] Vale, the Brazilian miner, said that first-quarter net earnings fell 8.8 per cent to $2.02 billion, hit by currency volatility and a drop in the price of nickel.[42]
The euro is also supporting the deepening of trade and financial linkages across euro area countries. There is clear evidence that the introduction of the single currency and the associated increase in price and cost transparency have promoted both intra- and extra-euro area trade in goods and services.[34] Real gross capital formation in the euro area in the nine years after the introduction of the euro grew on average by 2.9% per year, as compared to only 1.7% during the nine year period prior to the euro.[34]
Slovak leaders insist that adopting the euro will not lead to an inflation burst - as happened in Slovenia after that country joined the eurozone last year.[27] The large contraction of industrial production in the fourth quarter of 2007 suggests that gross domestic product contracted at the end of last year, the commission said. It expects a slight recovery in the first quarter, meaning Italy would avoid a technical recession, which is generally defined as two consecutive quarters in which GDP contracts.[37] LONDON -- U.K. economic expansion slowed to its weakest rate in three years in the first quarter, as the financial-services sector lost momentum and production, construction and agriculture weakened.[51] The rental vacancy rate was not statistically different from the first quarter rate last year (10.1%).[13]
The main releases in the U.S. consisted of the Dallas Fed's Business Activity Index for April and first quarter vacancy rates, while Canada's regional GDP figures for 2007 were released. National vacancy rates in the U.S. for the first quarter of 2008 stood at 10.1% for rental housing, up from 9.6% in the fourth quarter of 2007, and 2.9% for homeowner housing this quarter, compared to 2.8% in the previous quarter, according to a report released from the Census Bureau on Monday.[13] The rate of increase in extra-euro area exports and imports of goods and services even exceeded that in intra-euro area trade, rising from about 32% of GDP in 1998 to almost 44% in 2007.[34] Exports and imports of goods and services within the euro area rose from about 31% of GDP in 1998 to around 40% in 2007.[34]
Thanks to a well-defined institutional framework laying down the conditions for a sustainable convergence process, the progressive integration of a number of catching-up economies is an enterprise, a mission, which the euro area ' unique among the great economic powers in the world ' has set for itself and to which it has successfully worked. Euro adoption by Greece, Slovenia, Cyprus and Malta was smooth and technically flawless, despite the potential challenges that each enlargement round implicates in both operational and economic terms. Some of these events are charged with formidable symbolic implications.[34] A (sub-)optimal currency area would not work in the face of widening economic gaps, free-riding policies and cross-national resentment. Close to completing its first decade of operations, the euro symbol appears as an icon of the decade-long quest for continental reconciliation.[34]
No doubt the introduction of the euro and the realisation of stage three of European Economic and Monetary Union (EMU) was a milestone in the long and multifaceted process of European integration.[34] By fostering a long-due redressing of economic priorities and processes, the euro has helped rejuvenating some economies that had been written off as too ossified and self-complacent to successfully compete in a monetary union. We see signs that this restructuring is spreading to other parts of the Union that have been less successful so far in taking up the challenge.[34]
Brussels - The European Union's executive Monday urged Slovakia to step up its anti-inflation fight as the former East Bloc nation awaits word on its bid to switch to the euro on January 1.[27] The European Union expects Italian labor productivity to increase by a mere 0.2 percent in 2008 and 2009.[37]
The Commission also expects that inflation will increase substantially, from two-point-six to three-point-two percent. [39] Slovakia's 12-month average inflation was 2.2 percent in March, comfortably below the permitted ceiling of 3.2 percent.[29]
The French economy is expected to grow 1.6% in 2008 and 1.4% in 2009 with inflation rates of 3.0% and 2.0% respectively.[12] The German economy is expected to grow 1.8% in 2008 and 1.5% in 2009 with inflation rising 2.9% and 1.8% respectively.[12]
The influence of the ECB's quantified inflation objective on the evolution of inflation is an important factor that expedites the process by which the economy absorbs shocks that, otherwise, could have long-lasting implications for inflation.[34]
The EC raised the 2008 inflation outlook by 1.1 percentage points from earlier forecast.[32] The rate is expected to fall back in 2009, to touch 2.2%, up 0.2 percentage points from an earlier forecast.[32]
While the forecasts were based on "the conventional assumption of unchanged polices," the commission warned that a deteriorating economic situation and an increase in social expenditures could pinch the state finances even further.[22] "The financial turmoil is proving deeper, wider and longer-lasting, while the downturn in the U.S. looks set to be more pronounced and protracted than assumed in the autumn forecast,'' the commission said in today's report.[1]
The credit crunch isn't hitting France, where companies still have access to financing, the Commission said. "Although evidence of a restriction of credit to enterprises is still limited, their investment decisions are somewhat vulnerable to banks' intentions to enforce their stricter risk assessment as a consequence of the financial turmoil," the Commission said. Bank of France Governor Christian Noyer said last week he sees no signs of credit crunch in France.[26] Thomas Enders, chief executive officer of Airbus SAS, last week said the dollar's decline poses a "great risk'' to Europe's aerospace industry and threatens thousands of jobs. "There have been at times sharp fluctuations between major floating currencies and we're concerned about their possible implications for economic and financial stability,'' ECB President Jean-Claude Trichet said today.[1] On the basis of our diagnosis, we explicitly and publicly called for institutions and markets to prepare themselves for a correction that was unavoidable and necessary to consolidate a smooth return to a normal assessment of risks in markets. When these risks materialised last summer and threatened to impair the orderly functioning of the euro money market, the ECB reacted immediately and provided overnight liquidity to the interbank money markets in a sequence of fine-tuning operations.[34]
Speech Jean-Claude Trichet: A strategic vision on euro area statistics: the ECB'.[34]
The Commission will recommend on May 7 whether Slovakia should adopt the euro on Jan. 1, following Slovenia, Cyprus and Malta, which, like it, joined the EU in 2004. [29] Ending the EU deficit investigation is a condition for Slovakia to join the euro.[27]
Joaquín Almunia, the European Economics Affairs Commissioner, said that, as a consequence, Brussels would launch "excessive deficit procedures" to seek a formal rebuke for Mr Darling and Gordon Brown at the EU's council of finance ministers, Ecofin. He said that a report would be presented on June 11 to begin the formal process.[9]
While oil prices flirt with records close to 120 dollars a barrel, the EU executive said futures contracts suggested food prices would rise 54 percent in the first half of 2008 before stabilising.[4] Concern about global inflation prompted the Indian government to launch an investigation into the role futures markets play in generating inflation in food prices.[33] Futures markets mean lower and more efficient prices for all, i.e. lower inflation.[33] Hesse, Brandenburg, Baden Wuerttemberg and Saxony all experienced 0.2% month-over-month price declines, with inflation in the North Rhine-West region falling 0.3%.[12]
The relentless rise in commodity prices needs little mention. It is true that commodities are only a small part of consumer costs and business costs. They are pressuring overall inflation rates.[46] In a sense, the forward-lookingness that our quantitative definition of price stability introduces in price and wage setting makes the inflation process less inertial ' that is, more forgetful of past adverse innovations ' than it would be otherwise, if expectations internalised our objective less firmly and past inflation were the only guide in price setting. This is an important factor which, in Europe, helps compensate for the added inflation inertia that stems from more rigid production and distribution systems.[34] In parallel, long-term inflation expectations aligned with the low levels of the best performing economies that were merged into the euro.[34] Cutting in the second half runs the risk of ending the inflation fight too soon, but employment levels are key.[2]
Inflation-fighting policy in India has been OK ' cutting taxes, excise duties, etc. But there are two worrisome signs. The threat by the government to consider steel an essential commodity, i.e. something the babus and their mentors can play around with ' in the name of ideology (fighting inflation)! If it does happen, then the PM, Dr Manmohan Singh, will have seriously begun the process of destroying his legacy as an economic reformer. By believing that cartels (in this day and age of imports of everything from cement to pipelines to Chinese workers) can operate in today's world in cement and steel, the finance minister, Mr P Chidambaram, has lost considerable credibility as an economic reformer. I still believe in the Doctor and PC. It is very likely that what the government is practising (albeit in a ham-handed manner) is jawboning, i.e. applying pressure on the firms to cool it, in the inflation sphere, for a few months.[33] Whilst our economies have proved resilient to the external shocks so far, and we expect continued, albeit slower, job creation, we need to stick to sound macro-economic policies and carefully avoid starting an inflation spiral that would particularly affect low income families", said Joaqu'n Almunia, Economic and Monetary Affairs Commissioner.[17]
Governments haven't done enough of late to help dampen inflation rates, Juncker, who is also Prime Minister and Finance Minister of Luxembourg said in a speech. "They should introduce a stop, a moratorium on administered prices. there should be a brake on indirect taxes," Juncker said.[35] Shares of some broadline retailers and department stores fell in early trading on Monday, as a report from Europe said inflation is likely to increase.[19]
Diamonds boosted the economy in the Northwest Territories (+13.1% GDP) and Nunavut (+13%), while copper mining helped the Yukon to a 3.8% increase in GDP for the year.[13] Reforms are essential in order to raise factor productivity and potential output, to create new jobs, to achieve lower prices and higher real incomes, and to increase the resilience and flexibility of the economy.[34] Record oil prices, declines in the pound and the dollar, and a global credit shortage are buffeting the European economy as the U.S. teeters on the brink of a recession.[1] We remained committed to a sober evaluation of the underlying factors that ' beyond market jitters ' impact economic decisions and price setting behaviour in the economy.[34]
The commission said the major downside risks still stem from the ongoing market turmoil which could exacerbate the U.S. downturn. It said the uncertainty over the impact of the crisis on the real economy remains large.[7] The ministry also denied the Commission's assertion that the Slovenian economy experienced overheating in 2007. The alleged shortage of qualified personnel did not lead to excessive wage increases, while the positive production gap on its own is not an indicator of overheating, said the ministry.[15]
Far from suppressing growth and entrenching divergences, the euro has spurred a spectacular drive of job creation virtually everywhere in the Union ' a trend to which I shall return later in my remarks. [34] On an annual basis, price growth slowed to 3.6% from 5.3% registered in February. The Land Registry said this is the seventh consecutive decrease in the annual rate of growth based on the continually revised time-series.[44]
The housing market in France is forecast to go through a soft landing, with prices stabilizing in the fourth quarter of 2007, after declining since January 2006.[26] I trust that in all circumstances, but even more particularly in times of heightened uncertainty in global financial markets, our strong commitment to preserve price stability over the medium term is of the essence.[34] While the Treaty was very explicit about the primary objective of the new monetary authority, it was left to the Governing Council of the ECB to define and announce the strategy that would support price stability.[34] At the time of our institutional design it could not be taken for granted that previously established economic relationships and regularities would continue to hold after the transition to monetary union. This placed a premium on choosing a strategic framework that would prove robust to changing circumstances and would continue to stand the test of time in the face of new challenges.[34]
I will then proceed to the impact that the euro is exercising on the deep economic structure of Europe.[34] Extra-euro area trade has, of course, also benefited from a period of strong external demand and increasing integration at a global and European level. All in all, this also proves that we did not build a fortress Europe and that regional integration can go hand in hand with increased openness and globalisation.[34] Thor, Captain America, Ant-Man, Black Panther and the Avengers. Marvel Entertainment International, which is to release the film Iron Man next week, is to announce soon the details of a series of films that will cherry-pick from its catalogue of 5,100 comic-book characters. Pearson, the education and newspaper publisher, suffered a small revolt against its pay policy at yesterday's annual meeting, with 11 per cent of all investors voting against.[42] The past ten years have been very challenging and demanding for all of us, and for the euro and the Eurosystem in particular.[34] The unemployment rate dropped last year to 4.8% and is expected to drop further in 2008 and 2009.[15] Stock prices should end the year higher than current levels, but a large sustained rally is not likely.[46] Oil price assumptions are $101.2 billion euros per barrel in 2008 before easing to $100 billion in 2009.[7]
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1. Bloomberg.com: Economy
2. ECB could maintain hawkish stance . for now - BloggingStocks
3. EU ups 2008 eurozone inflation forecast to 3.2% from 2.6% - Breaking News - World - Breaking News
4. AFP: EU ratchets up inflation forecast to 3.2%
5. RT' Business: EU hikes 2008 inflation forecast
6. EU cuts economic growth forecasts- International Business-News-The Economic Times
7. EU FORECASTS Euro zone growth forecasts trimmed, inflation to spike UPDATE - Forbes.com
8. EU slightly lowers economic growth for euro zone this year - People's Daily Online
9. European Commission scathing over Brown and Darling's borrowing - Times Online
10. NWAnews.com :: Northwest Arkansas' News Source
11. Euro Rises On Wings Of Inflation Hawks - Forbes.com
12. Canadian Economic Press - Welcome
13. Canadian Economic Press - Welcome
14. The News | Business
15. STA - Slovenska tiskovna agencija / Slovenian Press Agency
16. RTTNews - Currency Trading, Currency Market Update, Trading Opportunities, US Market Update .
17. portfolio.hu - Online Financial Journal
18. Forex - Slovak crown rises after EU data shows on track for euro inflation goal - Forbes.com
19. Opening Glance: Broadline retailers - Forbes.com
20. BBC NEWS | Business | Brussels more downbeat on growth
21. French govt maintains growth forecast, EU sceptical -- EUbusiness.com - business, legal and financial news and information from the European Union
22. France's public deficit set to test European limits: EU -- EUbusiness.com - business, legal and financial news and information from the European Union
23. EU eyes early warning on French finances -- EUbusiness.com - business, legal and financial news and information from the European Union
24. EU FORECASTS Euro zone deficit outlook worsens, particularly for France UPDATE - Forbes.com
25. French govt says sticking to 2008, 2009 growth, deficit forecasts UPDATE - Forbes.com
26. EU Commission Cuts French GDP Forecast,Says Budget Worsening
27. EU urges Slovakia to step up inflation fight (2nd Roundup) - Business
28. EU report sees Slovakia inflation problem - Business
29. UPDATE 4-EU forecasts favour Slovak bid to adopt euro - Finance.cz
30. INSTANT VIEW 3-Slovak inflation fcast indicates euro in reach - Finance.cz
31. Slovak finmin, cbank: EU fcasts open door for euro - Finance.cz
32. RTTNews - Realtime Economic News, Global Economic News and Reports, Asian Economic News, Economic Calendar.
33. Surjit S Bhalla: Ideological Turpitude
34. Speech Jean-Claude Trichet: Toward the First Decade of Economic and Monetary Union ' Experiences and Perspectives (sur Edubourse.com)
35. EU Juncker: Fighting Inflation Not Only The ECB's Job
36. Free Preview - WSJ.com
37. EC trims Italian growth forecast as consumer spending expected to shrink - International Herald Tribune
38. EU cuts GDP estimate for Austria to 2.2 pct in 2008, 1.8 pct in 2009 - Forbes.com
39. European Commission pushes down growth expectations
40. EU's Almunia says bilateral tests, real rates 'reflect an overvalued euro' - Forbes.com
41. EU FORECASTS Table of inflation projections | Latest News | News | Hemscott
42. Need to know - Times Online
43. Canadian Economic Press - Welcome
44. RTTNews - Realtime Economic News, Global Economic News and Reports, Asian Economic News, Economic Calendar.
45. Canadian Economic Press - Welcome
46. Briefing.com: Unchanged 2008 Outlook
47. Canadian Economic Press - Welcome
48. ireland.com - Breaking News - EC cuts eurozone growth forecasts
49. Slovak crown firms after EU inflation forecast - Finance.cz
50. Canadian Economic Press - Welcome
51. Free Preview - WSJ.com
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