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April 03, 2005

*Sigh* More Bad Macroeconomic News

From Ralph Atkins of the FT:

FT.com / World - Confidence dives in Europe's economy: "Gloom about Europe's economic outlook intensified markedly on Thursday after a plunge in economic confidence across the continent and further rises in French and German unemployment.

Economic sentiment in the 12-country eurozone and the UK fell to the lowest levels since December 2003, according to the European Commission. Economists fear that eurozone economic growth will slow in months ahead, despite a bounce back at the beginning of 2005after a weak second half of 2004.

The eurozone ‘is experiencing a faltering recovery . . . after almost a half-decade of achievement,’ the Euro-frame group of leading research institutes said yesterday. In forecasts in line with those to be published by the Commission next week, Euroframe expected eurozone growth of just 1.5 per cent this year, after 1.8 per cent in 2004. However, 2006 would see 2 per cent growth.

The latest data, which reflect the impact of higher oil prices and a stronger euro, may force the European Central Bank to revise its view that last year's soft patch was ‘transitory’. However, Lucas Papademos, ECB vice-president, told an Italian newspaper that he expected ‘the economic recovery in the eurozone will pick up momentum over the course of 2005’.

The French and German governments, meanwhile, face increasing political pressures caused by high unemployment. Patrick Devedjian, French industry minister, described as ‘very bad’ figures showing the country's jobless rate at a five-year high of 10.1 per cent in February.

‘France is struggling with the cost of reforms that went in the wrong direction the 35-hour week, for instance,’ said Klaus Eklund, economist at SEB Bank in Stockholm and adviser to José Manuel Barroso, the European Commission president. ‘Germany seems to have gone through that stage, the crisis-consciousness is higher.’

German unemployment, nevertheless, rose in March by a seasonally adjusted 92,000 to almost 5m, or 12 per cent of the workforce although the Federal Labour Agency said 20,000 jobless were due to statistical changes while unusually cold weather was responsible for another 50,000.

‘The accuracy of these estimates is not necessarily high,’ said Dirk Schumacher, economist at Goldman Sachs. ‘What is true, though, is that information from business surveys is consistent with a stagnation or mild deterioration of the labour market.’

Earlier this week, Gerhard Schröder, chancellor, highlighted Berlin's nervousness by demanding a stop to the ‘endless talk’ about German companies shifting jobs overseas.

The Commission's survey showed confidence declining in industrial, services and retailing sectors. EU consumers were more worried about unemployment than at any time since last June.

The overall ‘economic sentiment’ indices for the eurozone, and the entire EU peaked last October, with the latest results showing particularly steep declines in the UK and Poland, as well as in Germany, France, and to a lesser extent Italy.

Posted by DeLong at April 3, 2005 09:58 PM