Britannia Radio

Today's dose of economic updates
Recession ? ‘Slump’ it was this morning . The French haven’t got a
word for it, it seems

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THE TIMES 14.8.08
Europe teeters on the brink of recession
Grainne Gilmore

Europe today edged closer to recession for the first time since the
single currency was introduced in 1999, after the economy shrank by
0.2 per cent during the second quarter.

Output in the 15-nation eurozone during the three months to June fell
from a 0.7 per cent increase in the first quarter. Overall, annual
growth in Europe slowed from 2.1 per cent to 1.5 per cent.

It also emerged that European inflation remained at a record high of
4 per cent in July.

Last month's inflation figure was revised down from an initial
estimate of 4.1 per cent, but remains at double the European Central
Bank's target of close to 2 per cent.

Eurozone GDP was dragged down by the three biggest economies,
Germany, France and Italy, which all contracted in the second quarter.

If GDP shrinks again between July and September, it will mean that
Europe is in a recession. The technical definition of a full-blown
slowdown is two consecutive quarters of contraction.

Earlier this morning, Germany, Europe’s biggest economy, reported a
0.5 per cent fall in output between April and June, which was better
than the 0.8 per cent decline that economists had expected.

However, France posted a shock fall of 0.3 per cent, far below
economists' forecasts for a 0.2 per cent rise.

Despite the fall, Christine Lagarde, France's Finance Minister,
rejected talk of recession this morning, stating that it is "out of
the question". Output in Italy fell by 0.3 per cent.

But smaller eurozone members fared better, Eurostat data showed.
Greece expanded by 0.6 per cent, Austria and Portugal 0.4 per cent
and Belgium 0.3 per cent. [Greece depends on tourism, Belgium on EU
institutions which have certainly been productive, while Portugal
produced a record number of paid-for police press ‘leaks’ -cs]

Eurozone: On the brink
Grainne Gilmore

No one doubts that the European Central Bank takes the threat of
inflation seriously. Jean-Claude Trichet, president of the central
bank, indicated strongly that rates would rise to curb rising prices,
and he followed through on his word last month, raising rates by a
quarter point to 4.25 per cent. But today's figures showing that the
eurozone has posted its first fall in output this morning since the
single currency came into use in 1999 may soften its stance a little.
Overall GDP in the 15 nations that make up the eurozone fell by 0.2
per cent in the three months to June. Another fall in the third
quarter of the year will push the region into technical recession.

Despite upturns in small eurozone economies including Greece, Austria
and Portugal, overall output was dragged down by falls in Germany,
France and Italy, its three biggest economies, which together account
for nearly 60 per cent of output. The headache for the European
Central Bank was intensified by record inflation in July.

Economists are now forecasting that the slowing economy will take
further rate rises off the menu, and may even pave the way for rate
cuts. While this is great news for homeowners, especially in Spain
where there has been a damaging slump in house prices, it doesn't
bode well for the euro, which has levelled off at a six-month low
against the dollar this morning. It could decline further as
investors seek the safety of other currencies in regions where rate
cuts are not on the cards


FINANCIAL TIMES 14.8.08
Eurozone economy contracts for the first time
By Ralph Atkins in Frankfurt and By Peter Garnham in London

The eurozone economy has contracted for the first time since the
launch of the euro a decade ago, with France hit unexpectedly-badly
by high oil prices and deteriorating global conditions.

Gross domestic product in the 15-country region fell by 0.2 per cent
in the second quarter, reported Eurostat, the European Union’s
statistical office. That marked a sharp turnaround from the first
three months of the year, when GDP expanded by 0.7 per cent.

After escaping the worst effects of the global fallout from the US
sub-prime mortgage crisis, the main eurozone economies have instead
suffered from the impact of surging energy costs on consumer
spending, tumbling business confidence and slower growth elsewhere in
the world. Even during the slugging [sluggISH ? -cs] growth period at
the start of the decade, quarterly growth figures had remained
positive.

The pace of the latest slowdown is likely to worry eurozone
policymakers especially as the US economy appeared to stage a mid-
year recovery. US GDP rose by 0.5 per cent in the second quarter,
although that could have reflected one-off measures to boost the
economy.

Fears of a technical recession – two consecutive quarters of negative
growth – are widespread across the eurozone. Jean-Claude Trichet,
president of the European Central Bank, warned earlier this month
that the second and third quarters would be “particularly weak”.

Confirmation the eurozone growth has gone into reverse comes a day
after Japan, the world’s second largest economy, revealed its worst
quarterly performance for seven years and the Bank of England
presented a gloomy outlook for the UK economy.

Developed economies have been hit this year by the impact of the
credit squeeze and the effect it has had on mainstream economic
activity.

The eurozone’s deterioration is unlikely to lead to early cuts in
official borrowing costs, however. The ECB will be alarmed by rising
fears about future inflation rates by professional forecasters, as
reported in its latest monthly bulletin. Longer-term expectations –
for inflation in 2013 – were the highest since the survey began in
1999, it warned.

Eurozone inflation hit a record 4 per cent in July, Eurostat said,
although that was lower than its initial estimate of 4.1 per cent.
Economists generally expect ECB interest rates to remain at the
current 4.25 per cent until at least the end of the year.

But Aurelio Maccario, an analyst at UniCredit, said the downward
revision of the inflation reading was another signal that the
slowdown in the eurozone was taking care of inflationary worries.
“With growth slowing abruptly and inflation expectations off their
peak, risks of a near-term ECB interest rate hike have been wiped
out,” he said.

The euro came under renewed selling pressure on Thursday. The single
currency fell 0.2 per cent to $1.4894 against the dollar and eased
0.2 per cent to £0.7966 against the pound. It lost 0.1 per cent to
Y163.26 against the yen.

Germany’s economy – Europe’s largest – contracted by 0.5 per cent in
the three months to June. But that was less than expected by recent
leaks from Berlin and largely reflected a correction after
exceptionally robust start to the year, although the country’s
statistical office revised down its estimate of first quarter growth
from 1.5 per cent to 1.3 per cent.

Michael Glos, economics minister, said a weaker second quarter had
been expected but Germany had improved “by a good measure” its
international competitiveness and resistance to global shocks. Berlin
stood by its forecast for overall German growth of 1.7 per cent this
year, down from 2.5 per cent in 2007.

However, France reported a significantly worse-than-expected 0.3 per
cent fall in second quarter GDP, after a 0.4 per cent rise in the
first three months of the year. Unlike in Germany, falling real wages
are a new phenomenon in the eurozone’s second largest economy and
French consumer spending – which previously powered growth – has been
broadly flat since the start of the year.

Still, Christine Lagarde, the French finance minister, said there was
“no question of a recession” with the fundamentals of the country’s
economy remaining healthy.

Meanwhile, Spain saw a sharp deceleration in economic activity as
expected – although GDP growth remained positive, at 0.1 per cent in
the first quarter. Spain’s economy, previously one of the region’s
best performers, has been moving in line with others hit by sharp
house market corrections, such as Ireland and, outside the eurozone,
the UK.

US inflation at highest since 1991
By James Politi in Washington

US consumer prices rose by 0.8 per cent in July, twice as fast as
expected, damping hopes that falling crude oil prices and the slowing
consumer demand would rapidly ease inflationary pressures.
The surprise jump in the consumer price index on a monthly basis was
accompanied by an annual increase of 5.6 per cent, which was more
than forecast and the largest jump since 1991

THE SUN SAYS ..... 14.8.08
Silver lining

THE bad news: Bank of England chief Mervyn King says the economy will
get worse before it gets better.
The good news: It WILL get better, he promises. The question is, when?

Summer’s gone, the weather’s appalling, prices are through the roof
and it’ll be a tough Christmas.
But look on the bright side. Only two days before the Premier League
starts!
[Not more ****** sport! -cs]