Euro-area economy contracted in second quarter on Spain

Economic Outlook

Recent indicators suggest the economic slump may deepen in the current quarter. Euro-area services and manufacturing output contracted for a sixth month in July and unemployment held at a record of 11.2 percent in June. German investor confidence fell to the lowest this month since December 2011.

“The German economy has been softening throughout the second quarter,” said Evelyn Herrmann, an economist at BNP Paribas in London. Surveys “signal that more softening in growth is to come in the third quarter, as the resilience of the German economy to euro-zone stress is waning.”

Deutsche Bank, Germany’s largest lender, said on July 31 that it will eliminate 1,900 jobs by the end of the year, including 1,500 in the investment bank and support areas, as part of an effort to lower costs. PSA Peugeot Citroen, Europe’s second-biggest carmaker, has announced 8,000 job cuts and RWE AG, Germany’s second-largest utility, said today it will eliminate 2,400 further positions.

U.S. Retails

Elsewhere, retail sales in the U.S. rose 0.8 percent, the first gain in four months, the Commerce Department in Washington said. Economists projected a 0.3 percent increase, according a Bloomberg survey. Sales excluding automobiles also climbed 0.8 percent.

In a separate report today, the EU statistics office said that euro-area industrial production fell 0.6 percent in June from the previous month, when it advanced 0.9 percent. Economists in a Bloomberg survey had forecast a drop of 0.7 percent. Output fell 2.1 percent from a year earlier.

Heinrich Hiesinger, chief executive officer at ThyssenKrupp AG, Germany’s largest steelmaker, said on Aug. 10 that customers are showing a “high level of caution.” Commerzbank AG, Germany’s second-biggest bank, said last week profit will fall “significantly” in the second half.

“We still do not expect the macroeconomic and market environment to stabilize in the second half of 2012,” Commerzbank Chief Financial Officer Stephan Engels said.

Policy Response

With the fiscal crisis weighing on sentiment and eroding growth prospects, policy makers have been under pressure to step up stimulus measures. The U.S. Federal Reserve pledged earlier this month to take new policy steps as needed to promote stronger growth and employment. The Bank of England held its key rate at 0.5 percent and its bond-purchase target at 375 billion pounds ($589 billion).

Some Bank of Japan board members said the central bank should not dismiss any policy options in combating risks to the economy from the European sovereign debt crisis, the minutes released in Tokyo showed today. The central bank should “stand ready to take appropriate actions without ruling out any options in advance,” they said, according to the minutes.

European Central Bank President Mario Draghi said on Aug. 2 that the ECB may purchase government bonds in tandem with Europe’s rescue funds to fight the crisis. The central bank in July cut its benchmark interest rate to 0.75 percent, a record low, and has injected more than 1 trillion euros ($1.24 trillion) of cheap three-year loans to encourage lending.

The ECB’s quarterly survey of professional forecasters showed the euro-area economy may contract 0.3 percent this year instead of a previously projected 0.2 percent. The economy will expand 0.6 percent and 1.4 percent in 2013 and 2014, it said.

The euro region’s statistics office is scheduled to publish a breakdown of euro-area second-quarter GDP next month.

Bloomberg News

<< Page 2 of 2

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome