A quiet European week as optimism buildup over Greece ahead of EC meeting

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Sat, Mar 13 2010, 11:03 GMT
by ecPulse.com analysis team

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A tranquil week from the lack of major economic data in the euro zone and the United Kingdom; while Switzerland grabbed the spot last week as they announced their three-month Libor target leaving them steady at 0.25% to continue prompting growth levels.

Switzerland expanded by 0.7% in the fourth quarter while the major sectors that boost growth levels have been improving. Leading economic indicators support continued recovery as exports gain ground, while manufacturing growth climbed for the 10th month in a row. The Swiss National Bank (SNB), in December, stopped the purchasing of corporate bonds program as economic conditions started to improve; taking the same step other major economies are taking.

Although in the United Kingdom, the BoE paused the APF program, yet the economy continues to struggle to shake off the worst recession since World War II. Earlier this week, we saw the UK trade deficit widen the most since August 2008 as a result of lower exports, led from lower sales of chemicals and other commodities.

The UK is not the only nation to suffer from lower exports, yet exports in Germany after we saw surge for four month, ended the gains unexpectedly as unemployment rates around the world resume their rise. High unemployment rates negatively impact consumer spending therefore weighed on demand levels, affecting trade between nations.

Trade around the world has been impaired from crippled consumer demand and the tightening of the financial and banking systems. Yet there are anticipations that Asian markets may support exports in Germany, as the International Monetary Fund in December stated that it expects growth of 10% while 7.7% in China and India respectively.

Since nations now are not depending on domestic demand, they are looking forward to exports boosting growth levels, especially Germany which accounts on exports heavily for economic growth, while it is considered the main contributor to the euro zone’s GDP.

The euro zone expanded by 0.1% in the fourth quarter after toning down from 0.4% in the third quarter; in the past week the ECB released its monthly report stating that the current interest rates of 1.00% are appropriate in regarding to the current economic conditions. Reiterating the statements Trichet provided in the press conference following the decision.

The expected outlook for economic growth is that the euro zone will grow at a moderate pace this year yet there as uncertainties remain; while inflation is projected to remain firmly anchored over the medium term.

The ECB will continue existing stimulus measures gradually; in April, the three-month loan will reverse to variable rate instead of the current fixed rate. Also, banks will be granted unlimited funds in one week and 30-day loans in the special term operations (SMOs) for as long as needed until at least October 12, 2010.

As liquidity in economies remains tight, impacting industrial and manufacturing production as in the United Kingdom. We saw that production output declined heavily. Manufacturing production fell for the first time since August, hinting that conditions in the nation remain unstable while now the talks of the economy are on the governmental election coming up in June.

There are doubts if the new government will be able to narrow the swelling budget deficit, which is not only in the UK, but has center stage in Europe. Around Europe finance minister are worried that this might be the next economic bubble, crippling nations borrowing capabilities and complicating the recovery further.

Although manufacturing and industrial production fell in the UK surprising markets, in the euro zone, we saw that the story differs as their industrial production for the year ending in February climbed the most in more than 20 years; this gives evidence that the manufacturing sector continues its expansion.

Last week was mainly about confidence buildup in the wake of the meetings Greece’s Prime Minister held in Germany, France and the United States; woes eased over the Greek debt crisis and default worries subsided. This week the EU is preparing for the meeting to be held and Finance Ministers will discuss the Greek bailout needs as they submit Progress Report to on their Deficit-Cutting plan.

Published on Sat, Mar 13 2010, 11:04 GMT