Euro zone economy shrinks, worst since 2009

The euro-area recession deepened more than economists forecast with the worst performance in almost four years as the region’s three biggest economies suffered slumping output.

 The recession in the 17-nation euro zone deepened sharply in the fourth quarter of 2012 as the debt crisis continued to sap growth and confidence as jobs are lost. Photo: AFP

Gross domestic product fell 0.6 percent in the fourth quarter from the previous three months, the European Union’s statistics office in Luxembourg said today. That’s the most since the first quarter of 2009 in the aftermath of the collapse of Lehman Brothers Holdings Inc. and exceeded the 0.4 percent median forecast of economists in a Bloomberg survey.

The data capped a morning of releases showing that the economies of Germany, France and Italy all shrank more than forecast in the fourth quarter.

European Central Bank President Mario Draghi said last week that confidence in the 17-nation bloc has stabilized and the ECB sees a gradual recovery beginning later this year, though the situation is “fragile.”

“The outlook for 2013 remains subdued,” said Peter Vanden Houte, an economist at ING Group NV in Brussels. “While a gradual improvement of the world economy is likely to support European exports, domestic demand is bound to remain very weak as fiscal tightening and rising unemployment will take their toll on household consumption.”

The euro extended its decline against the dollar after the data were released. It fell 0.9 percent to $1.3328 as of 10:34 a.m. London time. The single currency also weakened versus the pound and the yen. European stocks erased gains, U.S. equity- index futures fell, and German bunds advanced.

Japanese Surprise

The European data chimed with statistics in Japan, where the economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption. GDP fell an annualized 0.4 percent, following a 3.8 percent fall in the previous quarter. That bolsters Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation.

The euro-area economy shrank 0.9 percent in the fourth quarter from a year earlier, the statistics office said. In 2012, it contracted 0.5 percent.

Data earlier today showed the German economy, Europe’s largest, shrank 0.6 percent in the fourth quarter, while French GDP fell 0.3 percent. Both contractions exceeded the median forecasts of economists. Italy’s economy shrank 0.9 percent, also more than expected and a sixth straight contraction.

Ninth Contraction

Other releases today showed that Portugal’s GDP fell by 1.8 percent in the ninth successive quarter of contraction, while in Austria and the Netherlands, it dropped 0.2 percent. In Greece, which doesn’t publish quarter-on-quarter data, GDP fell 6 percent in the fourth quarter from a year earlier.

Measures by the ECB to stem the debt turmoil have eased the worst strains and helped to reduce sovereign bond yields. The yield on Spain’s 10-year debt is about 5.2 percent, down from more than 7.5 percent in July.

Some reports have also pointed to an easing in the recession in the euro area since the start of this year. While industrial production fell 2.4 percent in the fourth quarter, it rose 0.7 percent in December, more than economists forecast. Surveys of manufacturing and services improved in January.

Downside Risks

Still, the ECB has predicted that the euro zone’s economy will shrink 0.3 percent this year. The appreciation of the euro, which gained 8.2 percent in the past six months, is also threatening to hurt exports.

The ECB said today that professional forecasters cut their growth and inflation estimates. They predict inflation of 1.8 percent in 2013 and 2014, down from the 1.9 percent estimated for both years three months ago, the central bank said, citing a quarterly survey. Forecasters foresee zero growth this year and expansion of 1.1 percent next year.

Heineken NV, the world’s third-biggest brewer, said yesterday it sees volume weakness this year in European markets “affected by continued economic uncertainty and government-led austerity measures.” ThyssenKrupp AG, Germany’s biggest steelmaker, said on Feb. 8 that it intends to make savings in its European steel business by cutting more than 2,000 jobs.

In the 27-nation European Union, GDP fell 0.5 percent in the fourth quarter from the previous three months and 0.6 percent on the year. The statistics office is scheduled to publish a breakdown of fourth-quarter GDP next month.

“While sentiment towards the region has improved, the hard news on the economy remains distinctly weak,” said Jonathan Loynes, chief European economist at Capital Economics in London. Surveys have pointed to an “improvement in sentiment and activity in the early part of 2013. But for now at least, they are not strong enough to suggest that the euro zone has pulled out of recession.” - Bloomberg

Related post: 
Japan's economy contracts

Japan's economy contracts

Aggressive: Japan has been warned that its expansionary monetary policy could affect that country’s future growth as a weak yen could undercut Korean exporters’ competitiveness. — EPA

TOKYO: Japan's economy unexpectedly contracted in the fourth quarter, failing to escape a mild recession and playing into the hands of a government pushing for more aggressive monetary expansion that's drawn international criticism.

While a 0.1% drop in output defied expectations of a slight uptick after two quarters of contraction, economists expect the economy will slowly recover this year with the help of bolder monetary and fiscal stimulus and an improving global economy.

The Bank of Japan also struck a more positive note on the economy while keeping its policy on hold after it boosted its monetary stimulus and doubled its inflation target to 2% a month ago.

Markets, however, have no doubt that Prime Minister Shinzo Abe will keep pushing the central bank for more, given the still fragile state of the economy. A return to rising prices also appears far off after nearly two decades of low-grade deflation.

Those expectations for further easing have sent the yen into retreat, driving it down nearly 20% against the dollar since November and stirring an international debate over whether Japan was effectively using aggressive money printing to steer the yen lower.

Tokyo has defended its action, saying its policies are aimed at pulling the country out of deflation, not at nudging down the yen, and governor Masaaki Shirakawa is expected to reinforce that argument when he will attend his last Group of 20 finance leaders' meeting in Moscow this weekend.

Japan has said the Group of Seven rich nations accepted Tokyo's view when it declared in a statement on Tuesday that fiscal and monetary policies would not be directed at devaluing currencies.

But remarks from former BoJ governor Kazumasa Iwata yesterday are likely to rekindle the international debate on Tokyo's true motives.

The yen is still overvalued from a trade perspective and the reversal of the currency's strength is essential for the BoJ to achieve its 2% inflation target, Iwata was quoted as saying by a Japanese ruling party official.

Iwata, considered one of the leading candidates to replace Shirakawa when he leaves his post in March, said the dollar at 95 yen was appropriate. Iwata heads a private economics think-tank and now has no policymaking role.

Abe and his cabinet have the right to fill three top BoJ posts when Shirakawa and his two deputies leave on March 19 and is widely expected to pick advocates of more aggressive central bank action than the cautious outgoing chief, keeping downward pressure on the yen.

The dollar traded around 93.50 yen yesterday after hitting a 33-month high of about 94.47 yen on Monday.

South Korea's central bank has warned that Japan's expansionary monetary policy could affect that country's future growth as a weak yen could undercut Korean exporters' competitiveness.

As widely expected, the central bank maintained its overnight call rate target at a range of zero to 0.1% by a unanimous vote, and held off expanding its asset buying and lending programme, while offering a rosier view of the economy than just a month ago.

“Japan's economy appears to be bottoming out,” it said. In January, the BoJ said the economy was weakening.

The world's third largest economy contracted for the third consecutive quarter in October-December, showing Japan was taking longer to escape from a mild recession. - Reuters

Ad strategy wins sweethearts

 

Proposa l placement: Xteven and Rachel looking through The Star.

IPOH: A 29-year-old company manager proposed to his sweetheart by declaring his love through a newspaper advertisement.

Xteven Teoh Hoe Seong (sic), from Gunung Rapat here, said he got the idea after finding out that one could place an advertisement in the Celebrations page in The Star.

Teoh, who works in Shah Alam, Selangor, said he believed the advertisement was more romantic than going down on bended knee to propose to the love of his life, Rachel Choo Lai Ying.

Teoh and Choo, 27, who have been courting for nine years, will marry on Sept 15. They first met when they were cadets with St John Ambulance in their respective schools.

“About three years ago, we broke up for about six months due to some misunderstanding, but deep down we knew we were made for each other and got back together.

“At that time she was studying in Australia, and during the mooncake festival I sent her four pieces, ” he said here yesterday.

On Feb 10, the Sunday Star published Teoh's advertisement with the couple's photograph and his proposal to Choo: “Will you marry me? Let me take care of you for the rest of our life.”

Teoh also made a short video-clip on his Facebook page declaring his love for her.

The clip starts with Teoh coming up with the words “Most of the Chinese newspaper companies are shut, and the only newspaper I can find in 7-11 is The Star, so go to page 47 and Rachel Choo you will find this” (referring to the ad).

Choo, a sales executive working in Puchong, Selangor, said she was shocked to see the advertisement in The Star.

“I was a bit suspicious when a few friends persuaded me to look out for an advertisement. After flipping page after page, I saw the ad. I was so touched by the proposal that I immediately said Yes',” said Choo who is from First Garden, near here.

By MANJIT KAUR manjit@thestar.com.my

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