According to the first estimate by the German agency for statistics, the recovery continued in the Q1 2010. The German economy grew by 0.2% QoQ. Compared with the Q1 2009, German GDP increased by 1.7%. The decomposition of the GDP numbers will only be published in two weeks but recent monthly data indicate that growth was driven by exports and investments, while private consumption remained a drag on growth. In addition, the numbers for the fourth quarter of 2009 were revised upwards. Instead of stagnating, the German economy also grew by 0.2% QoQ in Q4 2009.
The strong March figures came right in time to make an almost lost quarter look somewhat better. Looking ahead, the recent Spring revival bodes well for the second quarter. All indicators signal a strong rebound. Confidence indicators are back at their pre-crisis levels, order books are still growing, the labour market is further stabilising and parts of the government’s stimulus package are only currently finding their way into the economy.
If Sunday’s big bail-out package succeeds in calming markets and confidence, the short-term impact from the Eurozone’s fiscal crisis on the German economy should be limited and even positive. Lower bond yields and the weaker euro could benefit the German economy. However, fiscal consolidation in several Eurozone countries and ending stimulus packages should have a downward impact on growth in the second half of the year.
Today’s numbers show that the recovery is continuing, even with the harsh winter weather. Still, the numbers do not show the recovery’s true colours, neither will second quarter growth. The bumpy ride will continue and, at least in the coming months, it should be a nice ride.
Wednesday, May 12, 2010
Eurozone puts a bazooka on the table
European policymakers have put a loaded bazooka on the table. In a co-ordinated action, Eurozone governments and the IMF have decided to provide around €750bn for Eurozone countries with weak public finances. At the same time, the ECB has entered unchartered territory to prevent systemic risks.
Like all good plans, the Eurozone bail-out scheme is not without risk or uncertainties. Governments and parliaments still need to agree, borrowing conditions are still unclear and the ECB put its credibility at risk.
The Eurozone’s bazooka will not solve fundamental fiscal problems, but it should prevent speculative contagion. Countries like Portugal and Spain have now some time to prove that they are different.
With the ECB buying government bonds, the risk of a systemic crisis should diminish. In a worst case scenario, the ECB could even make an orderly default possible.
The ECB’s credibility is now in the hands of governments, as the success or failure of the big bang still depends on the implementation of fiscal consolidation. There will come a time when the ECB will want to restore its credibility as an inflation fighter. However, for the time being deflationary risks from fiscal consolidation still prevail.
Like all good plans, the Eurozone bail-out scheme is not without risk or uncertainties. Governments and parliaments still need to agree, borrowing conditions are still unclear and the ECB put its credibility at risk.
The Eurozone’s bazooka will not solve fundamental fiscal problems, but it should prevent speculative contagion. Countries like Portugal and Spain have now some time to prove that they are different.
With the ECB buying government bonds, the risk of a systemic crisis should diminish. In a worst case scenario, the ECB could even make an orderly default possible.
The ECB’s credibility is now in the hands of governments, as the success or failure of the big bang still depends on the implementation of fiscal consolidation. There will come a time when the ECB will want to restore its credibility as an inflation fighter. However, for the time being deflationary risks from fiscal consolidation still prevail.
Friday, May 7, 2010
Hibernation ended.
German industrial production increased significantly in March, more than offsetting the winter dip. Industrial production was up by 4.0% MoM, from -0.2% in February. The increase was mainly driven by the production of capital and intermediate goods, and above all by the construction sector. As expected, after the end of the winter, the construction sector bounced back impressively by 26.7%.
Today’s numbers clearly illustrate that the industry’s hibernation has ended. With today’s strong increase in industrial production numbers, chances have increased that next week’s first estimate of Q1 GDP growth could be slightly positive. Whether positive or negative, the first quarter was not a good reflection of the sound underlying recovery. It will take until the second quarter before the real strength of the recovery will be visible.
With filling order books, business expectations back at pre-crisis level and increasing recruitment plans, the near term future for the German economy looks bright. However, the ongoing sovereign debt crisis will very likely also take its toll on the German economy. Therefore, it will be hard to take the current impressive momentum into the summer months. Enjoy it as long as it lasts.
Today’s numbers clearly illustrate that the industry’s hibernation has ended. With today’s strong increase in industrial production numbers, chances have increased that next week’s first estimate of Q1 GDP growth could be slightly positive. Whether positive or negative, the first quarter was not a good reflection of the sound underlying recovery. It will take until the second quarter before the real strength of the recovery will be visible.
With filling order books, business expectations back at pre-crisis level and increasing recruitment plans, the near term future for the German economy looks bright. However, the ongoing sovereign debt crisis will very likely also take its toll on the German economy. Therefore, it will be hard to take the current impressive momentum into the summer months. Enjoy it as long as it lasts.
Thursday, May 6, 2010
Return of the undercover hawk
As widely expected, the ECB today decided to keep interest rates on hold. It is obvious that in the current rather deflationary environment, rate hikes are only a scenario for the far-off future. In the Q&A session, all questions were once again related to Greece. Trichet did nothing to evoke new speculation about possible ECB steps. To the contrary, in what could be seen as an attempt to escape the Greek crisis, the ECB has secretly become more hawkish.
For the first time in a long while, at least the text of the ECB’s economic assessment was changed. On substance, the main message is still the same: the recovery of the Eurozone economy is continuing. However, there were some interesting changes to the ECB’s take on inflation.
According to the ECB, real GDP is expected to expand at a moderate pace and risks remain balanced. Greatest downward risks stem from the financial crisis, balance sheet adjustments and the labour market. As regards inflation, the ECB introduced a new distinction between global and domestic inflationary pressures. While global inflationary pressures might increase due to energy prices and emerging market inflation, domestic inflation in the Eurozone is expected to remain contained. Inflation expectations remain firmly anchored but the risks are only “still” remaining broadly balanced. In addition, two important sentences have been added to the ECB’s introductory statement: “The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is necessary to maintain price stability in the euro area over the medium term”. In normal times, this would have marked a turning point towards a more hawkish stance. However, these are no normal times.
As expected, the Q&A session was only about Greece. Prior to the meeting, there had been plenty of market rumours and advice about the ECB could or should do in reaction to the Greek crisis. Several observers even proposed to ultimately purchase government bonds. Just looking at the facts, the ECB still owns the same toolbox as in the past. Theoretically, it could restart FX swap lines, renew one-year LTOs or extending full allotment procedures at its refinancing operations. A more radical move would be to purchase government bonds in the secondary market. However, such a step would be very controversial to say the least. In today’s press conference, Trichet did not give any hints that the ECB would soon be willing to go beyond last Sunday’s decision when they announced to accept Greek debt as collateral no matter what its rating is.
All in all, the ECB tried to say as little as possible on Greece and possible future action. Maybe this was the lesson from the last weeks and months when several u-turns and unfortunate communication had not done the ECB’s credibility any good. With significant deflationary pressure still looming from future fiscal consolidation, the ECB’s more hawkish tone was probably a bit exaggerated. However, it was an attempt to return focus back to what the ECB is best at: conducting monetary policy.
For the first time in a long while, at least the text of the ECB’s economic assessment was changed. On substance, the main message is still the same: the recovery of the Eurozone economy is continuing. However, there were some interesting changes to the ECB’s take on inflation.
According to the ECB, real GDP is expected to expand at a moderate pace and risks remain balanced. Greatest downward risks stem from the financial crisis, balance sheet adjustments and the labour market. As regards inflation, the ECB introduced a new distinction between global and domestic inflationary pressures. While global inflationary pressures might increase due to energy prices and emerging market inflation, domestic inflation in the Eurozone is expected to remain contained. Inflation expectations remain firmly anchored but the risks are only “still” remaining broadly balanced. In addition, two important sentences have been added to the ECB’s introductory statement: “The firm anchoring of inflation expectations remains of the essence. Monetary policy will do all that is necessary to maintain price stability in the euro area over the medium term”. In normal times, this would have marked a turning point towards a more hawkish stance. However, these are no normal times.
As expected, the Q&A session was only about Greece. Prior to the meeting, there had been plenty of market rumours and advice about the ECB could or should do in reaction to the Greek crisis. Several observers even proposed to ultimately purchase government bonds. Just looking at the facts, the ECB still owns the same toolbox as in the past. Theoretically, it could restart FX swap lines, renew one-year LTOs or extending full allotment procedures at its refinancing operations. A more radical move would be to purchase government bonds in the secondary market. However, such a step would be very controversial to say the least. In today’s press conference, Trichet did not give any hints that the ECB would soon be willing to go beyond last Sunday’s decision when they announced to accept Greek debt as collateral no matter what its rating is.
All in all, the ECB tried to say as little as possible on Greece and possible future action. Maybe this was the lesson from the last weeks and months when several u-turns and unfortunate communication had not done the ECB’s credibility any good. With significant deflationary pressure still looming from future fiscal consolidation, the ECB’s more hawkish tone was probably a bit exaggerated. However, it was an attempt to return focus back to what the ECB is best at: conducting monetary policy.
Friday, April 30, 2010
Wie a zegt...
...moet ook b zeggen. Kent bondskanselier Angela Merkel dat spreekwoord niet? Sinds vorige week is duidelijk dat Griekenland aan de afgrond staat en financiële steun acuut nodig heeft. De problemen waaien niet meer over. Het Duitse aarzelen heeft de financiële markten letterlijk uitgenodigd ook tegen andere landen te speculeren. Merkel en Duitsland moeten snel kleur bekennen. Niet alleen om de speculatie van de laatste dagen aan banden te leggen, maar ook om een signaal te geven over de toekomst van de euro.
In de hoop de meeste Duitse kiezers, de andere Europese landen en de financiële markten zo lang mogelijk te overbluffen, volgde Merkel de laatste weken een dubbele tactiek. Naar buiten was zij 'Madame Non', die de sjoemelende en onverantwoorde Grieken niet één belastingcent gunde. Maar achter gesloten deuren ondertekende zij elke Europese solidariteitssteun. Alles in de hoop dat de Griekse crisis toch zou overwaaien. Maar de wind waait anders.
Het wordt steeds duidelijker. Financiële steun aan Griekenland is nu alleen een druppel op een hete plaat. De huidige liquiditeitsproblemen camoufleren alleen solvabiliteitsproblemen. Het enige wat Griekenland op dit moment kan helpen, is een Europese blanco cheque voor minstens drie jaar. Alleen zo heeft de overheid de tijd om de economie radicaal te hervormen, onafhankelijk van elke druk van de financiële markten. Daar zou het niet stoppen. Als de Europese landen een blanco cheque voor Griekenland ondertekenen, moeten zij in feite ook bereid zijn dat eventueel voor Portugal, Ierland en misschien Spanje te doen. De geboorte van een politieke unie met transferbetalingen, dat zal in ieder geval de Duitse kiezer, die nog steeds wacht op de beloofde belastingverlaging, zeker niet in dank afnemen.
Bertolt Brecht zei ooit: 'Wie a zegt, hoeft geen b te zeggen, hij kan ook zeggen dat a fout was.' Als Angela Merkel Brecht wil volgen komt er een nieuwe 'a': het toestaan van een ordelijk staatsfaillissement. Dat kan een herstructurering van de schulden zijn of een 'hair cut' waarbij de obligatiehouders een gedeelte van hun vermogen kwijtraken. Niet alleen van Griekenland, maar eventueel ook voor andere landen van de eurozone, met alle mogelijke negatieve gevolgen voor de financiële sector.
Je kán doormodderen en uitstellen, door eventjes te betalen en verder over de toekomst te zwijgen. De problemen verdwijnen daardoor echter niet. Het is tijd voor duidelijkheid. Wordt het 'b' of een nieuwe 'a'? Merkel moet nu beslissen. Niet alleen over Griekenland, ook over de toekomst van de monetaire unie.
Deze column verscheen eerder in het Belgische dagblad "De Tijd".
In de hoop de meeste Duitse kiezers, de andere Europese landen en de financiële markten zo lang mogelijk te overbluffen, volgde Merkel de laatste weken een dubbele tactiek. Naar buiten was zij 'Madame Non', die de sjoemelende en onverantwoorde Grieken niet één belastingcent gunde. Maar achter gesloten deuren ondertekende zij elke Europese solidariteitssteun. Alles in de hoop dat de Griekse crisis toch zou overwaaien. Maar de wind waait anders.
Het wordt steeds duidelijker. Financiële steun aan Griekenland is nu alleen een druppel op een hete plaat. De huidige liquiditeitsproblemen camoufleren alleen solvabiliteitsproblemen. Het enige wat Griekenland op dit moment kan helpen, is een Europese blanco cheque voor minstens drie jaar. Alleen zo heeft de overheid de tijd om de economie radicaal te hervormen, onafhankelijk van elke druk van de financiële markten. Daar zou het niet stoppen. Als de Europese landen een blanco cheque voor Griekenland ondertekenen, moeten zij in feite ook bereid zijn dat eventueel voor Portugal, Ierland en misschien Spanje te doen. De geboorte van een politieke unie met transferbetalingen, dat zal in ieder geval de Duitse kiezer, die nog steeds wacht op de beloofde belastingverlaging, zeker niet in dank afnemen.
Bertolt Brecht zei ooit: 'Wie a zegt, hoeft geen b te zeggen, hij kan ook zeggen dat a fout was.' Als Angela Merkel Brecht wil volgen komt er een nieuwe 'a': het toestaan van een ordelijk staatsfaillissement. Dat kan een herstructurering van de schulden zijn of een 'hair cut' waarbij de obligatiehouders een gedeelte van hun vermogen kwijtraken. Niet alleen van Griekenland, maar eventueel ook voor andere landen van de eurozone, met alle mogelijke negatieve gevolgen voor de financiële sector.
Je kán doormodderen en uitstellen, door eventjes te betalen en verder over de toekomst te zwijgen. De problemen verdwijnen daardoor echter niet. Het is tijd voor duidelijkheid. Wordt het 'b' of een nieuwe 'a'? Merkel moet nu beslissen. Niet alleen over Griekenland, ook over de toekomst van de monetaire unie.
Deze column verscheen eerder in het Belgische dagblad "De Tijd".
Thursday, April 29, 2010
Good-news-show continues
German unemployment decreased by a non-seasonally adjusted 162,000 in April. Officially, 3.406 million Germans are currently unemployed. In seasonally-adjusted terms, unemployment dropped by 68,000, pushing the seasonally-adjusted unemployment rate to 7.8%, from 8.0% in March. This is the lowest unemployment rate since December 2008 and illustrates the strong Spring revival of the German labour market.
Statistical changes and active labour market policies, including the famous short-work schemes, made the labour market the bright spot of the recession. Moreover, the formerly very rigid German labour market has slowly but surely become more flexible. Even without official short-work schemes, social partners in most sectors can agree on a temporary reduction of the regular working week. The downside of this flexibility of course is that disposable incomes declined which explains why private consumption has not kept pace with the labour market.
Looking ahead, leading indicators, historical evidence and recent wage settlements with job guarantees all point to a further stabilisation of the labour market in the coming months. The positive trend should also be supported by the latest decision from the German government to extend short-work schemes once again until March 2012. However, as a continued stabilisation of the labour market should initially be marked by a pure unwinding of short-work schemes and increasing working hours, employment growth will be sluggish. Still, even if it is only a small boost, the labour market could end the private consumption recession of late-2009.
At least for the time being, the German good-news-show of the last weeks continues. The harsh winter, the Greek crisis, they have all left the German labour market unperturbed.
Statistical changes and active labour market policies, including the famous short-work schemes, made the labour market the bright spot of the recession. Moreover, the formerly very rigid German labour market has slowly but surely become more flexible. Even without official short-work schemes, social partners in most sectors can agree on a temporary reduction of the regular working week. The downside of this flexibility of course is that disposable incomes declined which explains why private consumption has not kept pace with the labour market.
Looking ahead, leading indicators, historical evidence and recent wage settlements with job guarantees all point to a further stabilisation of the labour market in the coming months. The positive trend should also be supported by the latest decision from the German government to extend short-work schemes once again until March 2012. However, as a continued stabilisation of the labour market should initially be marked by a pure unwinding of short-work schemes and increasing working hours, employment growth will be sluggish. Still, even if it is only a small boost, the labour market could end the private consumption recession of late-2009.
At least for the time being, the German good-news-show of the last weeks continues. The harsh winter, the Greek crisis, they have all left the German labour market unperturbed.
Friday, April 23, 2010
Ifo continues Spring sprint
Up again. The German Ifo index surged again in April as current conditions improved significantly. The headline index increased to 101.6, from 98.2, and is now at its highest level since May 2008. The current assessment jumped to 99.3, from 94.5. At the same time, the expectations component continued its impressive upward trend of recent months, increasing to 104.0, from 102.0.
Today’s Ifo index adds further evidence that the pause of the German recovery around the turn of the year was nothing more than a temporary break. In terms of economic growth, the first quarter will have been another disappointment. Still, some moderate growth should not be excluded, yet. It only needs a marginal pick-up in industrial production and net exports in March to turn first quarter growth from slightly negative into positive territory.
Looking ahead, the underlying trend of the German recovery remains healthy: business confidence is high, order books are filling, recruitment plans are increasing and even investment prospects are improving. New car registrations in March were one illustration of the recovery gaining traction. The sharpest increase in three years was mainly driven by business vehicles, indicating that companies have started to invest into their truck and vehicle fleets.
All in all, market headlines of recent weeks had the potential for a severe depression. The Greek fiscal crisis, possible contagion of other Eurozone countries and the volcanic ashes: They all seem to threaten the recovery. However, German businesses seem to be untouched by these downbeat scenarios as most confidence indicators have returned to their pre-crisis levels. Maybe German businesses are too down-to-earth, just looking at their filling order books and ignoring dark clouds of fiscal consolidation. Nevertheless, if the real economy now follows up on confidence indicators’ promises, the near future looks very bright.
Today’s Ifo index adds further evidence that the pause of the German recovery around the turn of the year was nothing more than a temporary break. In terms of economic growth, the first quarter will have been another disappointment. Still, some moderate growth should not be excluded, yet. It only needs a marginal pick-up in industrial production and net exports in March to turn first quarter growth from slightly negative into positive territory.
Looking ahead, the underlying trend of the German recovery remains healthy: business confidence is high, order books are filling, recruitment plans are increasing and even investment prospects are improving. New car registrations in March were one illustration of the recovery gaining traction. The sharpest increase in three years was mainly driven by business vehicles, indicating that companies have started to invest into their truck and vehicle fleets.
All in all, market headlines of recent weeks had the potential for a severe depression. The Greek fiscal crisis, possible contagion of other Eurozone countries and the volcanic ashes: They all seem to threaten the recovery. However, German businesses seem to be untouched by these downbeat scenarios as most confidence indicators have returned to their pre-crisis levels. Maybe German businesses are too down-to-earth, just looking at their filling order books and ignoring dark clouds of fiscal consolidation. Nevertheless, if the real economy now follows up on confidence indicators’ promises, the near future looks very bright.
Subscribe to:
Posts (Atom)