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The situation continues to look somewhat bleak for the EU and Japan ... I'm assembling the past 2 weeks of data now, but the economist just did an analysis of the Euro recovery:
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Brutal, in every sense
Nov 16th 2004
From The Economist Global Agenda
Is the European recovery over before it has really begun?
THE French, it seems, do not use the word “brutal” in quite the way the English do. Jean-Claude Trichet, the French president of the European Central Bank (ECB), reached for this arresting adjective last week to describe the euro’s recent gains against the dollar—the single currency eventually reached a record price of $1.30 on Wednesday November 10th. But according to a translator, writing in the Financial Times, Mr Trichet’s comments were not as alarming as they sound. When the French describe a change as brutal, they mean it is sudden, not cruel or vicious.
The economic slowdown in the euro area, however, has been both sudden and savage. The 12-nation block grew at an annual pace of just 1.2% in the third quarter, according to figures released on Friday, after expanding by 2% in the second quarter and 2.8% in the first (see chart). It seems the recovery in the euro area, which has been long awaited, may already be dearly departed.
The figures are, of course, backward-looking. The slowdown they record was not caused by this month's uptick in the euro. But the numbers nonetheless bode ill for the future. They suggest that Europe's weakening economies are not in a good position to cope with a strengthening currency. Mr Trichet and other anxious observers will have to wait until later in the month to confirm which parts of the euro area’s giant economy are losing the most steam. But it is likely that both French consumers and German exporters, the euro area’s twin-stroke engine of growth in the first half of the year, have misfired since.
Buoyed by higher house prices and a consumer splurge, the French economy was looking quite sprightly in the spring. Indeed, at one point, it seemed as if the French were even outpacing their American rivals. Subsequent data revisions—downwards in France, upwards in America—dispelled that illusion. And figures for the third quarter have punctured French delusions of growth altogether. The French economy crawled along at an annual pace of just 0.4% between July and September.
France’s short-lived boomlet owed something to its finance minister, Nicolas Sarkozy. He arm-twisted the supermarkets into lowering their prices and let consumers deduct some of the interest on their loans from their taxes. But Mr Sarkozy’s measures proved to be temporary fixes: consumers’ confidence ebbed last month, and their spending on manufactured goods fell in the third quarter. Mr Sarkozy will abandon his post to contest his party’s leadership this month. The good times he promoted have left even before he has.
As for Germany, its economy grew by just 0.4% last quarter, at an annualised rate. Germans had to foot a higher import bill, the statistics office said, no doubt because of higher oil prices. But their export earnings were also down. The stronger euro will temper the rise in the dollar price of oil, but it will also blunt the competitiveness of Germany’s exports. Institutional investors and analysts are certainly pessimistic. A widely watched index of their economic expectations, compiled by the ZEW research institute, collapsed in November to 13.9, from a reading of 31.3 the month before. The institute blamed, in part, the euro’s appreciation, which it described, not as brutal, but as “very distinct” nonetheless.
The euro area's finance ministers, assembled on Monday for one of their regular meetings in Brussels, are rattled by the euro's rise. But they have so far refrained from calling on the ECB to do anything about it. Other politicians have been less circumspect. It is not enough, they say, for Mr Trichet to talk down the euro with carefully chosen adjectives. He should put the ECB’s money where his mouth is, selling euros and buying dollars to keep the exchange rate stable. The ECB—which last stepped in to the currency markets four years ago, when the euro was worth just 82 cents—will be reluctant to do so again. But even if the single currency's strength is not enough to prompt intervention, it may delay a hike in interest rates.
Advocates of foreign-exchange intervention are inspired by the example of the Japanese monetary authorities, who arrested an earlier slide of the dollar with massive purchases of the currency in the first three months of the year. But the Japanese have not intervened since. Indeed, the yen has strengthened alongside the euro, albeit at a slower pace. Fewer than 106 yen are now needed to buy a dollar, compared with about 110 last quarter and over 115 last year. Japan’s exporters are no better placed than Germany’s to cope with the falling dollar. Their sales grew by just 1.5%, at an annualised pace, in the third quarter, after booming by over 15% in the second.
As a result, some worry that Japan’s 18-month recovery is now in jeopardy. After growing at an annual rate of more than 6% in the first quarter, output in the world’s second-biggest economy edged up by just 0.3% in the third. With prices continuing to fall (by around 2% over the past year) the yen value of Japan’s output did not grow at all. In its monthly economic report, released on Tuesday, the Japanese government acknowledged the economy's “weak movements” of late. But with consumers still confident (their spending rose by 3.7% in the last quarter) and corporations still profitable, the government expects the recovery to continue.
In France, an abrupt, shuddering stop is described as an arrêt brutal. Brutal is again meant metaphorically, just as the English talk of something stopping “dead”. But the slowdown in the European and Japanese economies is, quite literally, brutal and, quite possibly, fatal to their hopes of a sustained recovery.
http://www.economist.com/agenda/displayStory.cfm?story_id=3394596
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Retro ...
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