Home' Trinidad and Tobago Guardian : April 12th 2015 Contents APRIL 12 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG15
Recovery (noun): restoration to a former
or better condition.
The euro zone at last is
enjoying an upturn.
Economists are savor-
ing the unaccustomed
pleasure of revising
their growth forecasts
upward, rather than
downward. Surveys of
business activity have reached a four-year
high and euro-area consumers are feeling
much more confident. Investors are excited
too, and money is rushing into the region's
stock markets. In March European equity
funds notched record inflows.
Alas, the euro zone still is a long way
from meeting the dictionary definition of
a recovery. Indeed, investors' swing from
gloom to europhoria appears already to have
gone too far.
To start with, the recovery remains
remarkably weak. The euro area actually
has been growing for two years, since an
extended double-dip recession ended in
early 2013, but the expansion has been so
desultory that it barely deserved the name.
The excitement generated by growth of only
0.3 per cent, an annualised rate of little
more than one per cent, in the fourth quarter
of 2014 tells its own story of shrunken
expectations. So feeble has the recovery
been that in late 2014 euro-zone GDP was
still two per cent below its previous pre-
crisis peak in early 2008. By contrast, Amer-
ica's output is higher by almost nine per
Having lost so much ground, the euro
area clearly has enormous scope to catch
up. However, its recent improved showing
depends on two engines that are likely to
run out of steam.
The first is the oil-price collapse in the
second half of 2014, which has acted like
a tax cut for consumers and businesses.
That stimulus will fade toward the end of
this year, and will go into reverse if oil prices
move up again.
The second engine is the fall in the euro,
by 12 per cent on a trade-weighted basis
during the past year. Many European com-
panies have done a good job of expanding
their foreign sales in recent years, and will
do well from a weaker currency. The euro
has stopped falling, however, at least for the
time being, and in the long run what matters
more for exporters is growth in their trading
With China slowing and the American
economy causing concern, the outlook is
less favorable. Ideally recovery would also
be based on strong demand within the euro
area, especially in Germany, which is running
a current-account surplus of more than
seven per cent of GDP.
True, investors will continue to benefit
from the European Central Bank's generous
program of quantitative easing, which began
in early March. QE has boosted equity and
bond markets: Germany's DAX index is up
by more than 20 per cent since the start of
the year, for example. Banks play a bigger
role than capital markets in providing funds
to euro-zone companies and households,
however, and, although lending to the private
sector is beginning to edge up, loans to com-
panies still are falling.
Moreover, one of the main achievements
in improving euro-zone governance, the
creation of a single banking supervisor under
the auspices of the ECB, is a double-edged
sword. Compared with complaisant national
regulators, it is more insistent that banks
be strong, as seen in an incipient clampdown
on the use of deferred-tax assets, a kind of
credit to offset past losses, to bolster the
capital bases of banks in Europe's weaker
economies. Welcome though that is, credit
will not take wing while banks still are
repairing their balance sheets.
Don't forget Greece, of course. Markets
have been insouciant about the tensions
between the radical-left government of
Prime Minister Alexis Tsipras and the rest
of the euro zone, but Greece is running too
short of cash to be confident of avoiding a
"Grexit." The fraught negotiations between
Greece and its European creditors highlight
how hard it is to reconcile the interests of
the currency union's disparate members.
After years of bad news, it may seem
churlish to belittle signs of brighter prospects.
Countries such as Italy have made welcome
efforts at reform, and the QE. program is
useful in bolstering inflation expectations.
Neither France, the second-biggest econ-
omy in the currency bloc, nor Italy, the
third-biggest, is expected to muster growth
above one per cent this year, however. The
longer-term prospects for the euro area
remain weighed down by excessive debt
and low productivity growth, as well as the
threat of deflation and disadvantageous
demography - Germany's working-age pop-
ulation will be shrinking as fast as Japan's
According to the International Monetary
Fund, the euro area's potential rate of growth
has deteriorated since before the financial
crisis of 2007-2008 by more than that of
other advanced economies. However wel-
come, an upturn should not be mistaken
for a renaissance.
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Dangers of europhoria
boosted by stimulus,
hit all-time high
Economic growth is accelerating in the euro zone
and in India but slowing in China, Russia and Brazil,
the Organisation for Economic Co-operation and
Development said on Thursday.
In a monthly update, the OECD said that within
the euro zone, France and Italy were showing signs
of better growth and that the outlook was also improv-
ing in Germany, the euro zone's largest economy.
The international think tank's leading indicator, a
measure supposed to capture turning points in the
economy, rose to 100.7 for the euro zone as a whole,
from 100.6 a month earlier.
With 100.0 representing a long-term average, the
OECD index rose to 100.7 from 100.5 in France, the
second-largest euro zone economy, and increased to
101.0 from 100.8 in Italy, the third-largest. In Germany,
it rose to 99.8 from 99.7.
India's prospects continued to improve, with an
index that rose to 99.5 from 99.3 in the latest monthly
report. But China's reading dipped to 98.4 from 98.5
and Russia's to 98.9 from 99.0.
The US index dipped to 100.0 from 100.1. Japan's
rose to 100.0 from 99.9. Reuters
European stocks have surged this year. On
Thursday they closed at an all-time high,
even as the outlook for economic growth
remains fragile and the region grapples to
find a definitive way to deal with the ongoing Greek
Economic growth in the region is projected to reach
just 1.4 percent this year, compared with 3.1 per cent
in the US, according to the most recent forecasts from
the Organisation for Economic Co-operation and
The Stoxx Europe 600, an index that tracks large
and medium-sized companies in Europe, has surged
almost 20 per cent this year. On Thursday, the index
climbed 1.1 per cent to 409.15 points, surpassing the
previous record of 405.50 set in March, 2000 during
the technology boom.
Stocks in Europe are jumping after the European
Central Bank announced an expanded 1.1 trillion euro
(US$1.2 billion) bond-buying program in January to
boost the region's economy. By buying government
and private-sector bonds, the ECB aims to keep market
interest rates low, which encourages lending and, by
extension, economic growth.
The euro region, a net oil importer, is also benefiting
from falling energy costs and a weakening euro.
"There are some nice tailwinds to Europe," said W
Janet Dougherty, a global investment specialist in
Chicago for JPMorgan Private Bank. They have "low
rates and very low energy prices there and then added
on top of that ... the low euro is going to be very ben-
Bond yields in Europe are at historically low levels.
The yield on the 10-year benchmark German gov-
ernment bond, which started the year at 0.55 per
cent, has fallen to just 0.16 per cent.
The combination of falling bond yields and the
comparatively weak outlook for the region's economy
has also had the side effect of weakening the euro
against the dollar. That gives a lift to the region's
exporters, making goods produced in Europe cheaper
to overseas buyers. It should also draw tourists to the
The euro has fallen 12 per cent against the dollar
since the start of the year. The euro is currently trading
at US$1.06 and many analysts expect it to fall to parity
with the US currency this year. Reuters
OECD says euro zone
wider picture stable
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