Economic data in the last month to a growing gap between release of a core of Europe’s dynamism and a weak periphery of the euro zone. Given the increasing economic weight of healthy economies, ultimately, the economy is headed in the euro area for a strong recovery this year. However, concerns will dominate over the solvency of the stricken countries in the headlines:
In Greece, the yield of two years more than 25%, while 10-year yields rose to 16% as the market the price of a debt restructuring, against the Greek government guarantees to meet its debt obligations. According to Eurostat, the budget deficit rose to 10.5% of GDP in 2010, when the government target of 9.4% of GDP and rising public debt and 142.8% of GDP. With bleak prospects for growth, it is unclear how the country as the debt servicing.
In Portugal, the government missed its fiscal 2010 deficit by a larger margin than previously estimated, since the number was revised upwards from 8.6% of GDP to 9.1% of GDP. The country awaits the details of the EU and the IMF rescue package, the body after the elections on 5 June will take place.
While the deficit in Greece and Portugal are worrying, Ireland leads with a whopping 32.4% of GDP financing gap in 2010, with the balance of the burden of bank restructuring. This means that Ireland’s position is somewhat different, as better growth prospects is likely that the country can leave the current crisis in the foreseeable future.
In Spain, the tax situation is less threatening in the short term than in the above countries. However, the economy remains in the doldrums, with unemployment reaching a maximum of 14 years from 21.3% in the first quarter. Burdened by excessive unemployment, the prospects for reducing the budget deficit dim without drastic adjustment measures. The upcoming local elections in May this year and national elections scheduled for March Board next year with the hope of a decisive spending cuts in the near future.
Along with homemade fiscal disaster, the faces of the euro area a number of adverse conditions that threaten to derail the moderate recovery:
The effects chain interruption of supplies after the earthquake of 11 March in Japan appears to be stronger than expected. In Japan March industrial production posted the biggest decline since records began in 1953. So far, other countries only isolated cases reported to the reduced production in the middle of supplies missing. However, this is where the delay is for the movement associated change over and the stocks are exhausted.
The current political unrest in North Africa and the Middle East in general and the escalation of violence in Libya, in particular oil prices pushed to its highest level in 30 months. Together with the drive inflation – and interest rate increases caused by the monetary authorities harder – rising oil prices and slow gnaw at consumer confidence and thus threaten consumer spending.
The dollar has weakened against the euro last month, with the exchange rate close to 1.50 EUR / USD threshold. U.S. policy continues to promise that a strong dollar in U.S. interests. However the quantitative easing and record low interest rates despite rising inflation expectations that the Fed remains focused on unemployment and economic activity for the moment. The weaker dollar is undermining the competitiveness of all members of the euro zone, despite the weaker economies that do not fall behind in boosting domestic demand and rely increasingly on exports can be influenced especially difficult.
Despite these new wind kept focus economics expert consensus forecast its 2011 forecast GDP growth in the euro zone by 1.8%. In 2012, the economy will grow at the same pace.
Meanwhile, continued price pressure will increase to what the Euro area inflation to 2.8% in April, well above (ECB), European Central Bank target close to but below 2.0%. To stem rising inflation expectations and second-round effects, the ECB increased interest rates at its meeting on 7 April, after holding stable prices at a record low of 22 consecutive months. Saddened by the weak growth outlook in the Member States through the debt, the ECB is likely to increase soon. That is, most analysts expect one or two interest rate hikes before year-end, challenging Trichet’s promise that the rise in interest rates in April, not the beginning of a tightening cycle.
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