Germany’s economy, Europe’s largest, probably shrank in the final quarter of 2012 as the sovereign debt crisis and weaker global growth damped exports and company investment.
Gross domestic product may have dropped as much as 0.5 percent from the third quarter, the Federal Statistics Office in Wiesbaden said today in a preliminary estimate. It said growth slowed to 0.7 percent in 2012 from 3 percent in 2011. Economists had forecast 0.8 percent expansion for last year, according to the median of 28 estimates in a Bloomberg News survey. Germany posted a budget surplus of 0.1 percent of GDP, the first since 2007 and up from a deficit of 0.8 percent in 2011.
While today’s fourth-quarter estimate leaves Germany on the brink of recession, the Bundesbank predicts the economy will stabilize and avoid two consecutive periods of contraction even as the debt crisis curbs growth across the euro region. Latest data suggest confidence is improving, and European Central Bank President Mario Draghi last week expressed optimism that the 17- nation euro economy will return to health later this year.
“There shouldn’t be a technical recession,” said Christian Ott, an economist at Natixis Securities in Frankfurt. “We expect some level of economic growth in the first quarter as domestic demand compensates somewhat for weak foreign trade. At the same time, the recovery in global trade will be very slow. If it falls away completely, then we won’t manage to avoid recession.”
German Factory Orders Fall; Economy Struggles to Recover
German factory orders (GRIORTMM) fell more than economists predicted in April as Europe’s largest economy struggled to gain strength.
Orders, adjusted for seasonal swings and inflation, decreased 2.3 percent from March, when they increased a revised 2.3 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent drop, according to the median of 39 estimates in a Bloomberg News survey. In the year, workday-adjusted orders fell 0.4 percent.
The European Central Bank is expected by economists to lower its economic outlook when it meets in Frankfurt today, a month after cutting interest rates to help the euro region out of its longest-ever recession. At the same time, German business confidence rose in May for the first time since February, and consumers’ optimism is set to climb to the highest since 2007 in June, as higher wages boost spending power.
“A decline was to be expected after significant increases in the previous months,” said Gerd Hassel, an economist at BHF-Bank AG in Frankfurt. “Therefore, it’s not a sign of an economic slump but rather of the usual volatility. German growth should pick up in the second quarter.”
The German economy grew only 0.1 percent in the first three months of the year, less than economists anticipated. The Bundesbank will release new forecasts tomorrow. In December, the Frankfurt-based central bank predicted growth of 0.4 percent this year and 1.9 percent for 2014.
Euro-Area Economic Confidence Falls More Than Forecast
Economic confidence in the euro area decreased more than economists forecast in April as the 17- nation currency bloc struggled to emerge from a recession and the bailout of Cyprus renewed debt-crisis concerns.
An index of executive and consumer sentiment dropped to 88.6 from a revised 90.1 in March, the European Commission in Brussels said today. That’s the lowest since December. Economists had forecast a decline to 89.3, according to the median of 26 estimates in a Bloomberg News survey.
Business confidence and investor sentiment in Germany, Europe’s largest economy, dropped more than expected in April. European Central Bank President Mario Draghi said on April 19 that the economic situation in the bloc hadn’t improved since the beginning of the month. At the same time, Draghi expects the economy to recover from a recession later this year and economists forecast growth in the second quarter, a separate Bloomberg survey shows.
Today’s survey “supports other evidence that the euro zone is experiencing its longest recession on record,” said Jennifer McKeown, senior European economist at Capital Economics in London. It’s “more bad news that might encourage the ECB to announce more policy support at its meeting this week.”
Spain Jobless Rate Breaches 27% on Recession Woes
Spanish unemployment rose more than economists forecast in the first quarter to the highest in at least 37 years as efforts to tackle the European Union’s biggest budget deficit crimped economic growth.
The number of jobless increased to more than 6 million for the first time, climbing to 27.2 percent of the workforce, compared with 26.02 percent in the previous three months, the National Statistics Institute in Madrid said today. That was more than the 26.5 percent median forecast of eight economists surveyed by Bloomberg News.
Prime Minister Mariano Rajoy will tomorrow unveil measures aimed at halting a six-year economic slump. Spain’s recession dragged into a seventh quarter in the first three months of 2013, leaving the country with more than a fifth of all jobless people in the EU.
“The pace of the increase is surprising given we were supposed to be in a softer phase of the recession,” Ricardo Santos, a euro region economist at BNP Paribas SA in London, said in a telephone interview. “We could now end the year at 28 percent unemployment and we may see a downward revision of first-quarter growth.”
ECB Rate Cut Seen Next Week by Banks From Nomura to RBS
The European Central Bank will cut its key interest rate to a record low next week as the euro- region economy slumps, according to banks including Nomura International Plc, UBS AG (UBSN) and Royal Bank of Scotland Group Plc.
Economists forecast a reduction for May after gauges of manufacturing and services activity for April underscored weakness in output. Germany’s Ifo index of business confidence fell more than economists predicted, the institute said today.
ECB officials have also indicated they may consider a rate cut at their May 2 meeting. President Mario Draghi said on April 19 he hasn’t seen any improvement in economic reports, after hinting he might lower borrowing costs if the recovery falters. Executive Board member Joerg Asmussen has said that rates could fall if data show a need for it, and his colleague Vitor Constancio said today that the ECB is “ready to act.”
“The disappointment from the latest data increases further the downside risks to the ECB’s baseline scenario and increasingly challenges the pace of the gradual recovery expected,” said Nick Matthews, an economist at Nomura in London. “We see the mention by Mr. Draghi that the ECB ‘stands ready to act’ as a clear statement that the ECB is prepared to cut next month.”
European stocks rose for a fourth day as speculation mounted that the ECB will reduce its interest rate. The Stoxx Europe 600 Index gained 0.7 percent to 294.63 at the close of trading.
Euro Drops as Draghi Open to Negative Rates
The euro fell for the first time in five days against the dollar after European Central Bank President Mario Draghi said policy makers may take the unprecedented step of charging banks to hold excess reserves.
The single currency dropped against all except one of its 16 most-traded peers as the ECB cut its main refinancing rate and Draghi said policy makers had an open mind on a negative deposit rate. The dollar rose the most in almost two weeks versus the yen after number of Americans filing claims for jobless benefits unexpectedly dropped to a five-year low. Sweden’s krona slid as manufacturing in the nation shrank.
A deposit rate below zero “would be a potential game- changer for the ECB,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview from Washington. “It would compel banks to flood the financial system over there with euros, which would inherently put downward pressure on the single currency.”
The euro dropped 0.9 percent to $1.3064 at 3:48 p.m. in New York after strengthening 1.3 percent during the previous four days. The 17-nation currency declined 0.3 percent to 127.99 yen. The dollar gained 0.6 percent to 97.96 yen. It climbed as much as 1 percent, the biggest intraday jump since April 19, after falling 0.3 percent earlier to 97.09 yen.
Euro-dollar options trading was 22 percent above the average for the past five Thursdays at a similar time in the day, and dollar-yen options trading was 71 percent below, according to Bloomberg analysis.
The ECB, meeting in Bratislava, Slovakia, cut its benchmark rate by a quarter-percentage point to 0.5 percent. It reduced its marginal lending rate, which banks use for overnight credit, to 1 percent, from 1.5 percent, and kept its deposit rate, which banks pay to park cash in the central bank, at zero.
Asked at a press conference if further action could include taking the deposit rate
Greece’s Unemployment Rate Increased to Record High in January
Greece’s unemployment rate increased to a record in January as the country’s economic downturn entered a sixth year.
The seasonally adjusted rate rose to 27.2 percent from a revised 25.7 percent in December, the Athens-based Hellenic Statistical Authority said in an e-mailed statement today. That’s the highest level since the agency began publishing monthly data in 2004.
Greece is in another year of a recession amplified by austerity measures linked to bailouts from the European Union and the International Monetary Fund. Gross domestic product shrank 6.4 percent in 2012 and the European Commission forecasts it will contract 4.4 percent this year. A Finance Ministry official on April 8 forecast a 4.5 percent drop in GDP in 2013.
“We’ll continue to have a deteriorating trend in the labor market, although the pace of deterioration is lower compared to the first half of the previous year,” said Nicholas Magginas, an economist at National Bank of Greece SA in Athens. “We’re not expecting more solid signs of improvement until the second quarter of this year, when tourism activity is expected to provide more support to the labor market.”
Finance Minister Yannis Stournaras said in February that pre-bookings for the tourism season in the Greece were “very good,” and a Finance Ministry official said this week that tourism is expected to offset the impact of Cyprus’s banking crisis.
The jobless rate for Greeks aged 15 to 24 was 59.3 percent, while the total female unemployment rate was 31.4 percent. The region with the highest unemployment rate was Epirus-western Macedonia, with 29.2 percent joblessness.
The statistics agency started releasing the unemployment rate on a seasonally adjusted basis from January’s 2012 data. The figures are subject to revision.
Euro-Area Unemployment Rises to Record 12% Amid Slump
The euro-area jobless rate rose to a record 12 percent in early 2013, adding to signs that the currency bloc’s recession extended into the first quarter
Unemployment in the 17-nation euro area was 12 percent in February and the January figure was revised up to the same level from 11.9 percent estimated earlier, the European Union’s statistics office in Luxembourg said today. That is the highest since the data series started in 1995 and matches the median estimate of 31 economists in a Bloomberg News survey.
The euro-zone economy has contracted for five straight quarters and that trend is forecast to continue in the first three months of this year, a separate Bloomberg survey shows. The European Central Bank, which holds a rate-setting meeting this week, forecasts the economy will shrink 0.5 percent in 2013. The ECB has held its key rate at 0.75 percent since July.
“An end to the euro zone’s labor-market downturn is not yet in sight,” Martin van Vliet, economist at ING Bank NV, said in a research note. “We cannot fully rule out a surprise rate cut or new unconventional support on Thursday.”
The euro was down 0.1 percent from yesterday and traded at $1.2836 at 10:37 a.m. in London.
Today’s report showed that 19.1 million people were unemployed in the euro area in February, up 33,000 from the previous month.
The European Commission predicts unemployment rates of 12.2 percent this year and 12.1 percent in 2014. ECB President Mario Draghi said on March 7 that “it is of particular importance at this juncture to address the current high long-term and youth unemployment.”
Bank of Cyprus’s Customers May Lose as Much as 60% on Deposits
Cyprus may imposes losses of as much as 60 percent on Bank of Cyprus Plc accounts exceeding 100,000 euros ($128,000) as part of an aid deal to stop the country from going bankrupt.
Customers will have 37.5 percent of their deposits above this amount converted into shares with full voting rights and access to any future Bank of Cyprus dividend, the Nicosia-based central bank said in an e-mailed statement. A further 22.5 percent will be temporarily withheld to ensure the lender meets the terms of its recapitalization, as agreed under Cyprus’s loan agreement with international creditors, the central bank said.
President Nicos Anastasiades agreed March 25 to impose losses on Bank of Cyprus’s larger depositors in exchange for a 10 billion-euro bailout after failing to get financial aid from Russia, one of the nation’s biggest investors. The agreement also shuttered Cyprus Popular Bank Pcl (CPB), the country’s second- largest lender.
The deposit-loss plan “will make things worse as small and medium-sized companies will run out of liquidity,” Marios Mavrides, a lawmaker for the ruling Disy party, said in a phone interview from Nicosia. The move “does not help to gain back people’s trust, deposits should be free in order to gain that trust,” he said.
Cyprus Capital Controls First in EU Could Last Years
Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency.
Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation. Being part of the euro zone may make it harder for the Mediterranean island to enforce restrictions, as any money that leaves the banking system can be taken out of Cyprus without losing value.
That also may make it more difficult to meet the goal set yesterday by Finance Minister Michael Sarris to lift any controls in “a matter of weeks.” When economies in Asia and Latin America tried to stem the outflow of money in the 1980s and 1990s, they ended up keeping the measures in effect for six months to two years. Iceland, another island nation with an outsize banking system, still has capital controls five years after its banks collapsed in 2008.
“Thanks to political mismanagement, we now have a first: capital controls in the euro zone,” said Nicolas Veron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics in Washington. “How long is temporary? It could turn out like Iceland, extending to many years.”
Saving Cyprus Means Nobody Safe as Europe Breaks More Taboos
The island nation’s rescue sets precedents for the euro zone that may stick in the memory of depositors and bondholders alike as investors debate who will next fall victim to the debt crisis. Under the terms of the agreement struck yesterday in Brussels, senior Cypriot bank bond holders will take losses and uninsured depositors will be largely wiped out.
The message that stakeholders of all stripes can be coerced into helping a cash-strapped nation may make investors more skittish they’ll be targeted if Slovenia, Italy, Spain or even Greece again is next in line to need help. The risk is that bank runs and bond market selloffs become more likely the moment a country applies for a new rescue, said economists and academics from Nicosia to New York.
“We now have a new type of rule and everyone within the euro zone has to sit down and see what that implies for their own finances,” Nobel laureate Christopher Pissarides, an adviser to the Cypriot government, told “The Pulse” on Bloomberg Television.
The Stoxx Europe 600 Index (SXXP) erased an earlier gain of as much as 1 percent after Jeroen Dijsselbloem, who chaired last night’s meeting of euro region finance ministers, indicated the model used for recapitalizing Cypriot banks could be replicated elsewhere. The euro slipped 0.8 percent to $1.2890.
Until now, euro region officials had left bank depositors and senior bondholders untouched as they tried to rescue the bloc’s struggling economies in a series of all-night summits over the past three years.
The Irish banking system collapsed partly because its government refused to renege on a guarantee to deposit holders made after Lehman Brothers Holdings Inc. collapsed. In Spain, senior bank bondholders have been safeguarded, unlike investors in the subordinated debt and preferred shares of Bankia Group (BKIA). And in Greece, a restructuring of government debt was set up in a way that avoided default.
Cypriots Mourn Collapse of Livelihoods as Bailout Crushes Banks
With Cyprus, that tradition has been broken. The original pact, announced March 16, shocked Cypriots by imposing a levy on all deposit holders before opposition led to it being watered down in the final deal to protect holdings of less than 100,000 euros. It also marks the first time that senior bondholders in a euro-region bank have taken losses. In the case of Cyprus Popular Bank (CPB), also known as Laiki Bank, those bond holders will get wiped out.
such as Malta, Luxemb
Euro-Area Manufacturing, Services Declined in March
Euro-area services and manufacturing output contracted more than economists estimated in March, adding to signs the currency bloc’s economy is struggling to emerge from a recession.
A composite index based on a survey of purchasing managers in both industries fell to 46.5 from 47.9 in February, London- based Markit Economics said today. Economists had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey. A reading below 50 indicates contraction.
The data “indicate that the euro-zone economy has remained stuck in recession in the first quarter,” said Martin Van Vliet, senior euro-area economist at ING Groep NV in Amsterdam. “With fiscal austerity, tight credit and high unemployment set to keep most peripheral economies in recession, the path back to growth will likely be slow and bumpy. Moreover, if the situation surrounding Cyprus spirals out of control the onset of recovery might well be delayed.”
The euro-area economy has contracted for five straight quarters and is forecast to shrink 0.1 percent in the first three months of 2013 before returning to growth, the median of 24 economists’ estimates in a separate Bloomberg survey shows. The European Central Bank forecasts the economy will contract 0.5 percent this year.
ECB President Mario Draghi said earlier this month that the euro region will gradually recover later in 2013 from its second recession in four years. Still, concerns of a possible bank collapse in Cyprus and political turmoil in Italy are roiling financial markets, and threaten to derail confidence.
European stocks fell the most in three weeks and the euro weakened as German manufacturing, one of the components of the euro-region survey, unexpectedly shrank. The Stoxx Europe 600 Index lost 0.5 percent at 11:23 a.m. in London. The euro declined 0.2 percent to $1.2913.
The euro-area services index dropped to 46.5 in March from 47.9 in Februar