eurozone Archives - Pat Carroll PCCO - Chartered Accountants & Tax Advisors

Euro zone retail sales in record rebound in May as lockdowns eased

Consumers in the euro zone returned en masse to shops in May as lockdowns were eased, estimates from the EU statistics agency showed today, signalling a sharp recovery of sales after record drops in March and April. 

Sales in the 19 countries sharing the euro zone rose by 17.8% in May from April, Eurostat said, in the steepest increase since euro zone records for retail sales began in 1999. 

The rise was higher than market expectations of a 15% rise on the month. 

But compared to a year earlier, sales were still down 5.1% in May, showing the recovery is far from complete. 

But the year-on-year drop was less steep than the 7.5% fall forecast by economists polled by Reuters. 

The month-on-month rise in May partly offset the record falls posted in the previous two months, with the volume of retail trade dropping by a record 12.1% in April and by 10.6% in March, Eurostat’s revised data showed today. 

The agency had previously estimated a 11.7% month-on-month fall in April.

Sales of clothes and footwear, the sector most hit by reduced trade during the pandemic, posted a 147% increase in May from April, although they were still down 50.5% year-on-year. 

Shoppers also increased by 38.4% their purchases of fuel for cars. Trade of electrical goods and furniture shot up by 37.9%. Books and computer equipment posted a 26.8% rise in sales. 

Online sales kept growing by 7% in May. They were the only retail sub-sector in the euro zone that did not suffer any drop in trade during lockdowns. 

Among the largest euro zone countries, retail sales went up by 13.9% in Germany and by 25.6% in France. May data for Italy were not available.

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Euro zone set for deeper recession, weaker rebound

The euro zone economy will drop deeper into recession this year and rebound less strongly in 2021 than previously thought, the European Commission forecast today, with France, Italy and Spain struggling the most due to the Covid-19 pandemic.  

The EU executive said the 19 nation single currency area would contract by a record 8.7% this year before rising by 6.1% in 2021.

In early May, the Commission had forecast a downturn this year of 7.7% and a rebound in 2021 of 6.3%. 

The Commission said it had to revise its previous forecasts because the lifting of Covid-19 lockdown measures in euro zone countries was proceeding less swiftly than it had initially predicted. 

The EU executive significantly cut its earlier forecasts for France, Italy and Spain, three of the countries hardest hit by the pandemic, and now expects now downturns in excess of 10% this year in each nation. 

Conversely, for the euro zone’s largest economy, Germany, where widespread testing has helped limit fatalities, the 2020 downturn would be 6.3%, less pronounced than May forecast of 6.5%. 

The rebound in Germany in 2021 is however expected to be less pronounced than previously estimated. 

The new figures indicate an economic recovery gathering momentum in June, although it is based on a number of “critical” assumptions. 

The forecasts assume no second wave of infections triggering renewed restrictions, although social distancing measures would persist, while monetary and fiscal policy measures are expected to support the recovery. 

The main risks include a potential wave of new infections, more permanent scars from the crisis, including unemployment and corporate insolvencies, and the absence of a EU-UK future relationship deal. 

“At the global level, the still rising rate of infections, particularly in the US and emerging markets, has deteriorated the global outlook and is expected to act as a drag on the European economy,” the report said. 

The Commission said its inflation forecasts were little changed, at 0.3% this year and 1.1% in 2021.

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Euro zone factory downturn eased in June as lockdowns loosened

The downturn in euro zone manufacturing was not as bad as initially thought last month after more economies in the bloc eased restrictions imposed to quell the spread of the coronavirus. 

Over 10 million people have been infected by the virus globally and more than 500,000 have died.

This lead governments to impose lockdowns and force businesses to temporarily close and citizens to stay at home. 

But with transmission rates falling in much of Europe, and economies opening up, IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) moved closer to the 50-mark separating growth from contraction in June. 

It registered 47.4 last month, up from May’s 39.4 and comfortably ahead of an earlier flash reading of 46.9. An index measuring output jumped to 48.9 from 35.6. 

“The final PMI numbers for June add further to signs that the euro zone factories are seeing a strong initial recovery as the economy lifts from Covid-19 lockdowns,” said Chris Williamson, chief business economist at IHS Markit. 

“Expectations for the year ahead have also rebounded sharply as hopes grow that the economy will continue to find its feet again in the coming months,”  he added. 

The future output index, which gauges optimism about the coming 12 months, bounced back into positive territory at 57.3 from May’s 44.6. 

However, all other indexes remained stubbornly below the breakeven level, suggesting any recovery might be slow and long. 

A June Reuters poll predicted the bloc’s economy contracted 12.5% last quarter but would expand 7.9% and 3.1% this quarter and next, respectively.

To combat the historic downturn the European Central Bank has expanded its pandemic-related bond purchases to a total of €1.35 trillion and 31 of 41 economists in the Reuters poll said the ECB was not yet done with new policy announcements.

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Euro zone bank lending continues to surge amid crisis – ECB

Lending to euro zone companies continued to surge in May as firms relied heavily on bank credit to stay afloat amid the continent’s coronavirus-related lockdown, data from the European Central Bank showed today. 

With millions of people in stuck at home and much of the bloc’s economy mothballed, activity came to a standstill in March and only started to remerge in May, forcing firms to find emergency cash to survive. 

Lending growth to non-financial corporations accelerated to 7.3% in May from 6.6% a month earlier, its best rate since early 2009. 

Household lending growth meanwhile held steady at 3%. 

Although banks initially appeared to tighten access to credit, a raft of government and central bank measures, from public guarantees to easier collateral rules, has supported lending. 

Indeed, the ECB loaned €1.3 trillion to banks last week for at a rate as low as -1% provided banks at least maintain their stock of lending to the real economy. 

The annual growth rate of the M3 measure of money supply accelerated to 8.9% from 8.2%, beating expectations for 8.6% in a Reuters poll.

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Euro zone economy won’t hit pre-crisis level until 2021 at earliest – Lane

The coronavirus-hit euro zone economy probably will not return to its pre-pandemic levels until next year at the earliest, the European Central Bank’s chief economist said today.

But Philip Lane said that the ECB was prepared to tweak its tools if needed.  

“From today’s perspective, it looks in any case unlikely that economic activity will return to its pre-crisis level before 2021, if not later,” Philip Lane said in an interview published on the ECB’s website. 

Professor Lane said the ECB was constantly monitoring the situation and was ready to adjust all of its instruments if that proved necessary. 

He added that the ECB’s Pandemic Emergency Purchase Programme, also known as PEPP, could be adjusted. 

He said the ECB was analysing the situation ahead of the upcoming June meeting.

“If we see that financial conditions are too tight, or the pressure on individual bond markets is not reflecting economic fundamentals, we can adjust the size or duration of our purchases, which we can anyway allocate flexibly over time and market segments,” he stated.

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€240 billion in low-cost credit for eurozone member states approved

Eurozone ministers have formally approved €240 billion in credit lines to help European countries meet the crippling costs of fighting the coronavirus outbreak.

The plan will be run by the eurozone’s rescue fund, the European Stability Mechanism, and is a first big step for the EU’s joint effort to lift an economy projected to contract by 7.7 percent this year.

The ESM handled the rescue of countries such as Ireland from national bankruptcy during the financial crisis.

Its aid programmes are usually linked to tough conditions for budget belt-tightening, overseen by outside monitors.

But, under the agreement announced in a joint statement, the EU executive will waive the usual tight supervision as long as the spending remains linked to fighting the pandemic.

The agreement now has to be approved by some member states’ parliaments, including the Bundestag in Germany.

Under the deal, every country in the 19-member single currency union can take advantage of low-interest loans of up to two percent of its economic output. 

In the case of Italy and Spain, which were particularly hard hit by the coronavirus pandemic, this would be €36bn and €25bn respectively.

Minister for Finance, Public Expenditure and Reform Paschal Donohoe said last month that he hoped Ireland would not need to use the fund from the European Stability Mechanism but may need “limited access” to an EU rescue package to help fund the wage subsidy scheme and help support companies.

Ministers have been struggling to agree on the more long-term rescue fund that would relaunch the economy and spread public spending more fairly throughout the continent.

The issue has caused bitterness between the EU’s richer north and the more indebted south, with northerners led by the Netherlands accusing partners such as Italy or Spain of chronic overspending.

Eurogroup chief Mario Centeno insisted on Friday that an ambitious plan was crucial to ensure that economic recovery was felt equally across the continent.

“Not all countries have the same firepower, and we need to secure a level playing field,” said Centeno, who is also Portuguese finance minister.

France has submitted its own proposal for the fund that would involve joint borrowing by EU nations, but this will be firmly rejected by the so-called “frugal” northerners, including powerful Germany.

Dutch Finance Minister Wopke Hoekstra insisted that the EU should take its time in coming up with a plan, and that finding out what was actually needed was the priority.

How the plan will be funded was  “secondary”, he told reporters after the talks. “The most important thing here is to have a thorough discussion on on what is needed, and how to structure it.”

The European Commission – the EU’s Brussels-based executive – was originally slated to come up with a plan linked to the bloc’s budget on 6 May, but this has been delayed for a few weeks at least.

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Euro zone business activity collapses in March as coronavirus spreads – PMI

Euro zone business activity collapsed last month as attempts to contain the coronavirus pandemic pushed governments to shut down vast swathes of their economies, from shops to factories to restaurants, a survey showed today. 

The pandemic has infected more than a million people worldwide, paralysing economies as consumers worried about their health and job security stay indoors and rein in spending. 

IHS Markit’s final Composite Purchasing Managers’ Index plummeted to a record low of 29.7 in March from February’s 51.6.

This was lower than the flash reading of 31.4 and marking by far its biggest one-month drop since the survey began in July 1998. The 50 mark separates growth from contraction. 

“The data indicate that the euro zone economy is already contracting at an annualised rate approaching 10%, with worse inevitably to come in the near future,” said Chris Williamson, chief business economist at IHS Markit. 

That was borne out by the survey as demand fell at the fastest rate on record. The new business index sank to 27.7 from 51.2, much weaker than the flash reading of 29.5. 

Like their manufacturing counterparts, activity in the bloc’s dominant service industry also almost ground to a halt. 

Its PMI dropped to a survey-low of 26.4 from February’s 52.6, below the preliminary estimate of 28.4. 

“The service sector is currently seeing an especially severe impact from the COVID-19 outbreak, with travel, tourism, restaurants and other leisure activities all hit hard by virus containment measures,” Williamson said. 

With the lockdowns likely to last for some time, optimism has all but dried up. 

The services business expectations index almost halved to a survey low of 33.5 from 61.3, more than eight points below its previous record low set in November 2008, just as the euro zone debt crisis was taking shape.

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Euro zone faces 2% recession, 10% if lockdown lasts – S&P Global

The coronavirus pandemic will push the euro zone and Britain into recession this year, with their economies expected to shrink by as much as 2%, the international ratings agency S&P Global warned today. 

“The euro zone and UK are facing recessions. We now expect GDP (gross domestic product) to fall around 2% this year due to economic fallout from the coronavirus pandemic,” it wrote in a report.

The spread of Covid-19 has forced three billion people around the world into lockdown and economists say the restrictions could cause the most violent recession in recent history. 

Central banks and governments have rolled out a wave of unprecedentedly large fiscal and monetary policy packages to shore up their economies.  

To prevent a credit crunch, central banks have injected liquidity and cut rates to lower banks’ refinancing costs and have implemented large asset purchase programmes. 

S&P said a 2% recession would amount to a loss in real GDP of about €420 billion in 2020, compared with its previous forecast from November 2019.  

“We expect a gradual rebound of at least 3% in 2021,” the agency said. 

S&P said that “swift and bold policy responses taken now are key to avoiding permanent losses to GDP later.”

“Risks are still to the downside, as the pandemic might last longer and be more widespread than we currently envisage. For example, we estimate a lockdown of four months could lower euro zone GDP by up to 10% this year,” it said.  

Looking at individual countries, S&P is pencilling in economic contraction of 2.6% for Italy, the hardest-hit country by the pandemic, and Spain’s economy is expected to shrink by 2.1%. 

The agency is forecasting a 1.9% contraction in GDP for both Germany and Britain and 1.7% for France. 

Another ratings agency, Moody’s, yesterday forecast that the world’s 20 most industrialised countries would likely suffer a recession this year because of the Covid-19 pandemic.  

It estimated that the G20’s overall GDP would contract by 0.5%, with the US economy shrinking by 2% and the euro zone by 2.2%. 

China, however, despite suffering an outbreak of the novel coronavirus before everyone else, could see economic activity expand by 3.3%, a level that is nonetheless well below average for the world’s second biggest economy.

G20 leaders are to hold an online summit today after criticism the group has been slow to address the crisis. 

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Euro zone business lending still weak amid slowdown

Lending to euro zone companies held at a two-year low last month despite lending to households hitting yet another post-crisis high, European Central Bank data showed today. 

Today’s new figures highlighted a growing divergence in the bloc’s economy. 

Struggling under the weight of a global trade war and a manufacturing recession euro zone exporters have suffered.

But euro zone services and consumer spending have remained resilient, buffering the economy during its two-year slowdown. 

Hoping to stop the spread of economic gloom, the ECB has thrown further stimulus at the bloc’s economy, all in the hope of keeping borrowing conditions low so lenders would keep credit flowing to firms. 

Still, lending growth to businesses has slowed for much of last year and held steady at 3.2% last month, as a slowdown in Germany offset better lending growth in Italy, France and Spain. 

In Germany, the bloc’s biggest country, unadjusted corporate lending eased to 5.6% from 6.5%.

But in Italy, one of the weakest performers in the euro zone, corporate lending contracted by 4.5%, an improvement compared with the -5.3% a month earlier. 

Households fared better, as lending picked up to 3.7% from 3.6% in December, the highest rate since December 2008 and continuing a near steady acceleration that started five years ago. 

In measures targeted specifically at lending, the ECB regularly provides banks with ultra-cheap, long-term funds and exempted much of their extra cash from its punitive charge on excess reserves. 

The annual growth rate of the M3 measure of money supply, which often serves as an indicator of future activity, picked up to 5.2% from 4.9%, underperforming expectations for 5.3% in a Reuters poll.

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Euro zone GDP slows as expected in fourth quarter

Euro zone economic growth slowed as expected in the last three months of 2019 as gross domestic product shrank in France and Italy compared to the previous quarter.

But employment growth picked up more than expected, official estimates showed today. 

The European Union’s statistics office Eurostat said GDP in the euro zone expanded 0.1% quarter-on-quarter in the three months from October to December, as announced on January 31.

This gave a 0.9% year-on-year gain – a downward revision from the previously estimated 1% growth. 

The quarterly growth rate slowed compared to the 0.3% expansion in the third quarter because of a 0.1% contraction in the second biggest economy France and a 0.3% contraction in the third biggest Italy. 

Growth in Germany, the biggest euro zone economy, stagnated. 

Eurostat also said that euro zone employment rose 0.3% quarter-on-quarter in the last three months of 2019 for a 1% year-on-year gain. 

Economists polled by Reuters had expected a 0.1% quarterly rise and a 0.8% annual increase. 

Separately, Eurostat said the euro zone’s trade surplus with the rest of the world was €23.1 billion in December, up from €16.3 billion a year earlier.

This brought the total for the whole of 2019 to €225.7 billion, up from €194.6 billion in 2018.

Adjusted for seasonal factors, the trade surplus was €22.2 billion in December, up from €19.1 billion in November as exports rose 0.9% on the month and imports fell 0.7%.

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