France

Disappointment as Germany, France and Italy only post modest growth, while Portugal stagnates and Finland continues to slow. Eurozone GDP misses expectations. France returns to growth, but analysts aren’t impressed. Germany hit by global problems…

Powered by Guardian.co.ukThis article titled “Eurozone GDP: Growth slows to just 0.3% – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 13th November 2015 13.42 UTC

Closing summary: Weak eurozone growth puts pressure on ECB

Rather like April Fool’s Day, eurozone GDP day is best enjoyed before lunchtime. So here’s a summary:

Europe’s economic recovery has faltered, with growth in the single currency region slowing to just 0.3% in the third quarter of the year.

Weak international trade helped to drag back Germany and Italy, and limited France’s recovery too.

Only consumer spending came to Europe’s aid, with household expenditure providing much of the growth impetus.

The subdued performance raises the pressure on the European Central Bank to boost its stimulus programmes at its December meeting.

Nick Kounis, head of macro and financial markets research at ABN AMRO bank, called it the “final push” for the ECB to be decisive.

The day began with France returning to growth, with GDP up by 0.3%.

Finance minister Michel Sapin told AFP that France’s economy will grow “by at least 1.1 percent” for 2015 as a whole, adding he believed the country had “exited the period of extremely weak growth that had lasted too long”.

But analysts were less impressed, pointing out that France’s ran a large trade deficit during the quarter. Only stockpiling by companies prevented the economy shrinking.

Germany’s economy also grew by 0.3%, down from 0.4%. The economy ministry blamed weak trade; economists warned that emerging market slowdown is hurting.

Smaller nations didn’t fare well either, with Italy slowing to +0.2%, the Netherlands barely growing, and Portugal actually stagnating.

But Finland was the real shocker — living up to its reputation as the ‘sick man of Europe’ with a 0.6% contraction.

Finland GDP

Only Greece beat expectations – shrinking by a mere 0.5%, not the 1% expected. That tells you something about the accuracy of City forecasts, and the turmoil in the Greek economy this year. When a 0.5% contraction is ‘good news’, you know you’re been through the mire.

But it may mean that Greece’s economy ‘only’ stagnates during 2015.

That’s probably all for today. I’m off to fold up the Eurozone GDP Day banners, and finish up the party punch.

Thanks for reading and commenting; see you next week. GW

A double helping of halušky to Slovakia, which was the fastest-growing member of the eurozone in the last quarter.

But it’s cold potatoes for Finland, which posted the worst performance – even worse than a Greek economy gripped by capital controls:

Eurozone GDP chart

Eurozone GDP chart

Updated

Here’s our news story on today’s GDP figures (to save new readers scrolling back to 6.15am onwards):

The eurozone’s economy lost steam in the latest quarter as Portugal stalled, Germany slowed and debt-stricken Greece contracted.

Gross domestic product (GDP) across the 19 countries in the single currency bloc rose just 0.3% in the third quarter, according to Eurostat. That defied expectations for growth to hold at 0.4%, according to a Reuters poll of economists. On a year earlier, GDP was up 1.6%, lower than forecasts for 1.7%.

The July to September figures mark a slowdown from eurozone GDP growth of 0.4% in the second quarter and 0.5% in the first quarter and come as the European Central Bank (ECB) hints that it is planning to inject further funds into the eurozone economy to maintain recovery…..

Updated

Eurozone markets hit by GDP disappointment

European stock markets have been hit by the news that growth slowed across the eurozone in the last quarter.

The main indices are all in the red, adding to yesterday’s selloff:

European stock markets, November 13 2015

Conner Campbell of SpreadEX says the mood darkened as this morning’s data emerged.

Joining a decent French figure and sliding Germany growth were misses by Italy and the Netherlands. Even worse were the performances from Portugal and Finland; the former, so often pointed to as one of the region’s post-crisis success stories, saw no growth at all in the third quarter, whilst the latter, increasingly becoming one of the Eurozone’s most rotten appendages, actually saw its GDP contract by 0.6%.

Given region’s general malaise, the Eurozone as a whole was arguably lucky only to see a 0.1% decline quarter-on-quarter, with its Q3 figure coming in at a forecast-missing 0.3%. Understandably investors weren’t too pleased with these results, meaning even the spectre of more ECB QE (the likelihood of which only increased with this morning’s figures) couldn’t drag the DAX and CAC out of the red.

This chart shows how Italy, Portugal and the Netherlands all missed expectations this morning, dragging the eurozone growth rate down (via Bloomberg)

Eurozone GDP

Updated

At just 0.3%, the eurozone economy isn’t growing fast enough to pull unemployment down and drive demand, as Bloomberg economist Maxime Sbaihi explains:

The weakness of the eurozone recovery adds “to the already strong case for the ECB to step up monetary stimulus in December,” says Nick Kounis, head of macro research at ABN Amro Bank.

Kounis added that while Europe’s domestic economy is doing well, it is suffering from weak world trade and deteriorating export markets.

Cyprus has posted another quarter of growth, as its recovery from its 2013 bailout trauma continues.

Cypriot GDP rose by 0.5% in July-to-September, matching the growth in April-June.

That means Cyprus’s economy is now 2.2% larger than a year ago.

The eurozone’s recovery has “ disappointingly lost momentum for a second successive quarter”, says Howard Archer of IHS Global Insight.

The third-quarter slowdown in Eurozone GDP growth appears to have been largely the consequence of negative net trade (this was certainly true of Germany, France and Italy).

This suggests that the benefit to Eurozone exporters coming from the weak euro was offset by muted global growth. Meanwhile, relatively decent Eurozone domestic demand supported imports.

This chart shows how Greece’s economy went into reverse in the last quarter:

Greek GDP

Greek economy shrinks

Oxi Day celebrations, Athens, Greece - 28 Oct 2015<br />Mandatory Credit: Photo by Kostas Pikoulas/Pacific Pres/REX Shutterstock (5320493d) A Greek flag waves during the parade Oxi Day celebrations, Athens, Greece - 28 Oct 2015 Students parade celebrating the ‘’Oxi Day’’ during the 75th anniversary of Greece’s entering WWII, after denying the Italian ultimatum to enter Greek soil in 28th October 1940.

Today’s figures also show that Greece’s faltering recovery has been wiped out in the last three months.

Greek GDP contracted by 0.5% in the July-September quarter, Eurostat says, having risen by 0.4% in April-June.

That’s not a surprise, given the bailout drama this summer which saw banks shuttered and capital controls imposed.

And it’s actually less awful than feared — economists had forecast a 1% contraction:

Updated

Eurozone growth slows to 0.3%

Breaking: The eurozone economy grew by just 0.3% in the third quarter of the year.

That’s a slowdown on the 0.4% recorded three months earlier, showing that Europe’s recovery remains fragile and lacklustre despite the huge stimulus measures launched by the European Central Bank this year.

It’s also weaker than expected — economists had expected 0.4% growth.

Updated

Brussels officials have pointed to Portugal as an example that tough fiscal consolidation can deliver results. Today’s disappointing (no) growth figures may prompt a rethink….

Portugal’s economy stagnates

The national Portuguese flag is hoisted next to the Euro 2004 flag<br />epa000207050 The national Portuguese flag is hoisted next to the Euro 2004 flag as the England soccer squad arrives in Lisbon on Monday, 07 June 2004, for the Euro 2004 European soccer Championships. England will play their opening first round match against France on Sunday. EPA/JOAO RELVAS

More gloom. Portugal’s recovery ran out of steam in the last quarter, just as its political crisis escalates.

GDP was flat in the July-September quarter, after growing by 0.5% in the second quarter.

That’s much weaker than the 0.4% economists had expected, and looks like the weakest quarter in 18 months.

The Portuguese Stats Office says:

Comparing with the second quarter, GDP registered a null change rate in real terms in the third quarter (0.5% in the second quarter).

The contribution of domestic demand was negative, mainly due to the reduction of Investment, while net external demand contributed positively, with Imports of Goods and Services decreasing more intensely than Exports of Goods and Services.

On an annual basis, Portuguese GDP grew by 1.4%, down from 1.6% three month ago.

Portuguese GDP

This comes as Portugal’s left-wing parties vow to overturn its austerity programmes and implement more growth-friendly measures, having overturned its centre-right government this week.

Updated

We now have to wait until 10am GMT for the official eurozone-wide GDP reading for July-September.

But it’s already clear that this wasn’t a great quarter for Europe, with a weak trade performance dragging back the three largest eurozone economies.

Economist Fred Ducrozet reckons eurozone growth will fall short of the 0.4% expected, to 0.3%.

While City firm Abshire-Smith reckons the European Central Bank is under even more pressure to ease monetary policy:

Updated

Italy growth slows

Here comes Italy’s GDP report….and it’s weaker than hoped.

The Italian economy grew by just 0.2% in the third quarter of 2015, dashing expectations of a 0.3% expansion.

It suggests Italy’s recovery is running out of steam.

GDP rose by 0.4% in the first quarter of 2015, dipping to 0.3% in the second quarter – and now just 0.2% in Q3.

Finland’s economy has now been locked in a painful downturn for the last three years, as this chart from Statistics Finland shows:

Finnish GDP

That’s via fastFT, which warns:

Finland is used to cold, dark winters, and the experience could stand it in good stead as the Nordic country’s bitter economic cold snap shows no sign of a thaw.

Netherlands grows by just 0.1%

The Dutch flag flies outside the ING head office in Amsterdam, Netherlands, Monday Oct. 20, 2008.

Next up, the Netherlands…. and its economy struggled to grow in the last quarter.

GDP rose by just 0.1% in the July-September quarter, a very modest performance.

And second-quarter GDP has been revised down, to just +0.1% from +0.2% originally.

That left the economy 1.9% larger than a year ago, weaker than forecast.

Updated

‘Sick man’ Finland’s economy shrinks by 0.6%

Scandinavian Flags<br />ca. 1990s, Helsinki, Finland --- Scandinavian Flags --- Image by Joel W. Rogers/CORBIS

Finland has cemented its growing reputation as one of Europe’s most ailing members.

Finnish GDP contracted by 0.6% in the last quarter, according to new data this morning. That left Finland’s economy 0.8% smaller than a year ago.

The fall in natural resource prices, the demise of Nokia, and the knock-on impact of Russia’s economic problems are all hurting.

Having been one of the cheeleaders for eurozone austerity, Finland now finds itself in a very tough position. It is trying to cut spending to keep its deficit within the limits set by Brussels, which is hurting attempts to return to growth.

Two months ago, finance minister Alex Stubb admitted “we are the sick man of Europe.” Today’s figures don’t challenge that diagnosis.

Slovakia has outpaced its larger neighbours to the west, with growth of 0.9% in the last three months. That’s up from 0.8% in the second quarter.

The Czech Republic has beaten expectations, with growth of 0.5% in the last quarter.

City analysts have been chewing through France’s GDP figures, and they’re not too impressed.

RBC is concerned that inventory-building by companies provided much of the growth:

While Barclays says France’s economy is still vulnerable.

More data. Hungary has missed forecasts by posting annual growth of 2.3% in the last quarter, down from 2.7% three months earlier.

On a quarter-on-quarter basis, Hungary (which isn’t in the eurozone) grew by 0.5%.

Germany’s economy would be in a worse state if consumers weren’t benefiting from cheaper energy costs, points out Holger Sandte of Nordea Markets.

This morning’s figures show that Britain has outpaced its two largest European rivals in the last quarter.

UK GDP grew by 0.5% between July and September, data released last month showed.

That’s obviously better than France and Germany, and also beats America (which grew by around 0.4% in Q3).

Germany’s Statistics Office says that domestic spending was a key driver of growth, while overseas demand for German exports lagged behind:

“Private and public consumption both increased.”

“According to preliminary estimates, growth was held back by foreign trade because imports rose far more strongly than exports.”

Germany’s economy has been dented by problems overseas, says Carsten Brzeski of ING.

Here’s his quick take on today’s growth figures:

The summer weakness of the German industry seems to be more substantial than only a vacation-driven soft spell. The turmoil in emerging markets and the Chinese slowdown have finally left some marks on the German economy.

More generally, the German industry has not managed to accelerate and shift up one gear. Somehow, the weak euro and extremely favourable financing conditions have not fully deployed their full impact on the industry, yet. This is partly the result of weakening external demand but also still the structural lack of investment incentives and projects.

Consumer spending, though, is still strong. More here.

Updated

This German GDP report “isn’t overwhelming”, says Bloomberg’s Hans Nichols, but at least the its economy is still growing.

The slight slowdown in the last quarter suggests Germany has been hit by problems in emerging markets such as China.

And as these charts show, 2015 hasn’t been a vintage year for the German economy

German GDP

german Photograph: Bloomberg
german GDP

The German GDP report is online here.

Germany posts 0.3% growth

German chancellor Merkel visits China<br />30 Oct 2015, Hefei, Anhui Province, China --- German Chancellor Angela Merkel looks on under a German and a Chinese national flag as she visits the German Academy at the University of Hefei in Hefei, China, 30 October 2015. Merkel is on a two-day official visit to China. Photo: Soeren Stache/dpa --- Image by © Soeren Stache/dpa/Corbis

Here comes Germany’s GDP data…. and it shows that Europe’s largest economy grew by 0.3% in the last quarter.

That matches France’s performance, and is a slightly slowdown on the 0.4% recorded in April-June.

Germany’s stats office says that consumer and government spending both rose.

Trade had a negative impact on growth, though, with imports growing faster than exports….

Updated

French finance minister Michel Sapin has welcomed today’s GDP data.

He told AFP newswires that France has escaped a long period of very low growth.

Some reaction to the French GDP report:

French GDP: The details

France’s return to growth was driven by household spending (up 0.3%) and business investment (up 0.7%).

But the trade picture is quite ugly. Exports fell by 0.6%, while imports grew by 1.7%.

So net trade actually knocked 0.7% off GDP, but this was compensated by firms bolstering their inventories.

Without that, the figures look worse.

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The French GDP report is online here.

Updated

Bloomberg TV flags up that the French economy has generally been sluggish over the few quarters, apart from a healthy bounce at the start of this year:

French quarterly GDP

French GDP over the last five quarters Photograph: Bloomberg

France’s economy is now 1.2% larger than a year ago, slightly better than the 1.1% annual growth economists expected.

French economy growing again – GDP up 0.3%

Close-up of French flag<br />A63GGC Close-up of French flag

France has got eurozone GDP day up and running by returning to growth.

French GDP increased by 0.3% in the last quarter, the INSEE stats office reports.

That follows zero growth in the April-June quarter, which fuelled fears that the French economy was stalling.

Updated

Introduction: Eurozone growth figures released

Hang out the bunting and put on the party hats, folks. It’s eurozone GDP day!

We’re about to discover how countries across Europe performed in the third quarter of 2015, from heavyweights like Germany and France to smaller members like Slovakia and Portugal.

Actually, you shouldn’t blow up too many balloons, because we’re probably going to learn that Europe’s recovery remains jammed in second gear.

Economists predict that the eurozone expanded by just 0.4% in the July-to-September quarter. That would match the performance in the second quarter of the year. Better than a recession, but not rapid enough to deal with Europe’s persistent unemployment and debt problems.

EU, eurozone and US growth compared

EU, eurozone and US growth compared Photograph: Eurostat

A poor number today would suggest that Europe has been hit harder than we thought by problems in emerging markets over the summer. It may also show the impact of the Greek bailout crisis on the region.

But anything stronger than 0.4% would be welcome.

The data will also influence whether the European Central Bank feels forced into taking fresh action to stimulate the eurozone economy – a boost to its bond-buying QE programme is already looking likely.

Here’s how the morning should unfold:

  • France: 6.30am GMT / 7.30am CET
  • Germany: 7am GMT / 8am CET
  • Hungary: 8am GMT / 9am CET
  • Romania: 8am GMT / 9am CET
  • Czech Republic: 8am GMT / 9am CET
  • The Netherlands: 8.30am GMT / 9.30am CET
  • Italy: 9am GMT / 10am CET
  • Portugal: 9,30am GMT / 10.30am CET
  • Greece: 10am GMT / 11am CET
  • The eurozone: 10am GMT / 11am CET

Updated

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USA 

Eurozone recovery takes a knock as economy grows just 0.2% in last quarter, with many countries disappointing. France flat, Germany strong, Dutch, Italian, and Portuguese reports miss analyst estimates. Inflation stays at 0.7% y/y in April…

 


Powered by Guardian.co.ukThis article titled “Eurozone growth misses forecasts, as France stagnates and Italy contracts – live” was written by Graeme Wearden, for theguardian.com on Thursday 15th May 2014 13.25 UTC

Back to the big story of the morning, Europe’s weak growth figures.

Economics editor Larry Elliott writes that Mario Draghi should consider copying the UK’s Funding for Lending Scheme, to drive lending in the euro area.

It’s really not happening in the eurozone. An already feeble recovery lost momentum in the first three months of 2014 and the signs are no better for the current quarter. The 18-nation single currency area is nowhere near achieving escape velocity, the rate of expansion that would start to make inroads into mass unemployment and prevent the drift towards deflation. Action from the European Central Bank next month is inevitable.

The nugatory growth in early 2014 was all the more disappointing because of an unusually mild winter. That had led economists to expect activity to pick up by 0.4%; instead it was just half that figure, a weaker performance than in the final three months of 2013. Had it not been for the robust growth posted by Germany, things would look even more dismal.

Some of the weather-related boost to output will be paid back in the second quarter. In addition, there have been signs recently that the tension in Ukraine is eating into business and consumer confidence. China’s slowdown will have an impact on Germany’s export-dependent economy. For those reasons, it is hard to see growth accelerating in the second quarter…..

More here: Eurozone recovery: time to call the ECB – but what’s the number?

Maybe the US economy isn’t healing as well as we thought. Industrial output across the country fell by 0.6% in April, defying expectations it would be unchanged.

Over to Greece, where the countdown to European and local elections (the first round of the latter taking place this weekend) has sent passions skyrocketing.

Protestors, including fired school guards who have been demonstrating outside the country’s administrative reform ministry since early this morning, see the double poll as the ideal chance to vent their spleen.

Our correspondent Helena Smith reports:

The mood outside the administrative reform ministry is as explosive as each of the protestors now gathered outside it. With dismissed school guards vowing to remain on the streets “for as long as it takes” authorities have dispatched vanloads of riot police to the area.

Scuffles have intermittently broken out as the guards, who were laid off as part of plans to streamline Greece’s bloated public sector, have tried to enter the building.

Harris Bastas who heads the group now representing the 2,000 offloaded school guards told me: “right now we want to meet the minister [Kyriakos Mitsotakis] and if it takes one, two, three days we will stay here. In fact as long as it takes. Our basic demand is to be reinstated. We want the jobs that we lost in one night,” he yelled, screaming himself hoarse. “We want what every state should guarantee its citizens: the right to live with dignity.”

Mitsotakis, who is under immense pressure to trim the civil service from Greece’s “troika” of creditors at the EU, ECB and IMF, has shown no inclination to meet the guards. Down the road irate finance ministry cleaners, who also lost their jobs at the end of March after being put into a special labour reserve, are similarly demonstrating. Now the emblem of austerity’s corrosive effects, the women have become increasingly organised, establishing a stall outside the national economy ministry from where they distribute leaflets describing their plight.

Our full story on the IMF’s warning to France is now live:

France must not renege on spending cuts programme, warns IMF

Just in – the number of Americans signing on for unemployment benefit has dropped to its lowest level in seven years.

Just 297,000 new jobless claims were filed last week, the lowest level since May 2007 (the dawn of the credit crunch)

And the US inflation rate has also picked up by its fastest rate since last July. The consumer prices index rose by 2.0% on an annual basis in April, with prices up by 0.3% month-on-month.

Two signs that the US economy is picking up pace, after stalling over the winter.

Here’s some instant reaction to Kristin Forbes’s appointment to the Bank of England’s monetary policy committee:

Dr Kristin Forbes, the US academic just named as the newest member of the Bank of England’s monetary policy committee, is an expert in “financial contagion”.

Bloomberg wrote last year that:

When Kristin Forbes sought tenure at the Massachusetts Institute of Technologyearly last decade, some colleagues said her research focus on financial contagion led to a dead end. Her reaction: Full speed ahead.

Forbes worked to safeguard global financial stability with then-U.S. Treasury Undersecretary John Taylor, became the youngest member ever on the White House Council of Economic Advisers and eventually won tenure at MIT. In August she presented the opening paper at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming.

“Kristin is one of the leaders in the empirical analysis of contagion,” said Roberto Rigobon, who, like Forbes, is a professor of economics at MIT’s Sloan School of Management in Cambridge, Massachusetts, and has co-written research with her on the topic. “Her papers are a tour de force for anyone interested in measuring” its “importance, existence and extent.”

Here’s the full profile: Contagion Thesis Once Derided Proven by Kristin Forbes

Dr Kristin Forbes to join the Bank of England’s MPC

Just in: the next member of the Bank of England’s monetary policy committee has been named.

Dr Kristin Forbes, currently Professor of Management and Global Economics at MIT’s Sloan School of Management, will join the rate-setting committee in July.

Chancellor George Osborne says Forbes is “an economist of outstanding ability with real practical experience of policy making.

She will make an exceptionally strong addition to the MPC. It’s a sign of the high regard in which the Bank of England and our monetary framework are held around the world that someone of Kristin’s ability wishes to be part of them”.

According to Forbes’ web page at MIT, she was the youngest ever person to serve on the White House’s Council of Economic Advisers. She’s also worked for the U.S. Treasury Department, and was a Davos “young Global Leader”.

In addition:

She is a research associate at the NBER and a member of the Bellagio Group, Trilateral Commission, and Council on Foreign Relations. She is on the Panel of Economic Advisers for the Congressional Budget Office and the Academic Advisory Board for the Peterson Institute for International Economics and the Center for Global Development. She has won numerous teaching awards and teaches one of the most popular classes at MIT’s Sloan School. Before joining MIT, Forbes worked at the World Bank and Morgan Stanley.

Correction, the chairman of Lloyds is Lord Blackwell, not Sir Win Bischoff (Blackwell’s predecessor) as I wrote earlier.

As if France wasn’t under enough pressure, the International Monetary Fund has dealt Francois Hollande another blow by questioning whether his new fiscal plan is achievable.

In a new review of the French economy, the IMF questioned whether France will manage to cut public spending fast enough to bring its deficit down to 3% by 2015, given Hollande’s pledge to also cut payroll taxes (paid by on companies).

The IMF warned that France cannot afford to waver on its spending cuts:

“Achieving the deficit objectives while delivering on the tax cut commitments leaves no room to deviate from the announced expenditure reductions,” the IMF said in a regular review on the French economy.

“The major risks are that the initial plans may be diluted in sequential annual budgets and that cuts in transfers to local governments may be compensated by unsustainable cuts in investment, higher taxes or higher debt,”

Good news – the security scare at the Bank of England is over.

The chairman of Lloyds Banking Group, Lord Blackwell, Sir Win Bischoff, has told shareholders at the bank’s AGM in Edinburgh today that the Scottish referendum on independence means “uncertainties for everyone”.

But Blackwell also said Lloyds didn’t hold a ‘corporate view’ – it’s a matter for Scotland.

Via Reuters:

  • 15-May-2014 12:22 – LLOYDS BANK CHAIR SAYS ‘UNCERTAINTIES FOR EVERYONE’ AHEAD OF SCOTS INDEPENDENCE VOTE
  • 15-May-2014 12:17 – LLOYDS BANK CHAIRMAN SAYS NOT PLANNING ANY MOVES AHEAD OF SCOTTISH INDEPENDENCE VOTE
  • 15-May-2014 12:18 – LLOYDS BANK CHAIR SAYS WILL WORK WITH RELEVANT AUTHORITIES IN EVENT SCOTS VOTE FOR INDEPENDENCE
  • 15-May-2014 12:21 – LLOYDS BANK CHAIR SAYS INDEPENDENCE MATTER FOR SCOTS, BANK HOLDS NO CORPORATE VIEW

Updated

Meanwhile in the City, the Bank of England has announced that it has moved staff to “safe areas”, as police investigate a car which has been abandoned outside the central bank headquarters.

Work continues as usual (despite the Bank tube station area being cordoned off), and there’ s no reaction in the financial markets.

Here’s the BoE statement:

Bank of England response to suspect vehicle

Following reports of a suspect vehicle near the Bank of England, the Bank has moved staff to safe areas of the building. All essential operations continue from those areas.

The Evening Standard has more details.

Today’s growth (and non-growth) readings are a “sobering reminder” that the eurozone isn’t out of the woods yet, says Aengus Collins, Europe Analyst at The Economist Intelligence Unit.

He writes:

Over the past year or so, most forecasters have been toning down the language that they use in relation to the euro zone’s economic woes, with Mario Draghi’s monetary activism (by ECB standards, at any rate) seen as a game-changer. In some respects that is correct. The euro zone is no longer gripped by a crisis of existential proportions.

But this morning’s data highlight the fact that the absence of crisis isn’t the same as the presence of recovery.

And while Germany is recovering strongly, this isn’t feeding through to its neighbours, Collins added:

France stagnated in the first quarter and Italy contracted. These two major economies are struggling to sustain even a tentative recovery. Italy is now likely to expand only slightly for the full year (and it would take very little for it to contract) while the first quarter in France will shave a few tenths off growth for the year that was already relatively weak at 0.8%.

Also of concern is the sharp contraction of 0.7% recorded in Portugal, just as that country prepares to exit its EU/IMF bailout.

 

Analysts at BNP Paribas agree that the ECB must act in June, especially as Mario Draghi said last week that the governing council is not happy about the path of inflation.

Weak eurozone growth: what the analysts say

The European Central Bank cannot leave monetary policy unchanged at next month’s meeting, argues James Ashley, chief European economist at RBC Capital Markets:

“The debate over ‘whether’ to act is surely over and it is now just a question of ‘how’ to act.”

Yesterday, it emerged that the ECB is preparing a package of possible measures – from cutting interest rates to stimulating small business lending.

Tom Rogers, senior economic adviser at EY, said today’s data should be “a wake-up call” for any eurozone policy makers who are complacent that Europe is safely on the road to recovery:

Rogers argues that Italy and France are paying the price for not reforming their economies (via AP):

“Stagnating output in Italy and France, two of the four largest economies, is in large part a result of deteriorating cost-competitiveness, while Germany and Spain continue to reap rewards from reform implemented either well before the crisis, or more recently.”

Howard Archer of IHS Global Insight is hopeful that the eurozone will pick up momentum through this year (recent surveys have been quite positive), arguing:

Reduced fiscal squeezes, very accommodative monetary policy (which now seems likely to augmented in June) and sharply reduced sovereign debt tensions are supportive to Eurozone growth, while global growth is seen picking up gradually.

In addition, consumers’ purchasing power is being helped by muted consumer price inflation (just 0.7% across the Eurozone in April) while Eurozone labour markets have largely stabilized and in some cases are even improving modestly.

(the -1.4% contraction at the bottom of the chart is the Netherlands, if you can’t see it clearly)

Updated

On a brighter note, Europe did grow faster than the US for the first time in three years.

Bad weather left the American economy struggling to expand over the winter — its GDP rose by just 0.05% on a quarterly basis.

You can see all the Eurostat data here (pdf)

Ahha! This chart, from the brighter sparks at MacroPolis shows how Greece’s economy may have clawed its way back to stagnation.

The wider European Union grew by +0.3% during the first quarter, beating the eurozone’s +0.2% growth.

Strong growth in the UK (+0.8%), Hungary and Poland (both 1.1% q-on-q) helped the EU outpace the euro area.

That means the EU economy is 1.4% larger than in the first quarter of 2013, according to Eurostat, while the eurozone is +0.9% larger.

Greece’s economy has contracted by around a fifth since the crisis began, and is currently 1.1% smaller than a year ago. Here’s a chart from Trading Economics showing the details:

Cyprus continued to suffer from its austerity programme, and the trauma of last year’s bailout crisis which left its banking sector on the mat.

The Cypriot economy shrank by 0.7% during the last quarter, and is now 4.1% smaller than a year ago.

Is there a glimmer of hope in Greece’s GDP data, just released?

Greece’s economy has shrunk by 1.1% over the last year, which is the smallest annual contraction since the debt crisis began in 2010. That’s also less severe than the 1.5% slump which economists expected.

I”m afraid we don’t get quarter-on-quarter data for Greece — ie, how it fared since the October-December period. So we don’t have a quarterly growth data.

Updated

Not only is Europe struggling to grow, its inflation rate is worrying low.

Eurostat reports that prices rose by just 0.7% across the euro area in April, which confirmed its flash estimate. That’s well shy of the European Central Bank’s target of just below 2% .

Eurozone grows by just 0.2% in last quarter, weaker than forecast

BAD NEWS: The Eurozone grew by just 0.2% in the first three months of this year, dragged down by stagnation in France, and contraction in Italy, Portugal and the Netherlands (see earlier summary).

That’s much weaker than the 0.4% growth that analysts had expected, and raises fresh fears that the eurozone recovery is running out of steam.

Reaction to follow!

Eurozone GDP – a country-by-country catch-up

Time for a very brisk recap before we get the overall figure for Eurozone GDP at 10am sharp (and updated inflation data too):

And the big picture is that the eurozone recovery story has taken a battering this morning with only Germany outperforming in the first three months of 2014.

German GDP beat forecasts, growing by 0.8%, thanks to a mild winter and solid demand from home and abroad.

But France’s economy has stalled, with GDP unchanged in the quarter.

Italy is shrinking again, with GDP down 0.1% – ending its short escape from contraction

Portugal has suffered a contraction, down 0.7%.

The Netherlands economy suffered from the warm winter, with GDP shrinking by an alarming 1.4%.

Austria grew by just 0.3%

And Finland is in recession, after GDP fell by 0.4%

And here’s the latest reaction:

Portugal’s GDP drops by 0.7%, defying hopes of growth

And now we get bad news from Portugal – its GDP fell by 0.7% in the first three months of this year, dashing hopes that it would keep expanding.

It’s one disappointment after another…. apart from Germany

Updated

Finland’s recession adds to euro malaise

Finland has also added to the gloom in the eurozone, sliding into recession with a 0.4% drop in GDP in the first three months of this year.

That follows a 0.3% contraction in Q4, and economists are concerned that the once-healthy Finnish economy is on the slide.

As Nordea analyst Jan Von Gerich put it: “It doesn’t look too good”, adding:

“Zero growth from the full-year is starting to look like an achievement for the economy

“If the situation in Russia gets worse, it will become a year of contraction.”

Andrew Balls, deputy chief investment officer at Pimco (and brother of the UK shadow chancellor) is discussing the eurozone GDP data on Bloomberg TV now.

On today’s laggards, France and Italy, Balls says that “two countries* who have not done a lot of economic] reforms are broadly flat in terms of activity.”

But he is more optimistic about the eurozone as whole, which is returning to trend-like growth….”a big improvement on where have been in recent years”.

Spain, and many smaller countries are also doing quite well, Balls adds (Spanish GDP was released last week, and rose by 0.4%)

* – not countries as I initially mistyped – apologies all

Updated

We also have decent growth data from Poland – the economy grew by 3.3% over the last year (I can’t find quarter-on-quarter figures, sorry)

That’s good, but not quite as good as Hungary’s 3.5% annual growth (which I covered here)

This chart, from ISTAT, shows how the Italian economy is shrinking again (-0.1%) having grown by just 0.1% in October-December after shrinking for nine straight quarters.

Italian GDP shrinks by 0.1%

ITALY’S ECONOMY HAS CONTRACTED AGAIN.

Italian GDP fell by 0.1% in the first quarter of the year, dashing hopes of 0.2% growth.

That’s an alarming development. Italy had only just clawed its way out of recession three months ago.

Today’s data means it has contracted by 0.5% over the last year. For all the talk of European recovery, Italy is still in a mess.

The euro has fallen this morning, as the weak French growth figures put more pressure on the ECB to act. It’s dropped 0.3% to $1.3673

Another gloomy statistics in the Dutch GDP report — in the first quarter of 2014 there were 112 thousand employee jobs less than a year earlier.

But the Central Bureau of Statistics also struck a note of optimism, saying Netherlands’ industrial base continued to recover.

Netherlands GDP falls by 1.4%

Shocking figures from the Netherlands.

Its economy shrunk by 1.4% in the first three months of this year, much worse than the 0.0% which economists had expected. That means its economy has contracted by 0.5% since the first quarter of 2013.

So what on earth happened?

The Netherlands Statistics Office blames lower gas consumption, due to the very mild winter.

Apparently this meant natural gas consumption by households was almost a third lower than a year earlier. Consumers also spent less on food and beverage, partly because Easter in 2014 fell in April rather than March.

This chart (via Yannis Koutsomitis) shows how Germany has now posted its strongest period of growth since 2011, having grown by 0.8% in the last quarter.

(the blue line is Markit’s monthly PMI survey of business leaders)

German DAX hits record intraday high

Germany’s DAX stock index has just hit a new record high, as traders in Frankfurt react to the news that German growth beat forecasts in the last three months.

GERMANY’S DAX .GDAXI HITS ALL-TIME HIGH AT 9,810.29 POINTS – RTRS

The FTSE 100 index is up 12 points this morning at 6890 points –marching towards the alltime closing high of 6930 set in 1999.

France’s CAC index is lagging, down 0.1%.

The Czech Republic has matched France’s weak performance, with no growth at all in the last quarter.

That’s actually better than expected — economists had feared a 0.2% contraction, following strong growth in Q4 2013.

The Czech stats body says manufacturing has recovered from a low base in 2013 (hurt by an 18-month recession), thanks to growing demand from abroad and at home.

Romania’s economy appears to have slowed in January-March, with quarterly growth of just 0.1%.

But year on year, its economy has grown by 3.8%, ahead of forecasts (according to Reuters), thanks to strong exports.

Hungary has beaten expectations with some healthy-looking GDP data. Its economy grew by 1.1% in the last quarter, and is 3.5% larger than a year ago.

The Central Statistics Office said the Hungarian construction and industry firms drove growth.

Austria’s GDP rises by 0.3% in Q1, missing forecasts

Austria’s economy grew by just 0.3% in the first three months of 2014, weaker than the 0.5% expected.

And growth in the final quarter of 2013 has been revised up to +0.4%, from +0.3% initially.

Statistics body WIFO reported that domestic consumption was weak, although exports were stronger.

Exports rose by 1.5% in the quarter, WIFO said, while imports were up by 1.1%.

France’s stagnation means it will be much harder for Paris to achieve its goal of 1% growth through 2014….

Another missed target for Hollande, who didn’t manage to get unemployment falling by the end of 2013 either…

France stagnates, Germany powers ahead – what the readers say

Readers are already having their say in the comments below (thanks, as ever, all of you). Please keep them coming .

Here’s some early reaction:

Bad news for everyone, nobody should be gloating.

Countries usually return to growth eventually, that is just the cycle. Osborne is not really responsible for the UK’s strong growth any more than he was really responsible for the earlier flat period.

But is France locked into perma-slump because of the eurozone?

What can Hollande do? The structural changes to make France more Anglo-Saxon are politically impossible for his party, and would only make a marginal difference anyway.

France’s crash was smaller than the UK’s (it is less exposed to the financial sector) but its long term future looks a bit grim.

France’s current economic weakness is due not to socialism, but rather to vague and meandering non-leadership from Hollande (who seems more involved with his lovers than his country).

Not to mention that there were several presidents from the right beforehand who picked and chose what changes they wanted to make, and what they would leave for the next president to sort out.

It has happened in Germany, and it is happening again: conservative parties leaving reform of welfare systems, that are necessary because an underfinanced state won’t be able to sustain thewelfare state through demographic change, to their left-wing opponents who are supposed by their voters not to make cuts to redistribution. It is a perfect tactics for the right because they reap the harvest twice: the left shoot themselves in the foot for the next election while making the unavoidable corrections to the system for the conservatives.

Or maybe Germany’s strength is due to its corporate structure which requires union representation in every industry at every level from factory to country. So there is no asset stripping. Money goes into investment in training and research rather than into dividends

In 2008 the government upped taxes to subsidise keeping people in work. Unions agreed a 10% wage-cut but workers actually lost only 3% as taxpayer and employer made up the rest.

What you would probably call socialism.

Coming up…

There’s lots more GDP data to come, including

  • Austria and Slovakia in a few moments (8am BST)
  • The Netherlands at 8.30 a.m.
  • Italy at 9am
  • The eurozone as a whole: 10am

Antonio Garcia Pascual, chief eurozone economist at Barclays, says France’s economy was dragged back by “very weak” business investment and household consumption during the last quarter.

He’s particularly concerned about the 0.9% drop in investment — which suggests anxiety about Francois Hollande’s economic programme, including tens of billions of euros of cuts to public spending over the next few years.

Updated

Dixons and Carphone agreed £3.7bn merger

Breaking away to the UK briefly, Carphone Warehouse and Dixons have agreed to merge and create a new high street giant.

The new company, called “Dixons Carphone plc”, is designed to create “a leader in European consumer electricals, mobiles, connectivity and related services” (they say here)

It brings together Carphone’s mobile technology outlets and Dixons electrical shops (fastFT neatly dubs it the “tablets meet toasters” merger).

The deal is worth £3.7bn. Carphone chairman Charlie Dunstone reckons:

“This is a new chapter for both businesses and we are energised and proud to be part of what will be another fantastic journey for consumers and shareholders.”

There is SOME good news for France, alongside its disappointing growth data. INSEE has revised last year’s data, and concluded that the French economy was larger than it first thought in 2012.

This means last year’s debt-to-GDP ratio has been cut to 91.8%, from 93.5%, while the public deficit was revised down to 4.2% from 4.3%. That makes it a little easier for Paris to meet the deficit targets agreed with Brussels.

Credit Agricole’s Frederik Ducrozet is also struck by the comparison between Europe’s two largest economies.

The UK also grew by 0.8% in the January-March quarter, according to data released last month, matching Germany’s performance (let’s hope this doesn’t go to penalties)

Economist Shaun Richards flags up another worrying point in today’s data — French imports rose in the last quarter, while exports slowed down.

The German finance ministry says the country’s economy benefitted from a mild winter, and decent domestic demand.

German economy grows by 0.8% in Q1 2014

GERMANY beats forecasts – with growth of 0.8% in the first quarter of 2014. That’s a little stronger than expected (economists expected +0.7%).

SUCH a contrast with France’s stagnation….

As well as that 0.5% slump in French household spending, INSEE also reports that capital spending dropped by 0.9% in the last quarter.

This chart from INSEE shows how inventories rose, suggesting companies stockpiled goods as demand wavered.

The full statement is here on INSEE’s website.

Jonathan Ferro of Bloomberg sums France’s (non) growth figures up:

So why couldn’t the French economy grow in the last three months?

Dominique Barbet, an economist at BNP Paribas SA in Paris, tells Bloomberg that consumer spending (which fell 0.5%) dragged down the economy. He’s concerned that France’s growth prospects look rather modest.

“What’s worrying beyond the first quarter is that the level of growth is weak. There’s no acceleration. We don’t have the recovery that other countries are seeing.”

Disappointment as French growth stalls

Eurozone GDP day has begun with bad news — the French economy stagnated during the first three months of 2014 as consumer spending slumped.

INSEE reports that GDP was unchanged over the quarter, a new blow to Francois Hollande’s already pummelled government.

Economists had expected growth of 0.2% — which would have been bad enough.

INSEE reported that consumer spending fell 0.5% in the first quarter, showing French households are struggling. Investment by nonfinancial companies also fell 0.5%.

Reaction to follow….

Eurozone GDP released today

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.

And we’re heavily focused on the eurozone today, with the release of new growth data from across the region for the first three months of 2014.

It’ll show whether Europe’s economy continued to claw its way back from the recession which ended last summer. And there’s particular focus on France, given fears that the second largest country in the euro area is struggling.

I’ll be covering all the data for the next few hours, building up to the overall eurozone growth figure at 10am BST.

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Published via the Guardian News Feed plugin for WordPress.

Following Ireland’s exit from the bailout, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. Situation in the second-largest economy in the euro-area worsens with French firms suffering. France looks like the ‘sick man of Europe’…

 


Powered by Guardian.co.ukThis article titled “Draghi warns EU on banking supervision — business live” was written by Graeme Weardenand Nick Fletcher, for theguardian.com on Monday 16th December 2013 16.24 UTC

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow’s data from the Office for National Statistics – a measure often used for setting pay and pensions – is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow’s data could show CPI at the Bank of England’s government-set target of 2% for the first time since November 2009. They comment: “Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

“Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

“In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland’s exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Updated

Following the fifth and final review of Spain’s financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country’s banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks’ balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets – so as to reverse the rise in government debt – and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms – amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system – and to ensure effective implementation of all reforms.

Full report here.

Updated

The protests in Ukraine have put pressure on the country’s credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country’s credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here’s ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Markets jump as Fed fears ease and US deals enthuse investors

After days in the doldrums, markets are moving sharply higher. Investors have been selling shares in recent dayks amid concerns the US Federal Reserve could start turning off the money taps as early as this week’s meeting.

Strong US economic data – including industrial output today – has made that more likely, as has the signs of political agreement about the US budget. But on the whole, observers still think, in the main, the Fed will wait until next year.

So with a spate of acquisitions, including Avago Technologies paying $6.6bn for LSI Corporation, shares are back in favour for the moment. The Dow Jones Industrial Average is currently nearly 1% or 156 points higher, helping to pull the FTSE 100 to its highest levels of the day, up more than 1.3%.

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd’s of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd’s managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd’s of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB’s Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

…The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 – DRAGHI – UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 – DRAGHI – SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 – DRAGHI – ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 – DRAGHI – GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 – DRAGHI – GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 – DRAGHI – MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 – DRAGHI – WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 – DRAGHI – SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 – DRAGHI – SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 – DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Updated

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit’s monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up — it just reported a 1.1% jump in industrial output in November.

On that note, I’m handing over to my colleague Nick Fletcher.

Updated

Inga Beale’s appointment as boss of Lloyd’s of London will go a small way to closing the gender gap at the top of the City. But there’s still some way to go.

Currently there are just three women running FTSE 100 companies — Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd’s of London isn’t a listed company, so Beale won’t join the quartet.

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent — but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 — currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress…. except that women who do reach senior positions are in jobs that are traditionally lower paid.

Updated

How times change…. Inga Beale is appointed as Lloyd’s first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd’s decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd’s website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

Updated

Lloyd’s of London appoints first female CEO

Lloyd’s of London has appointed its first ever female chief executive.

Inga Beale will succeed Richard Ward in January. She currently runs Canopius Group, the Lloyd’s-based insurance and reinsurance group.

There had been many whispers in the City in recent days that Beale was in line for the top job at Lloyds, making her the first women to lead the insurance market in its 325-year history.

Beale has worked in insurance for three decades — beginning her career in insurance as an underwriter with Prudential. She’s also previously worked as Global Chief Underwriting Officer of Zurich Insurance, and as Group CEO of Converium Ltd.

John Nelson, Chairman of Lloyd’s, said:

I am absolutely delighted that we have appointed Inga as Chief Executive. She has 30 years’ experience in the insurance industry.

Her CEO experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make Inga the ideal Chief Executive for Lloyd’s. I very much look forward to working with her.

In the statement just published, Beale said Lloyd’s has “an extraordinary opportunity to increase its footprint and to cement its position as the global hub for specialist insurance and reinsurance”.

Back in June, she argued that more diverse boardrooms could deliver stronger results. Beale explained: 

I think the business is run differently if you have women around the decision making table and that’s why it’s good to have diversity, not just on the gender side.

Different people approach things differently and provide alternative views – diverse boards help companies make better decisions, which affect the bottom line.

It’s been a good few days for gender equality in the corporate world, with Mary Barra being appointed to lead General Motors last week.

Updated

The Eurozone’s trade surplus almost doubled year-on-year in October — but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone’s posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year’s €57.4bn.

The data also underlined today’s theme — the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Updated

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA’s recent problems — three profits warning, and the resignation of its CEO — could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

Updated

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results — and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That’s sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit’s view that today’s PMI data doesn’t make fresh stimulus from the European Central Bank more likely.

There’s also edginess ahead of the Federal Reserve’s meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O’Flanagan of Clear Currency reckons the Fed won’t taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

European market: morning update

It’s a positive start to the week in Europe’s stock markets.

The Spanish and Italian markets are the best performers, following the news that private firms in the periphery are enjoying their best month since April 2011, according to Markit

  • FTSE 100: up 32 points at 6,472, + 0.5%
  • German DAX: up 45 points at 9,052, +0.5%
  • French CAC: up 16 points at 4,076, + 0.4%
  • Spanish IBEX: up 141 points at 9,414, + 1.5%
  • Italian FTSE MIB: up 253 points at 18,089, +1.4%

Howard Archer of IHS sums up the good news in today’s data…..

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

… and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter.

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

France lags behind as eurozone recovery picks up

Activity across the Eurozone private sector has risen this month as the single currency area ends the year with ‘fragile’ growth, according to Markit’s new data published this morning.

It found that output in peripheral eurozone countries picked up in December.

With Germany already reporting solid growth this morning (see here), France looks increasingly like the ‘sick man of Europe’ as its firms struggle.

Markit’s Eurozone PMI Composite Output Index — which measures activity at thousands of firms across the eurozone — rose to 52.1 in December, up from 51.7 in November. That’s a ‘flash’ estimate, of course, but it suggests stronger growth in most parts of the euro area – not just Germany.

December is turning into a good month for eurozone manufacturers, with output rising for the sixth successive month. The rate of increase was the highest since April 2011 .

Service sector growth was more modest, though, with the rate of expansion hitting a four-month low (but there was still growth)

But as this graph shows, France was the laggard – with its service and manufacturing firms reporting a drop in activity (see 8.23am for details).

Chris Williamson, chief economist at Markit, said the data suggested the eurozone will grow modestly this quarter, by 0.2%. He fears that France could fall back into recession though, as the gap between the eurozone’s two biggest countries gets bigger .

Williamson explained:

The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track. The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.”

On the downside, the PMI is signalling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

The upturn is also uneven. Growth is concentrated in manufacturing, where rising exports have helped push growth of the sector to the fastest for two-and- a-half years, while weak domestic demand led to a further slowing in service sector growth.

However, it‟s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new “sick man of Europe‟, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.

There‟s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra- accommodative for quite some time.

And here’s some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high….

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace.

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Now over to Germany…..

Germany’s private sector is leaving France in the dust, Markit reports, led by its manufacturers.

Private sector output in the eurozone’s largest economy is growing steadily this month, for the eighth month in a row.

German factories saw output growth accelerate, pushing the manufacturing PMI up to a 30-month high of 54.2, up from 52.7 in November.

Service sector firms expanded at a slower pace than in November, but growth was still solid. The Service sector PMI was 54.0, down from 55.7.

This meant the composite German private sector PMI fell slightly to 55.2 in December, down slightly on November’s 55.4 — but still indicating healthy expansion.

That suggests Germany’s economy will grow this quarter.

Credit Agricole’s Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings…

And this graph shows how recent PMI data has been more negative than the official growth data:

Updated

French PMI: Instant reaction

Here’s how experts are reacting to the news of France’s weakening private sector:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France’s GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September — putting France back into recession (defined as two consecutive quarters of negative growth)

Williamson added:

The pipeline of work that companies have to deal with is drying up and we’ll get to a stage where, if that doesn’t turn around, there will be increased job losses.

French private sector keeps shrinking

France could be sliding into a double-dip recession, as its private sector activity continues to fall this month.

Data provider Markit reports that the rate of decline in French private sector output accelerated during December. It recorded the biggest contraction in output in seven months.

That suggesting that France’s economy is still shrinking, as manufacturers and service sector struggle to win new contracts.

The Markit Flash France Composite Output Index, slipped to 47.0, from 48.0 in November — that’s the second month in a row that it’s been below 50 points (which signals a drop in activity).

In a report shy of good news, Markit found that new orders are decreasing in the French private sector, meaning companies are relying on existing work to keep busy.

 Backlogs of work fell solidly and at the sharpest pace in eight months, it said. Staffing levels also continued to decline during December, as firms shed staff.

Andrew Harker, Senior Economist at Markit, said the readings “paint a worrying picture on the health of the French economy.

The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts.

Firms will hope that such reticence ends in the new year as they seek to avoid another protracted downturn.

Details to follow….

Chinese factory growth slows

Good morning, and welcome to our rolling coverage of events across the world economy, the financial markets, the eurozone, and the business world.

The last full working week of 2013 (in these parts, anyway) begins with the news that growth in China’s factory sector has slowed this month, for the third month in a row.

It’s that stage in the month when data provider Markit produces its ‘flash’ estimates of activity in key economies, based on interviews with purchasing managers (We get data from France and Germany this morning too).

And China’s PMI has fallen to 50.5 for December, from November’s 50.8, with firms reporting that output growth slowed. That’s closer to the 50-point mark that splits expansion from contraction.

It may suggest the global economy is ending the year on a weaker note. As well as slowing output growth, firms also reported a drop in employment. On a happier note, new orders have picked up.

The news sent China’s stock market sliding to a four-week low, with the Shanghai Composite Index shedding 1.6%.

That’s set the tone for an edgy start to the week, as global investors await the US Federal Reserve’s monthly meeting on Wednesday night (where the Fed might take the plunge and slow the pace of its stimulus programme).

Also on the agenda– the implications of Germany’s new government, after the CDU and the SPD formally formed a coalition over the weekend.

And I’ll be keeping an eye on Greece, where the government and the Troika are continuing to hold talks over its bailout programme…..

Updated

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Eurozone third-quarter growth slows. Analysts: the recovery is faltering. French GDP unexpectedly contracted by 0.1% in Q3. Germany growth slows – GDP up by 0.3%. Japan’s GDP expands less in Q3. UK retail sales unexpectedly drop by 0.7% m/m…

 


Powered by Guardian.co.ukThis article titled “Eurozone grows by just 0.1% as French economy shrinks – live” was written by Graeme Wearden, for theguardian.com on Thursday 14th November 2013 13.39 UTC

Here’s Dublin correspondent Henry McDonald on the news that Ireland won’t ask for a safety net when its bailout programme ends next month:

Ireland to exit EU-IMF bailout without precautionary line of credit

Updated

Some relief for French president Francois Hollande — France’s football clubs have suspended a strike planned for the end of this month to protest at his 75% super-tax on salaries above €1,000,000. AFP has more details.

Summary

On the eurozone GDP figures, my colleague Phillip Inman writes:

The eurozone’s economic woes persisted in the third quarter as Italy’s longest recession continued and a contraction in French output dragged growth down to 0.1%.

In the summer, hopes of a strong recovery were boosted by a second quarter rise in GDP of 0.3%, but the momentum in the first half of the year appears to have fizzled out.

Here’s the full story: Eurozone economic recovery falters in third quarter

Alessandro Leipold, chief economist at the Lisbon Council think tank, challenges the suggestion that Ireland is making a ‘clean’ break with its bailout by deciding not to take a credit line.

He reckon’s it’s a risky decision.

Enda Kenny’s decision not to ask for a credit line will have one intriguing consequence — Ireland won’t able to sign up for the European Central Bank’s OMT programme (in which the ECB would buy a country’s bonds to drive down its borrowing costs).

Ryan McGrath, a Dublin-based bond dealer with Cantor Fitzgerald, told Reuters:

Not taking a credit line is a statement of confidence by the government. It bolsters the sense that Ireland is detaching itself from the peripheral countries

“I don’t think the government is being rash. The big question is what are the implications for OMT access.

Back to the eurozone’s (scrappy) growth figures, and our economics editor Larry Elliott highlights the weak performance from the two biggest players in the single currency:

Europe’s fledgling recovery did not stall in the third quarter of 2013 but it was a close run thing.

Mainly due to a weaker performance by the Big Two – Germany and France – the growth rate in the euro area slipped back from 0.3% to 0.1%.

Few in the financial markets expect the 17-nation single currency zone to enter a triple-dip recession, but nor is anybody predicting anything other than a prolonged period of sub-par activity in which unemployment remains at one in eight of the workforce and deflationary pressures intensify.

And that, Larry concludes, means that the eurozone’s ‘lost decade’ will drag on.

Here’s his full analysis: Germany and France hold back eurozone’s fledgling recovery

fastFT have published more quotes from Irish prime minister Enda Kenny, outlining the decision to make a clean break from its financial assistance programme without the protection of a credit line:

We will exit the bailout in a strong position

The government has been preparing for return to normal market funding for three years….

There are still demanding times ahead. It does not mean any windfall of cash. It does not mean our economic challenges are over.

Ireland to exit bailout without precautionary credit line

Irish prime minister Enda Kenny has confirmed that his government will exit its bailout programme without the protection of a precautionary credit line.

It’s quite a moment. Kenny is addressed the Irish parliament now, declaring that:

This is the right decision for Ireland.

It means that Ireland will make a clean exit from its €85bn financial assistance programme, which ends on 15th December.

It has hit the targets set by its troika of lenders, and Kenny’s government must be confident that it can walk alone.

A precautionary credit line could have been sought from the European bailout mechanism. It would have given Dublin a guaranteed source of funding if it couldn’t borrow at affordable rates in the wholesale money market in future.

The full statement is online here.

Here’s the Irish government’s reasoning for going it alone: 

  • The market and sovereign conditions are favourable towards Ireland with the country returning to the markets in 2012, holding over €20 billion in cash reserves at year end which we can use to ensure that we can meet our maturing commitments and funding costs till early 2015 and Irish sovereign bond yields at historically low levels;
  • The public finances are under control in Ireland comfortably in line with EDP targets. Ireland is targeting a deficit of 4.8% in 2014 which is within the 5.1% EDP target and will deliver a primary balance or small surplus. The Government is committed to reducing the deficit to less than 3% in 2015 and putting the debt ratio on a downward path.
  • The two pack, the six pack and the stability treaty, the introduction of the ESM, and the major efforts by the ECB to do whatever it takes to safeguard the currency, further support our efforts to make a sustainable and durable return to the markets.
  • Domestic and international economic conditions are improving, monetary policy decisions are conducive to exit and confidence and sentiment towards Ireland has improved considerably in recent months.

Meanwhile in Ireland, the government has been meeting to discuss the process of exiting its bailout programme.

An announcement is expected very soon – with rumours flying that the cabinet will decide that it will not take a ‘precautionary credit line’ (which would have acted as a safety net in case Dublin struggled to borrow in the financial money markets).

Markit: eurozone economy still 3% below pre-crisis peak

Here’s another sobering fact — the Italian economy is more than 9% smaller than before the crisis began.

And Germany is the only one of the Big Four eurozone members to have clawed back all its lost growth (although France isn’t far away).

That’s via Chris Williamson of Markit, the data provider, who comments:

In terms of GDP levels, the Eurozone economy is still 3.0% smaller than its pre-crisis peak.

Of the largest member states, only Germany has exceeded its prior peak, with GDP up 2.6%. The French economy remains 0.3% smaller, while Spain and Italy are also 7.4% and 9.1% smaller respectively.

By comparison, the UK economy is still 2.5% smaller than its pre-crisis peak while the US is 5.3% larger. Japan has edged 0.1% up on its prior peak.

Euro GDP: more details

Romania posted the strongest growth across the European Union in the last quarter, with a 1.6% jump in GDP.

Cyprus suffered the biggest quarterly decline, shrinking by 0.8% (with the proviso that we only have annual data for Greece, where the economy is 3% smaller than a year ago).

The biggest reversal was suffered by the Czech Republic, contracting by 0.5% after growth of 0.6% in Q2.

Here’s the full table (sorry if it’s a bit small, the original is here):

Here’s a handy graph showing how the economic performance of major countries has diverged since the financial crisis struck in 2008.

Updated

Nancy Curtin, chief investment officer of Close Brothers Asset Management, takes an optimistic view.

The worst of the economic crisis is over, she argues, despite today’s disappointing growth figures:

Growth may have slowed but the Eurozone is finding its feet. It has taken a considerably longer time than the likes of the US but we are seeing signs of economic improvement. Let’s not forget the journey the 17 country bloc has made since the financial crisis, given that we haven’t seen the dreaded defaults in countries like Greece and Spain materialise.

However, there is still a long way to go. Unemployment continues to be a fly in the ointment and the recovery won’t pick up the pace overnight. More needs to be done to support the labour market from the bottom up. For months we have been calling for an extension to bank lending to SMEs across the Eurozone who are desperate for finance, and are the engine room of the Eurozone’s economy. As things stand, we expect the ECB to continue to boost liquidity through another LTRO.

Growth figures may be lower than expected but five years on from disaster we may have seen the worst of the economic turbulence and we are seeing signs of a global synchronised economic growth.

Eurozone growth slows: what the experts say

The slowdown in eurozone growth to a near-standstill must send a chill through Brussels this morning.

Analysts are warning that the recovery is even more fragile than we thought – with the weaknesses in France and Italy threatening to derail efforts to reform their economies.

Nicholas Spiro of Spiro Sovereign Strategy has an uncompromising view of the meagre 0.1% rise in GDP. The “much-trumpeted economic recovery” has already faltered.

Spiro writes:

The chronic phase of the crisis in Europe’s ill-managed single currency area is clear for all to see.

While the slowdown extends to Germany, it’s the dire state of the French and Italian economies that looms large. Outright contractions in GDP in Italy and, more worryingly, France throw the protracted nature of Europe’s downturn into sharp relief – particularly at a time when Spain’s economy is at least showing some signs of life.

The eurozone’s second and third-largest economies, which together account for nearly 40% of the bloc’s output, have become the “sick men” of Europe, mired in economic crises of varying degrees of severity and politically unable to carry out meaningful structural reforms.

What’s particularly troubling is that the economic fortunes of France and Italy haven’t improved since the end of the third quarter: the contraction in France’s manufacturing sector deepened in October while Italian retail sales dropped at their fastest pace in three months.

While Howard Archer of IHS Global Insight warns that the recovery will remain “gradual and vulnerable”:

It was particularly disappointing to see France suffer a renewed dip of 0.1% quarter-on-quarter in GDP which highlights concern about its underlying competitiveness. There was also a more than halving in the German growth rate to 0.3% quarter-on-quarter in the third quarter from 0.7% in the first, although the economy still looks to be in relatively decent shape.

Better news saw Spain eke out marginal growth of 0.1% while the Italian economy essentially stabilized following extended contraction, although concerns persist about the ability of both countries to develop and sustain genuine recove

Greece’s recession may be easing, but there’s no end to its unemployment crisis.

Greek GDP fell by 3% in the July-September quarter compared to a year ago, which is a softer decline than the 3.7% annual contraction reported in Q2.

Reuters says it’s the smallest annual drop in Greek GDP in three years. Quarter-on-quarter data isn’t available.

The jobless rate, though, was 27.3% in August, according to separate data, matching July’s rate (which was revised down from 27.6%).

After six years of recession and austerity, Greece’s unemployment rate remains twice the eurozone average (a record high of 12.2%).

Updated

Confirmation that Cyprus’s economy continues to suffer from the trauma of its bailout programme.

Cypriot GDP shrank by 0.8% in Q3, which means that that 5.7% of national output has been lost over the last year.

Not a surprise, as Cyprus’s once-dominant banking industry has been brought to its knees this year. Capital controls still restrict how much money people can withdraw at the bank, and large depositors with over €100,000 have seen their accounts frozen, and hefty haircuts imposed.

The euro has weakened this morning, dropping 0.3% against the US dollar to $1.3444.

Eurozone economic growth has been lagging behind America’s for most of the last two years, as this graph shows:

GDP in America (where the Federal Reserve is operating much looser monetary policy than the European Central Bank) rose by around 0.7% in the third quarter.

Eurozone GDP up just 0.1%

So, it’s official, the eurozone’s recovery from recession stumbled over the summer and early autumn with GDP rising by just 0.1% in the third quarter of the year.

That’s a slowdown compared to the growth of 0.3% achieved in the second quarter of the year, when the euroarea exited recession.

If you’ve been with us all morning, you’ll know that France’s economy was a drag on growth, contracting by 0.1%. Germany’s growth of 0.3% was in line with forecasts. But both countries reported weak exports.

The official release from Eurostat is here.

On a year-on-year basis, the eurozone economy remains 0.4% smaller than in the third quarter of 2012.

Updated

Eurostat also reports the GDP across the wider European Union rose by 0.2% in July to September.

Eurozone GDP up just 0 .1%

JUST IN: The eurozone grew by 0.1% in the third quarter of 2013.

Nearly time for the big number…. GDP for the eurozone as a whole. Economists expected a 0.2% rise in output across the region.

Portugal GDP up 0.2%

Portugal’s economy is still growing, but it’s also suffered a sharp slowdown.

Portuguese GDP rose by 0.2% in the last quarter, compared to the strong 1.1% expansion reported in Q2.

Still, there should be relief in Lisbon that it remains out of recession, as its austerity programme continues.

On a year-on-year basis, Portugal’s economy is 1.0% smaller than a year ago.

German GDP: What the analysts say

Back to the eurozone, and many analysts are pointing out that Germany’s 0.3% rise in GDP was due to domestic demand.

As flagged up 7.28am, Germany’s statistics body reported that the balance of exports and imports had a downward effect on GDP growth.

Interesting timing, given the EC yesterday announced an in-depth probe into whether Germany’s large, persistent trade surplus harms the rest of the eurozone.

 Marc Ostwald of Monument Securities writes:

The [eurozone] core and semi-core is seen slowing as per the as expected German 0.3% q/q (paced exclusively by domestic demand, for those idiots at the EU wasting money on investigating Germany’s Current Account surplus) and France’s very unsurprising, but lower than forecast -0.1% q/q GDP.

ING analyst Carsten Brzeski said Germany “remains the stronghold of the Eurozone,” adding:

there is little reason to doubt the stability of the German economy

Oliver Kolodseike of Markit reckon the German economy remains on course:

Although the pace of expansion eased from the second quarter, survey data for Q4 so far suggest the German economy is on track to meet the governments’ expectation of an annual 0.6% rise in 2013.

UK retail sales drop

Just in, a surprise fall in UK retail sales.

Retail sale volumes fell by 0.7% in October, surprising analysts who’d expected that sales would have been flat compared with September.

Stripping out fuel, sales were down by 0.6%, according to the Office for National Statistics.

Clothing sales dropped by 2.1% during the month – suggesting the decent autumn weather deterred people from buying winter coats and the like.

On the upside, sales were still 1.8% higher than a year ago.

Italian GDP falls 0.1%

Italy’s recession continues for a ninth quarter, but the end may be in sight.

Italian GDP fell by 0.1% in the three months to September, in line with expectations. That means the pace of contraction slowed, following a 0.3% drop in GDP between April and June.

It’s the smallest quarterly drop in Italian GDP since its recession began in the third quarter of 2011 as this table shows (more details here)

Italian GDP is down by 1.9% over the last year, INSEE reported. It also revised down its data for the second quarter, to show a 2.2% annual decline (from a first estimate of 2.1%).

Dutch GDP up 0.1%

The Netherlands has emerged from recession.

Dutch GDP grew by 0.1% in the third quarter of the year, according to Statistics Netherlands which also revised up its estimate for Q2 to show that GDP was flat, rather than contracting by 0.1% as first thought.

The Netherlands benefited from rising exports in the last quarter, which grew 2.1% year-on-year. Household consumption was down 2.3%.

On an annual basis, though, the Netherlands economy remains 0.6% smaller than a year ago.

Updated

French GDP falls 0.1%: What the economists say

Diego Iscaro of consultancy IHS:

The new contraction in activity will definitely not help President Hollande to improve his popularity among the electorate – which currently stands at a record low.

Moscovici: France isn’t going back into recession

Back to France. Finance minister Pierre Moscovici has insisted that the French economy is not sliding back into recession.

He’s sticking to his forecast of 0.1-0.2% growth this year, despite the disappointing news that GDP fell by 0.1% in July-September.

Speaking on RTL Radio, Moscovici blamed one-off factors such as slowing aircraft orders (the Paris Air Show, in June, typically delivers a boost to industry), saying:

The productive forces are starting up again, production is recovering

We knew the third quarter would mark a pause, it’s not a surprise, it’s not an indicator of decline, it’s not a recession.

Moscovici was pretty bullish three months ago when France officially exited recession, hailing the ‘encouraging signs of recovery’.

To avoid a double-dip recession, France now has to grow its GDP in the current quarter.

Key event

Europe’s stock markets have opened strongly.

Instead of fretting about the eurozone’s woes, traders are taking comfort from testimony released by the next head of America’s central bank overnight.

In prepared remarks for the Senate Banking Committee, Janet Yellen said the US labour market and the wider economy were “far short” of their potential. She warned:

We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession.

And that’s being taken as a sign that the Federal Reserve is in no hurry to slow its stimulus programme, which is pumping $85bn of new money into the US economy every month.

Cue a stock market rally, sending the FTSE 100 up 1% or 66 points to 6693. Yesterday it fell on speculation that the Bank of England is closer to tightening monetary policy, because Britain’s economic recovery is gathering pace.

  • German DAX: up 0.8%
  • French CAC: up 1.06%
  • Italian FTSE MIB: up 0.7%
  • Spanish IBEX: up 1%

Yellen testifies before the committee at 10am local time, or 3pm GMT.

Decent GDP data from Hungary — its economy grew by 0.8% in Q3, twice as fast as expected.

On an annual basis Hungarian GDP was 1.7% higher. That’s the fastest rate since the first quarter of 2011 says Reuters.

Austrian GDP: up by 0.2%

Austria’s economy grew by 0.2% in the third quarter of the year, helped by a small rise in exports.

Its WIFO statistics body also revised down Austrian GDP growth in the second quarter to 0.0%, from 0.1%.

WIFO also reported that exports rose 0.2% in the last quarter, while imports were up 0.1%.

That 0.1% contraction means France’s economy has been outperformed by Spain for the first time since early 2009.

Spain’s economy grew by 0.1% in the last quarter, according to official data release on October 30.

The small contraction in France, and the slowing growth in Germany, shows that the euro area economy remains weak despite dragging itself out of recession in the summer.

Other countries are doing better. Overnight, Japan reported that its GDP rose by 0.5% during Q3, beating forecasts of 0.4% growth (but slower than the 0.9% in Q2).

Britain grew by 0.8% in the third quarter of 2013, while America posted quarterly growth of around 0.7%.

Here’s AP’s early take on the news that French GDP shrank by 0.1% in the third quarter, dashing hopes of a small expansion:

French economy shrinks after surprise rebound 

The French economy is shrinking again, statistics showed Thursday, underscoring that it is still in trouble despite a rebound last quarter.

The French national statistics agency, Insee, said that gross domestic product fell 0.1 percent in the July-to-September quarter. That comes after an unexpectedly large rebound of 0.5 percent in the second quarter that pulled France out of recession. Economists had said that rebound was partially due to technical effects and that France would likely not sustain that kind of growth in the near term.

The latest figures showed that exports, which had been a big factor in France’s rebound, fell sharply. Some corporate investment was also down and household spending slowed.

Last quarter, the French government hailed the growth figure as a proof that its reforms were beginning to bear fruit, although it cautioned that more time was needed. But many economists said that the rebound was artificially pumped up by such things as high energy use during a particularly cold winter and spring. They contended that France still needs to make significant changes to make its economy more competitive.

For example, economists say that France’s cost of labor, even after a tax credit, is still too high. State spending also needs to be cut, so France doesn’t rely so heavily on taxes to meet its deficit obligations. That leaves France in a tight spot, since it’s difficult to cut spending while the economy is still floundering.

[end]

The full statement from INSEE is online here, including this chart:

Germany’s statistics body warned that trade was weak in the last quarter, pulling GDP growth down to +0.3%.

Instead, “positive impulses exclusively from inside Germany” drove growth, the Statistics Office said. It reported that spending by private households and the state rose during the quarter, as did business investment.

By contrast, the contribution from abroad (exports minus imports) put a brake on GDP growth.

France’s economy also suffered from weak trade, with exports dropping by 1.5%.

German GDP released

The German GDP data is out, and it’s more positive than the news from France.

Germany’s economy grew by 0.3% in the third quarter of 2013. That’s in line with expectations, but is slower than the 0.7% growth achieved in the second quarter of this year.

On an annual basis, the German economy is 1.1% bigger than a year ago.

French GDP data shows economy contracted

Good morning, and welcome to our rolling coverage of events across the world economy, the financial markets, the eurozone and the business world.

Is Europe’s economy healing, or is the nascent recovery that began in the summer already petering out? We’ll find out this morning, with the publication of new growth data for the third quarter of 2013.

And the early news is not encouraging. France’s economy shrank by 0.1% in the three months to September, according to provisional data from its statistics body.

That’s worse than expected, following the 0.5% growth reported in Q2.

The small drop in GDP was due to a sharper decline in trade, with French exports falling by 1.5%. Business investment dropped by 0.6%.

It’s another blow to embattled French PM Francois Hollande, just a week after S&P downgraded France’s credit rating.

Lots more data still to come, including the first estimate of German and Italian economic growth.

The full reading for the eurozone is due at 10am GMT. Economists had predicted that euro area GDP would have have risen by 0.2% – the news from France, though, may have sent them scrabbling to rework their sums….

I’ll be tracking all the GDP data, reaction, and other news through the day.

Updated

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Francois Hollande: post-crisis generation need help now. Schäuble and Moscovici pledge help, but no firm new plan yet. Stock markets rally. US consumer confidence index at five year high…after French consumer confidence takes a tumble…


Powered by Guardian.co.ukThis article titled “Hollande’s youth jobless warning, as strong US data fuels market rally – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 28th May 2013 14.10 UTC

6.34pm BST

Closing summary

Time to wrap things up for the day. Here's a closing summary:

European politicians from across the region have pledged to take new steps to address the region's youth unemployment crisis, although details remain sketchy tonight.

In a speech in Paris, French president Francois Hollande warned that the post-crisis generation would "turn their backs" on the European project forever, unless leaders could reverse the rising tide of joblessness among young people .

Citizens are turning their backs on Europe and the construction of the European project.

It's the idea of Europe that is being challenged.

(see 11.35am for highlights, or watch the speech in the video above)

Hollande said the EU must agree the so-called Youth Guarantee, a proposal under which young people would be guaranteed a job or training within four months of leaving school (details at 12.03pm).

He also advocated expanding the Erasmus programme so apprentices, as well as university students, could be trained and educated in anothe country.

Several other finance ministers also pledged to do more to fight youth unemployment. Germany's Wolfgang Schauble agreed that the unity of Europe was at stake, while France's Pierre Moscovici said structural reforms could help get under 25s into jobs.

(see 10.10am onwards for details, and 12.39pm for a summary from Bloomberg).

But firm measures will probably have to wait until EU leaders meet in late June, and Angela Merkel holds a conference on the issue in Berlin on 3 July.

In other news…. the financial markets rallied sharply following strong US economic data, and the latest indications that central bankers won't halt their monetary easing measures soon.

In London, the FTSE 100 finished 107 points higher — see 5.26pm for closing prices and analyst reaction.

That followed a jump in US consumer confidence to a five-year high (see 3.06pm)….

…and the news that US house prices have risen at their fastest annual rate in almost seven years (see 2.29pm)

France's central bank governor warned that the country must cut spending. Christian Noyer also warned that the upcoming Financial Transaction Tax could harm the French banking sector (see 2.23pm)….

….while French consumer confidence tumbled unexpectedly, to its joint-lowest level in decades. (see 10.44am for details).

And the International Monetary Fund declared that it still has support in Christine Lagarde, its managing director, after her appearance at a special court last week. See 4.52pm for details.

• Italy sold two-year bonds at the lowest interest rates since the eurozone began. (see 12.47pm)

Polling data from Greece showed that New Democracy had widened its lead over the Syriza opposition (see 1.05pm)

While in the UK, a poll found that UKIP is on track to win the most votes in next year's European elections (see 1.28pm)

I'll be back tomorrow. Until then, thanks, and goodnight. GW

Updated at 6.39pm BST

6.03pm BST

Rajoy: we need action now on youth unemployment

Spanish prime minister Mariano Rajoy has called for more help on youth joblessness now.

Speaking at the Europe: Next Steps conference in Paris, Rajoy added that more effort is needed to help small firms access credit.

Reuters has the details of Rajoy's speech:

Spain's Rajoy said on Tuesday that both the European Investment Bank and European Central Bank should do more to help credit flow to small businesses.

Speaking at a conference on youth employment in Paris, Rajoy also said the European Union "should establish a mechanism to temporarily exclude from the national deficit, for the purposes of the excessive deficit procedure, the cost of exemptions granted from social security contributions when young people are hired."

Rajoy also welcomed the news that Angela Merkel will hold a conference on youth joblessness in Berlin on July 3:

Updated at 6.04pm BST

5.54pm BST

FT: Hollande speech shows concern is growing


French President Francois Hollande delivers his speech today. Photograph: CHARLES PLATIAU/AFP/Getty Images

The FT says Francois Hollande's speech on youth joblessness this morning (see 11.35am for highlights and video) was a sign of "growing political concern" about Europe's youth unemployment levels.

Here's a flavour:

We must act urgently – 6m youngsters are out of work in Europe … close to 14m are without work, study or an apprenticeship,” Mr Hollande said at a conference in Paris that brought together a number of EU finance and labour ministers.

He was speaking as France and Germany stepped up efforts to show they were working to tackle the problem, seen as a key element in flagging support for EU institutions and the continent’s political leadership.

Mr Hollande separately met French and German finance and labour ministers to discuss a joint initiative he said would culminate in a meeting of all EU labour ministers in Berlin in early July.

But the FT added that (as I tried to explain at 12.03pm) most of the measures outlined by Mr Hollande and the various ministers have already been "widely canvassed" by EU leaders and the commission.

More here: François Hollande raises alarm over Europe’s young jobless

Updated at 5.55pm BST

5.26pm BST

European stock markets rally – what the analysts say

Traders Dan Ryan, left, and Gordon Charlop work on the floor of the New York Stock Exchange Tuesday, May 28, 2013
Traders Dan Ryan, left, and Gordon Charlop work on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

Europe's stock markets have closed with strong gains across the board. In London the FTSE 100 jumped more than 100 points as it recovered some of last week's losses.

Here's the closing prices

• FTSE 100: up 107 points at 6762, + 1.62%

• German DAX: up 97 points at 8480, +1.16%

• French CAC: up 55 points at 4050, +1.39%

• Spanish IBEX: up 147 points at 8511, +1.77%

• Italian FTSE MIB: up 360 points at 17519, +2.1%.

And on Wall Street, the Dow Jones and the S&P 500 are both up around 1%.

City traders are attributing the rally to two factors.

1) the strong US data this afternoon (house prices rising at their fastest level since 2006 and a five-year high for consumer confidence)

2) the latest signals from central bankers that the stimulus package isn't over (see 8.50am for details of supportive comments from the Bank of Japan and the European Central Bank).

This morning's bleak French consumer confidence data (see 10.44am), hasn't dented the rally — on the grounds that bad news means central banks won't tighten monetery policy….

Here's a selection of analyst comment this evening:

Chris Beauchamp, market analyst at IG

What a difference a weekend makes. Last week markets seemed to have assumed the world, or at least QE, was coming to an end. After a few days away, however, investors have come back with a far more positive outlook. In part they are being helped on their way by supportive comments from the Bank of Japan, which is still tightly-wedded to its easing à la outrance policy.

However, perhaps the most important factor is the growing distance from last week’s Fed minutes. Time has dulled the impact, and investors feel that they can be more relaxed about the hawkish views of a few policymakers. If last week was the dip, then it was shorter than that expected by the even the most positive of traders.

May is almost out, and the ‘go away and sell’ thesis still hasn’t kicked in.

Michael Hewson of CMC Markets

Despite there being very little evidence of a turnaround in economic fundamentals in Europe we’ve seen a complete about turn in sentiment after the sharp losses seen at the end of last week as investors pile back into equity markets on little more than continued central bank support from the Bank of Japan, and expectations of future support from the ECB after comments from ECB member Peter Praet that there was still scope to reduce rates further.

…Poor consumer confidence data from France and a sharp slide in German import prices has fuelled expectations of further easing from the ECB at next week’s rate meeting. While these expectations of further ECB generosity has helped confidence in risk assets there is no getting away from the fact that Europe’s two largest economies continue to diverge away from each other.

Consumer confidence in France sits at its lowest levels since 2008, in complete contrast to Germany where it’s at its highest levels since September 2007, with no expectation that EU leaders have any idea of what to do about it.

Viktor Nossek, head of research at Boost ETP

The FTSE 100 emerged from the Bank Holiday weekend with a bang. Thursday's sharp drop was a distant memory as the UK's flagship index brushed aside any remaining concerns.

Exceptionally strong house price and consumer confidence data from the States will only feed the feel-good factor surrounding the FTSE. On Tuesday it felt like we made another major step towards the symbolic 7000 mark.

Despite years of weak domestic demand, UK equities are looking increasingly attractive. Britain's blue chips have adjusted to the weaker demand in the economy, repaired their balance sheets and restored their dividend-paying capability.

All this despite Britain's meagre rate of GDP growth. But these days, a strong economy is no longer a prerequisite for strong profits.

4.52pm BST

IMF board backs Christine Lagarde

Just in, the executive board of the International Monetary Fund has declared that it has confidence in managing director Christine Lagarde, after a special French court decided not to place her under investigation.

Here's the full statement:

As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary.

However, the Executive Board has been briefed on this matter, including on the outcome of the recent hearings before the Court of Justice of the Republic in Paris, and has reaffirmed its confidence in the Managing Director’s ability to effectively carry out her duties.

Last week, Lagarde was questioned for two days over her role in a controversial €400m payment given to French businessman Bernard Tapie while she was France's finance minister.

Following the hearing, the court decided not to place Lagarde under formal investigation. Instead the IMF chief – who has denied any impropriety – will be an "assisted witness" in the case. That means she will testify in the inquiry, but is not under suspicion of any offence.

More details here.

France's Christine Lagarde speaks to the press as she leaves the French Republic Justice Court on May 24, 2013 in Paris.
France’s Christine Lagarde speaking to the press as she leaves the French Republic Justice Court last Friday night. Photograph: JACQUES DEMARTHON/AFP/Getty Images

4.31pm BST

Marketwatch Graphics has pulled together this graph showing how US house prices are now growing at their fastest pace since before the credit crunch.

As flagged up at 2.29pm, new data released today showed prices are 10.9% higher across 20 US cities.

4.11pm BST

US Treasury bonds are dropping in value, the mirror image of shares on Wall Street.

That has pushed up the yield (interest rate) on 10-year US debt by 10 basis points to around 2.11% (ie, from 2.01% overnight).

Updated at 4.11pm BST

4.02pm BST

Moody’s hikes outlook on US banks

The good news keeps coming, for America at least. Moody's just raised its rating on the US banking system to stable, from negative, for the first time since the financial crisis struck in 2008.

3.10pm BST

That strong US consumer confidence data has sent shares on Wall Street even higher, with the Dow Jones industrial average now up 201 points at 15504.

The US dollar is also gaining against other currencies, flags up the FT's Alice Ross:

Updated at 3.30pm BST

3.06pm BST

US consumer confidence at five-year high

More strong economic data from the US — the monthly consumer confidence index has jumped to a five year high.

The US consumer confidence index came in at 76.2, up from 69 last month. Economists had expected much smaller rise, to 71.

And the expectations index, showing how upbeat people were about the future, also posted a strong rise – to 82.4 from 74.3.

Lynn Franco, director of economic Indicators at The Conference Board (which compiled the data) said Americans are "considerably more upbeat" about future economic and job prospects.

Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester.

Updated at 3.35pm BST

2.41pm BST

Stock market rally continues as Wall Street opens

Stock markets are rallying strongly today, with the FTSE 100 now up by 120 points, or 1.8%, at 6775 as Wall Street opens.

The prospect of ongoing central bank help, and the better-than-expected US house price data (see 2.29pm), appear to be a heady cocktail for the markets.

In New York the Dow Jones index is up 150 points, or around 1%, while the Italian stock is up over 2%.

Here's the latest prices:

Stock market prices, May 28 2013
Photograph: Thomson Reuters

Reaction to follow….

2.29pm BST

US house prices index beats forecasts

US house prices are rising at their fastest pace in nearly seven years, according to the latest piece of upbeat American economic data.

The S&P/Case Shiller index of house prices in 20 cities showed prices rose by 10.9% in March, compared with a year ago, beating analyst forecasts.

Prices were 1.1% higher month-on-month.

2.23pm BST

French central bank governor warns on spending and FTT

While Francois Hollande was speaking in Paris this morning, France's central bank governor was calling for new spending cuts.

Christian Noyer used his annual report to the French government to warn that France must take difficult decisions on public expenditure and its welfare system.

Noyer warned that:

Over a certain threshold, which our country has probably crossed, any increase in public spending and debt has extremely negative effects on confidence.

…adding that "a profound change in public policy" is needed if the France economy is to deliver strong and lasting growth that creates jobs.

And on welfare spending, Noyer's message was clear — it must be cut.

Welfare spending accounts for around 30% of GDP and the country’s social deficit path is unsustainable as it stands.

Giving in to the temptation to keep raising social contributions leads to an increase in labour costs, which ultimately weighs on activity and jobs: the best way to deal with the problem is by tackling spending as this would erode the cost competitiveness, which is already insufficient.

You can read the whole letter here (pdf).

Towards the end, Noyer also warned that Europe's plans for a Financial Transaction Tax must be carefully defined. Otherwise, France faced "the risk of destroying entire segments of our financial industry…" he wrote.

As the Telegraph's Phil Aldrick points out, Sir Mervyn King claimed last week that there was no support for the FTT among European central bankers he'd spoken to.

Here's more coverage of the Noyer letter:

Telegraph: France's central bank head warns FTT could 'destroy' jobs

Reuters: ECB's Noyer says France must target spending

Wall Street Journal: Noyer Urges Hollande to Cut Spending, Mull Welfare Cuts

2.07pm BST

European Council president Herman Van Rompuy has added his voice to the chorus insisting that action will be taken on youth unemployment.

Speaking at the European Parliament this lunchtime, Van Rompuy pledged to "put the fight against unemployment high on our agenda" at the next EU summit in June (prompting the obvious reposte – why wasn't it there already?)

Van Rompuy said the European Council meeting is an opportunity for leaders to support the Youth Guarantee, under which all young people would be guaranteed training, further education or employment within four months of leaving school (part of the plan outlined by Francois Hollande this morning).

This should be operational by January 2014, he said.

Van Rompuy also echoed Hollande's point that Europe's young people are looking for serious progress on the issue:

We must rise to the expectations of the millions of young people who expect political action.

More here (pdf).

1.28pm BST

Open Europe/Comres poll
Open Europe/Comres poll

Speaking of opinion polls, a new survey by Open Europe/ComRes has found that Britain's UKIP party are on track to win the most votes in next year’s European elections.

The pol showed that UKIP would come first overall with 27%, closely followed by Labour on 23%. The Conservatives would come third with 21%.

The survey also found more UK citizens would vote to leave the EU (41%) than stay (37%) if an in-out referendum was held today

However, the picture changes if David Cameron achieves 'a significant return of powers' from Brussels to Westminster. Then, 47% of voters believe they'd vote to stay in the European Union,while 32% would still vote to leave.

More details here (pdf).

1.05pm BST

Greek polling data: New Democracy extends lead

Support for Greece's governing New Democracy party has risen in recent weeks, according to an opinion poll published this morning.

The survey, for Mega TV by GPO, showed that New Democracy is backed by 21.3% of voters, a 1.8% lead over the left-wing Syriza party.

Two other polls released over the weekend also put ND ahead of Syriza, with a lead of up to 2.8%. That, according to Greece's Kathimerini, is the widest lead since ND took power in a three-party coalition almost a year ago.

GPO's poll also found that the neo-Nazi Golden Dawn party remains in third place. Here's the full details:

• New Democracy: 21.3%

• Syriza: 19.5%

• Golden Dawn: 10.4%

• Pasok: 6.7%

• Independent Greeks: 6.4%

• KKE: 5.8%

• Democratic Left: 5.1%

• Antarsya: 1.8%

• New Greece: 1%

Updated at 3.43pm BST

12.47pm BST

Italy sold two-year bonds at the lowest interest rate since the euro was created this morning.

It marks a remarkable change of fortune since its future in the eurozone was in doubt 18 months ago. Today's auction was helped by speculation that the European Commission will propose ending its excessive deficit procedure against Italy tomorrow (details here)

Reuters has more details of the auction:

Rome sold €2.5 of zero-coupon bonds maturing Dec. 2014 at 1.11%, down from 1.17% at a similar sale one month ago.Italy also issued €987m of inflation-linked BTPei bonds maturing Sept. 2018, paying a yield of 1.83%.

Investors are cautiously returning to high-yielding debt after they cashed in on Italian and Spanish bonds last week on expectations the U.S. Federal Reserve may scale back its asset buying programme in the next few meetings.

12.39pm BST

Bloomberg’s take

Bloomberg sums up this morning's events thus:

Germany and France said companies in struggling euro-area countries need cheaper credit to create jobs and ease youth unemployment, as Europe’s two biggest economies seek a joint response to the debt crisis.

German Finance Minister Wolfgang Schaeuble, his French counterpart, Pierre Moscovici, and Werner Hoyer, who heads the Luxembourg-based European Investment Bank, all singled out higher company financing costs in southern Europe as an obstacle to economic recovery at a meeting in Paris today.

“An Italian or Spanish small or medium-size enterprise doesn’t fund its investments at the same rate as a German company,” Moscovici said. “The channels of financing aren’t working.” Schaeuble said soaring youth unemployment in the region undermines European unification.

More here: Franco-German Youth Jobs Push Seen Hinging on Company Credit

12.34pm BST

Italy joins Germany and France in backing more action

Italian Labour minister Enrico Giovannini has agreed that Europe must stop abandoning its young people.

Like Germany's Wolfgang Schäuble and France's Pierre Moscovici (see 10.10am onwards), Giovannini told the Europe: Next Steps conference that radical new action was now needed.

Giovannini said:

We have to rescue an entire generation of young people who are scared. We have the best-educated generation and we are putting them on hold. This is not acceptable.

Words alone, though, aren't much good to the 5.7 million young people out of work in the EU.

Francois's Hollande's speech (see 11.35am) remains the clearest 'vision' of a New Deal, but it does appear that the actual agreement may have to wait until late June. Or possibly even 3rd July, when Angela Merkel hosts a conference on the issue in Berlin.

As Reuters puts it:

While all agreed on the urgency needed to tackle youth unemployment, ministers offered no concrete plans, insisting Europe must be pragmatic and work on various strands.

Updated at 12.35pm BST

12.21pm BST

Former Italian PM Mario Monti just gave a speech at the Europe: Next Steps conference in Paris. He welcomed signs that EU leaders are giving greater attention to structural reforms, rather than just insisting on fiscal discipline.

The Berggruen Institute tweeted some of Monti's other key lines:

12.10pm BST

Charts: The youth unemployment crisis

This chart from the EC shows how youth jobless rates vary across Europe, with Greece and Spain both suffering rates over 50%.

Youth joblessness across the EU
Photograph: European Commission

And this chart grabbed from Bloomberg TV shows the highs and lows (Portugal's 38% is slightly obscured)

Youth unemployment across Europe
Photograph: Bloomberg TV

12.03pm BST

Youth guarantee explained

The European Commission released a memo this morning, outlining its own efforts on youth unemployment. Perhaps stung by events in Paris?

The memo (click here) includes full details of the Youth Guarantee which Francois Hollande says must be brought in swiftly (see 11.35am).

The EC explains:

The Youth Guarantee, based on experience in Austria and Finland, seeks to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed.

It is based on succesful programs in Austria and Finland.

The full cost of the scheme, though, has been estimated at €21bn. That's more than three times the €6bn currently set aside, but a fraction of the economic cost of youth unemployment.

The EC reckons that unemployment benefit, lost productivity and lost tax revenue from youth joblessness comes to €153bn per year.

In addition, for young people themselves, being unemployed at a young age can have a long-lasting negative ‘scarring effect’. These young people face not only higher risks of future unemployment, but also higher risks of exclusion, of poverty and of health problems.

The memo also outlines how the Erasmus scheme is already being expanded, with a 40% increase in its budget, to allow more young people to study abroad.

11.35am BST

Video: Francois Hollande outlines New Deal

The "Europe – Next Steps" conference in Paris began with a keynote speech from Francois Hollande, in which the French president outlined his vision of a new strategy for youth unemployment.

Hollande warned that the millions of young people across Europe out of work and education are looking to their leaders for a response based on solidarity.

Hollande dubbed them the "post-crisis generation", who will "for ever after, be holding today's governments responsible for their plight".

Here's the key section (from 8 minutes, in the video embedded above)

Remember the postwar generation, my generation. Europe showed us and gave us the support we needed, the hope we cherished. The hopes that we we could get a job after finishing school, and succeed in life.

Can we be responsible for depriving today's young generation of this kind of hope?

Imagine all of the hatred, the anger, it's not anger that we're talking about in fact, it goes more than that. We're talking about a complete breakdown of identifying with Europe.

What's really at stake here is, not just 'lets punish those in power'. No. Citizens are turning their backs on Europe and the construction of the European project.

It's the idea of Europe that is being challenged.

Hollande then outlined three key areas for the New Deal which he hopes to see agreed by European leaders at the next EU summit in late June

1) EU leaders would commit to spending the €6bn assigned to fight youth unemployment "very quickly", rather than letting the money sit around.

Those areas with 25% youth unemployment or higher should get 'accelerated spending', he added.

2) EU leaders should implement a "security system" for young people who leave school without a job. After 4 months they would be able to find a job, or additional training, or an internship, or an apprenticeship.

It's a great idea, this is what we call the Youth Guarantee. But do we have the ability to implement this objective? Well, we have no choice, we have to do it now.

3) Hollande proposed opening up the Erasmus scheme, under which university students could study overseas. He wants all young people to get the opportunity:

All young people, regardless of their educational background, would be able to go and continue learning new skills in another European country.

Hollande also said small firms need to be given more help to get credit, particularly in crisis-hit countries, and urged the European Investment Bank must release funds to SMEs swiftly.

He concluded by warning that Europe faces "an emergency when it comes to youth unemployment". Hollande explained that he and Angela Merkel were in agreement over the issue, and would keep developing their "bilateral project to create more jobs for young people in Europe.

And he finished by expressing hope that EU leaders will agree wide-ranging new measures at their summit in June, which is followed by a meeting of European labour ministers in early July.

Updated at 11.48am BST

10.44am BST

Graph: French consumer confidence

This graph from Reuters underlines the seriousness of today's drop in French consumer confidence.

As well as a near-five year low, this month's reading of 78 is the joint lowest reading at least three decades:

French consumer confidence vs GDP
Photograph: Thomson Reuters

10.33am BST

Cue much milling around in Paris:

10.32am BST

Wolfgang Schäuble rounded up the first panel session in Paris (see 9.24am onwards) with a call to European youth not to lose faith.

Europe is our future. We do not have a better future than Europe.

Schäuble also denied that Europe should just copy America's approach to employment and investment:

10.23am BST

The head of the European Investment Bank, Werner Hoyer, agreed with Wolfgang Schäuble and Pierre Moscovici that youth unemployment is a threat to the European project.

Speaking on the same panel, Hoyer said the EIB had billions of euros of extra funding for projects that would benefit Europe, particularly the youth situation.

Updated at 10.27am BST

10.10am BST

Schäuble and Moscovici on youth unemployment

Wolfgang Schauble
Wolfgang Schäuble.

Germany's Wolfgang Schäuble has warned that the youth unemployment crisis threatens European stability.

Speaking at the EU: Next Steps conference in Paris, the Germany finance minster warned that EU leaders would "lose the battle for European unity" if they do not win the battle over youth unemployment.

Schäuble said the crisis in the eurozone had been stabilised, but not solved, cautioning:

We cannot keep a generation on hold

Schäuble said small firms had a crucial role to play in getting more young people into work, if they could show more innovation.

But he also warned against setting the “wrong incentives” with new aid policies, says structural reforms are needed to make Europe more competitive, adding:

Europe has twice as high social welfare costs as its competitors.

He was followed by France's Pierre Moscovici, who agreed that Europe's future was at risk:

Pierre Moscovici
Pierre Moscovici Photograph: /EU Next Steps conference

Moscovici told the conference that toung people are asking whether they should stay in Europe or not. He added:

We want Europe to be a continent where youth feels comfortable.

Moscovici agreed that Europe does need "structural reforms", adding:

We are not afraid of structural reforms in France.

So, a firm commitment to new measures on youth unemployment, but no actual details of this New Deal. Yet, anyway…

Michel Sapin, France's Labor minister, told the conference that the big decisions will be taken at an EU summit in a month's time:

Updated at 10.23am BST

9.42am BST

Live audio feed from Paris

Here's a live audio feed from the Europe: Next Steps conference, complete with an English translation:

Updated at 10.48am BST

9.34am BST

Karine Berger MP
Karine Berger MP this morning.

French socialist MP Karine Berger says European leaders needs to fix the youth unemployment crisis fast.

Speaking on Bloomberg TV a few moments ago, Berger warned that:

Otherwise, thousands of young people in Europe will be hurt forever.

Berger agreed that the structure of the labour markets need to be changed, to help young people into employment:

We need to find growth, and we need to find structural solutions.

Easier said than done, of course. Reforming labour markets is notoriously tricky politically, as it typically means making it easier to dismiss workers or to force them to take new jobs.

9.24am BST

Watch the Paris Conference here

The 'New Deal' on youth joblessness will be discussed at a conference in Paris today called Europe: Next Steps, at the Institut d'Etudes Politiques de Paris.

It's being streamed live here: Europe: les prochaines étapes

Updated at 10.47am BST

9.08am BST

French consumer confidence slides

We've had grim economic data from France this morning, where consumers are more pessimistic than any time in nearly five years.

The French monthly consumer confidence reading fell to 79, the lowest reading since July 2008, from 83 last month (where the long term average is 100).

9.05am BST

Mike van Dulken of Accendo Markets suggests that today's markets rally shows the City is more relaxed about the US Federal Reserve's plans, after last week's flap over when it will start to slow its own quantitative easing operation:

Updated at 9.12am BST

8.50am BST

Markets rally again

In London, the FTSE 100 has jumped by 100 points, or 1.5%, this morning as investors return their desks after the bank holiday weekend.

That follows a calmer day's trading in Japan, where the Nikkei finished 1.2% higher – clawing back some of last week's dramatic losses.

Other European markets are also rallying, with Germany's DAX and the French CAC up around 0.7%, while the Spanish and Italian markets are both 1.5% higher.

Traders seem to be content that central banks will maintain their stimulus measures for a while longer.

Early this morning, Bank of Japan board member Ryuzo Miyao said the BoJ would remain firm, despite the market turmoil of recent days. Miyao argued that investors should not be spooked by rising Japanese bond yields.

Even when there is upward pressure on long-term interest rates due to expectations for economic recovery, monetary policy will continue to put downward pressure on interest rates and therefore strongly support economic recovery.

And yesterday, the European Central Bank's Jorg Asmussen said the ECB wouldn't tighten policy soon:

Our monetary policy is expansive and will remain so as long as necessary. But to keep rates low for too long would create new risks.

A man walks by an electronic stock board of a securities firm in Tokyo, Tuesday, May 28, 2013.
An electronic stock board in Tokyo, where the Nikkei finished 169 points higher, up 1.2%. Photograph: Itsuo Inouye/AP

8.34am BST

The New Deal – what we know

Some details of this 'New Deal' for youth unemployment have emerged in the media in recent days.

Here's a few articles:

Bloomberg: Franco-German Youth Jobs Push Seeks to Damp National Differences

Germany and France plan to present a joint blueprint today to address soaring youth unemployment as Europe’s two biggest economies seek to find common ground in response to the euro region’s financial crisis.

“Almost 6 million unemployed young people — these are dramatic figures,” German Labor Minister Ursula von der Leyen said in an ARD television interview on May 26. “These young people need an answer now.”

The Telegraph: 'New Deal' to tackle Europe's mass youth unemployment

The "New Deal for Europe" will free up EU resources to pay for language courses and fund jobseekers' flights around the continent in search of work.

Germany is increasingly concerned about the need to rescue the country's image, and show greater solidarity with southern Europeans suffering a prolonged economic crisis.

EurActiv: Commission denies Germany's 'dangerous' criticism of youth jobs fight

As Germany and France meet today over a joint youth employment initiative, EU officials have rebuffed as “groundless” and “dangerous” criticism from the German finance minister that the Commission is failing to address joblessness, EurActiv Germany reports.

Ministers from both countries will unveil in Paris the initiative blueprint and allow the European Investment Bank to unlock billions of euros in loans to companies to create jobs for young people.

The proposals have been called a “New Deal for Europe” and echo the drive by President Franklin D. Roosevelt to cut United States unemployment in the 1930s, the Rheinische Post reported this month.

But sources say German Finance Minister Wolfgang Schäuble has angered the president of the European Commission, José Manuel Barroso. Schäuble’s complaint that the Commission has been ineffective in its approach towards fighting youth unemployment has not gone down well amongst other EU officials either.

Updated at 8.35am BST

8.16am BST

A New Deal for joblessness

Good morning, and welcome to our rolling coverage of key events in the eurozone and across the global economy and the financial markets.

Europe's youth unemployment crisis takes centre-stage today as Germany and France announce plans for a "New Deal" for the millions of young people out of work across the region.

Almost one in four young people are out of work in the eurozone, and the scale of the problem appears to have shaken politicians into action.

German finance minister Wolfgang Schäuble, and his French counterpart Pierre Moscovici, will meet in Paris today to agree a package of measures to address youth unemployment.

The plan is expected to focus on countries with the highest jobless rates, such as Greece and Spain. It could include creating more apprenticeships to get young people into the workplace – an area where Germany excels already – and more funding for small firms to help them hire young people.

It could also provide support for jobseekers to move across the eurozone to find work.

The scheme is also expected to involve the European Investment Bank and tap a €6bn fund set aside to address youth unemployment in the EU budget.

But will the scheme be ambitious enough to tackle a problem that is creating a lost generation and, many fear, threating social cohesion across the region?

I'll be tracking events in Paris through the day, along with other important developments across Europe and beyond.

Updated at 8.29am BST

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Bank of England raises growth forecasts. French economy shrinks 0.2% in first three months of 2013. Italy in longest recession on record. Germany barely grows. The eurozone economy contracts for another quarter by 0.2% q/q…

 


Powered by Guardian.co.ukThis article titled “Eurozone suffers its longest downturn ever as France sinks back into recession – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 15th May 2013 15.49 UTC

5.47pm BST

And finally

That's all for today. Thanks for reading, and for all the great comments.

Just to recap the two main events of the day:

The eurozone is in its longest recession since it was created, after GDP fell by 0.2% in the first three months of 2012. Downturns in France, Italy, Spain and the Netherlands drove the downturn, while Germany grew by a meagre 0.1%.

Full story here: 1.19pm

How the events unfolded: from 6.44am

In the UK, the Bank of England declared that Britain's economy is on the road to a modest recovery. It raised its growth forecast for the first time since the financial crisis began, as Mervyn King marked his last Quarterly Inflation Report with an attack on the financial transaction tax.

See 10.36am onwards for highlights of the press conference

Thanks all, and goodnight. GW

5.23pm BST

The deepening eurozone recession didn't prevent Europe's stock markets closing higher, with the FTSE 100 sneaking up 7 points to a new five-and-a-half year high of 6693.

Here's the closing prices (and the latest from Wall Street, where the Dow and the S&P are up too)

Stock markets closing prices, May 15 2013
Photograph: Thomson Reuters

As Brenda Kelly, senior market strategist at IG Index, points out, the "yawning disconnect between stock markets and growth fundamentals" was on display again.

She predicts markets will probably be pushed higher by the promise of future central bank action:

Given that Mario Draghi is ready to act if necessary, the key upshot is that as long as the poor data continues to flow, central banks will keep flooding the markets with liquidity.

Hence more multi-year highs for many European benchmark indices are likely to materialise.

Updated at 5.27pm BST

5.13pm BST

FTT divisions

Sir Mervyn King's attack on the upcoming eurozone financial transaction tax has been welcomed by the CBI, but criticised by the Robin Hood campaign which has long fought for its introduction.

As reported at 11.50am, the outgoing governor of the Bank of England claimed that the FTT was a pretty bad idea, and one that little genuine suport within the European central banking world.

Matthew Fell, CBI director for competitive markets, agrees:

We agree with Sir Mervyn that a Financial Transaction Tax is a bad idea. It would harm growth, jobs and investment here in the UK and that’s why the Government was right to opt out of it in the first place.

If other countries want to press ahead with this ill-conceived tax then it should only impact on them.

The FTT tax will mean a small levy on all euro denominated transactions, and eleven countries have signed up. David Hillman, spokesperson for the Robin Hood Tax campaign,was unimpressed by King's comments:

Given the damage the Square Mile wreaked on the UK economy during his time in Threadneedle St, it's rather surprising that Mervyn King is still backing the interests of the City against those of the rest of us.

The fact is that 11 countries have had the courage to take on the lobbying power of the financial sector rather than letting it off scot-free as the UK is intent on doing.

Mervyn King himself has said that it's ordinary people who are paying the price of the financial crisis, yet now he's taking a sideways swipe at a proposal that could put that right.

4.35pm BST

Commission President Jose Manuel Barroso speaks during a joint press conference with French President Francois Hollande.
Commission President Jose Manuel Barroso speaks during today’s joint press conference with French president Francois Hollande. Photograph: JULIEN WARNAND/EPA

France's lurch back into recession today prompted EC president Jose Manuel Barroso to press Paris to speed up its economic reforms, at a press conference with president Francois Hollande.

Barroso warned that the French government needs to commit to new structural reforms in return for being given an extra two years to get its deficit in order.

Pointing to France's "the exorbitant weight of debt", Barroso declared that France must make up for two decades of lost economic competitiveness.

Both men said they agreed that growth must be a top priority (unfortunately, achieving it is rather harder)

Barroso also threw France a carrot, as Reuters reports:

In a gesture of support, Barroso also said the European Commission would not negotiate away France's "cultural exception" – a system of subsidies supporting its entertainment industry – in any future EU-U.S. free trade agreement.

Barroso said he sensed in Hollande a "genuine will" to push reforms but declined to say what recommendations the Commission would make on May 29 when it sets out its view on what France must achieve in return for the two-year deficit reprieve.

(ps: sorry about the slowdown in posting — a quick trip out of the office (!) to chat about the crisis).

French President Francois Hollande speaks during a joint press conference with EU Commission President Jose Manuel Barroso (not pictured), ahead of an international conference for the development of Mali, at EU headquarters in Brussels, Belgium, 15 May 2013.
French President Francois Hollande. Photograph: JULIEN WARNAND/EPA

Updated at 4.36pm BST

3.22pm BST

Italy’s new 30 year bond

Italy looks like it has been successful with a new €6bn 30 year bond, which will help the country extend the average maturity of its debt.

It booked more than €12.7bn of orders for the bond this morning and Annalisa Piazza at Newedge Strategy said:

The Italian Tesoro is now taking advantage of still favourable market conditions for ultra-long periphery debt and today's sale will help to increase the duration of the Italian debt after last year's considerable reduction.

2.30pm BST

US industrial output misses forecasts

Europe isn't the only place reporting bad economic data today. US industrial output fell by 0.5% in April, according to figures just released.

The fall was driven by a drop in utilities output, and also lower production from manufacturing firms.

Economists had expected a decline of just 0.2%.

2.24pm BST

Here's a video clip of Sir Mervyn King announcing that the Bank of England has raised its growth forecasts for the UK economy…

2.22pm BST

Over on the FT, Michael Steen has pulled together 'five quick takeaways' from today's GDP data.

They include: that the ECB was right to cut borrowing costs last week, that Germany exporters aren't as strong as expected, and that EC's growth forecasts may now be too optimistic.

2.14pm BST

Here's another view on today's eurozone GDP figures, from Tim Ohlenburg, senior economist at CEBR.

A big factor in the disappointing if predictable result is that the French economy again contracted by 0.2% in the first quarter of 2013. We expect that this situation will persists for a while and given the weight of France in Europe the rest of the currency union will be affected. The other major Eurozone economy, Germany, is estimated to have grown in Q1 2013, but at only 0.1% quarter on quarter. It, too, borders on the brink of a downturn. Finland, another nation considered part of the economically solid Eurozone core, also entered recession with a second consecutive quarter of negative growth.

A rare piece of good news in the latest Eurostat release came from Portugal, where the pace of output declines slowed from -1.8% in Q4 2012 to -0.3% in Q1 2013. Also, Austria narrowly avoided recession with stable GDP in Q1 after a fall at the end of 2012.

In terms of monetary policy, the latest GDP figures are unlikely to shift the stance of the European Central Bank significantly following its cut in the interest rate from 0.75% to 0.5%. A further reduction in interest rates is possible but unlikely at present. The purchase of government bonds in a quantitative easing-type policy will probably be reserved for a crisis situation in which the bond markets turn against a country such as Italy or Spain that is of systemic importance.

In sum, the Eurozone continues to struggle as the public and private sectors deleverage and structural reform continues slowly. For next year we expect the Eurozone’s GDP to remain roughly stable and further ahead slow growth still looms while internal devaluation hampers the economy in the periphery.

1.19pm BST

Lunchtime summary

The eurozone has slumped into its longest recession ever, after economic activity across the region fell for the sixth quarter in a row.

Economic output across the single currency area fell by 0.2% in the first three months of 2013, statistics body Eurostat reported today (see 10.10am).

France, Spain, Italy and the Netherlands all saw their economies shrink as the economic crisis in the eurozone continued to hit its largest economies.

Eurostat’s figures showed that the eurozone economy has now contracted by 1% over the last year, putting further pressure on leaders as unemployment climbs to new record highs.

The 0.2% contraction in the first quarter of 2012 was an improvement on the 0.6% drop recorded between October and December, but analysts warned that the eurozone’s economic outlook is darkening.

Stephen Lewis, chief economist at Monument Securities, commented:

What seems incontrovertible, on this evidence, is that the member-states of the euro zone are on the wrong track.

The costs of the zone’s one-size-fits-all strategy are becoming brutally apparent.

France was dragged back into recession by a 0.2% drop in GDP, announced on the first anniversary of Francois Hollande being sworn in as president (see 6.44am)

Pierre Moscovici, French finance minister, denied that Paris’s forecast of 0.1% growth this year was too optimistic. “I’m sticking to the figures,” Moscovici told reporters, adding that the EU must prioritise growth over tackling budget deficits.

Eurozone GDP
Photograph: Thomson Reuters (via the Financial Times)

There was also disappointment that Germany only eked out growth of 0.1%, worse than economists had expected. The Dutch economy shrank by 0.1%.

Nick Spiro of Spiro Sovereign Strategy was also concerned:

The bottom line is that both the German and French economies, which together account for half the eurozone’s output, are in the doldrums.

Add in the persistent recession in the Netherlands, which accounts for a further 6.5% of eurozone GDP, and the core and semi-core of the eurozone are in significantly worse shape than a year ago.

Italy’s new prime minister, Enrico Letta, was given an early reminder of the challenge he faces, with Italian GDP falling by 0.5%. Italy’s economy has now been shrinking for the last seven quarters, its longest recession since at least 1970.

Portugal's recession continues, with a 0.3% drop in GDP – a much smaller decline than the 1.8% slump recorded in the last quarter of 2012.

Beyond the eurozone, the Czech Republic suffered a 0.8% decline in GDP during the quarter. Eurostat’s figures also showed that the European Union shrank by 0.1% during the last quarter, despite the UK growing by 0.3%.
Figures released last week showed that Spain’s economy contracted by 0.5%.

……

Meanwhile, in the UK, the Bank of England has raised its growth forecasts for Britain's economic growth for the first time since the financial crisis began.

Sir Mervyn King, who steps down as governor this summer, said a modest recovery was in sight, but cautioned that the eurozone was a key risk.

King told reporters in London that:

This hasn’t been a typical recession and it won’t be a typical recovery. Nevertheless, a recovery is in sight.

King also attacked plans for a transaction tax in the eurozone, claiming that he wasn't anyone within the European central banking world who supported it.

You can track the highlights from the BoE press conference, from 10.36am.

Updated at 1.47pm BST

11.59am BST

Back to the eurozone recession, and this chart from Eurostat shows euro area GDP has been shrinking for the last six quarters:

Eurozone GDP, to Q1 2013
Euro area GDP (dark line), vs EU GDP (dotted line) and US GDP (light line)

A striking divergence from America over the last two years…

11.50am BST

Mervyn King attacks Europe’s transaction tax

Mervyn King, at his final inflation report
Photograph: Bloomberg

Sir Mervyn King has launched a strongly critical attack on Europe's plans for a financial transaction tax… saying that:

Within Europe, I can't find anyone in the central bank community who thinks it is a good idea.

He also claims that he has privately heard concerns about the levy on euro transactions from people who publicly support it.

Eleven eurozone countries are introducing the FTT, but it has been thown into some doubt by the UK government launching a legal challenge.

And the press conference then ends, with veteran hack Bill Keegan of the Observer thanking the Bank of England governor for his efforts at Threadneedle Street over the years. King looks terribly touched.

Updated at 4.49pm BST

11.39am BST

More from Larry:

King is clearly uncomfortable that bank rate has been 0.5% for past four years. He wants to get them back to more "normal and healthy" levels, by which he means around three points above inflation.

But he says that pushing rates up now would drive economy back into recession.

Markets think it will be 2016 before rates go above 1pc. King said could be sooner if economic outlook improves.

And asked about the impact on pensioners, King remarks that "as a pensioner myself, I understand totally why they are concerned".

11.34am BST

A Question of Sport

King declines to say whether the economy he is handing over to star signing Mark Carney is challenging for the Champions League, a mid table team or battling against relegation.

"I am very optimistic about the future", he tells our own Larry Elliott, adding that he sees a very successful season ahead.

11.31am BST

More highlights from Mervyn King's press conference:

King says the government has not given up on rebalancing economy. We have to do it, he says.

Recent performance of economy made worse by weak North Sea oil
production and poor performance of construction sector.

11.27am BST

On negative interest rates (under discussion at the European Central Bank for commercial bank desposits), King says that the financial system is better prepared to cope with such a move, but adds there are "good reasons" not to implement them in the UK.

11.24am BST

Sir Mervyn King plays down the suggestion that the UK and the IMF are at odds over the issue of George Osborne's fiscal plans:

Here's the key quote (via Reuters)

One of the issues that always comes up when discussing across the US or the IMF is that their automatic stabilisers are much, much weaker than ours, hence in order to have any flexibility they need to take discretionary fiscal action.

That's not true here. Our automatic stabilisers are very large.

So these things automatically occur and has had a big effect on the deficit. And the scale of it is much bigger, I think than the quibbling at the margins that seems to come out in the debate to which you refer.

11.06am BST

Our economics editor Larry Elliott gives some instant reaction to the quarterly inflation report:

Inflation is forecast to rise above 3% in June so when figures are released in July one of Mark Carney's first jobs may be to write a letter to George Osborne explaining why it is more than one percentage point above target.

Larry adds:

King seems quite relieved to be stepping down after the trials and tribulations of the last five years.

Updated at 11.23am BST

11.04am BST

Bank of England invites Slovenia to quit the eurozone

A moment of rare levity, when a journalist from Slovenia TV takes the microphone in a room dominated by the UK economics press.

"Welcome," says Sir Mervyn King, adding:

by all means think of joining the sterling area.

The invitation is politely declined. But has Sir Mervyn got demob happy?

(the context, of course, is that Slovenia is trying to avoid becoming the next member of the eurozone to seek a bailout)

Updated at 11.09am BST

11.00am BST

Richard Edgar of ITV News reminds the chancellor that inflation is rising four times faster than wages (see 9.40am)

Mervyn King denies that there's an easy answer, pointing out that the cost of living is being pushed up by a variety of factors – not all within his controls (oil prices, for example, which push up utility cossts

The only way we could bring inflation down would be to drive wages down.

There's no easy way through this, and it's silly to pretend there is, King adds.

10.55am BST

Next question, about Britain's record low borrowing costs (interest rates haev been just 0.5% for over four years). 

King warns that the return to a more normal world will be difficult, and could involve "asset price falls" as real interest rates rise.

10.52am BST

Did the Bank of England have enough discretion to control inflation during King's time, asks Stephanie Flanders of the BBC. After all, the UK government has announced plans to adjust its remit.

King denies that he needed more discretion, but says that what was "left hanging" in 1997 (when the Bank was handed control of UK interest rates) was flexibility.

What the chancellor is doing will not give us more room for maneuver, but will let us be more transparent over the discretion we are exercising.

Updated at 11.09am BST

10.48am BST

First question from Sky's Ed Conway: is the Bank of England worried that the government is fuelling an unsustainable housing boom through its new support for homebuyers?

Sir Mervyn King replies that a schem that increases the number of transactions is "helpful", but cautions that George Osborne's new "funding for lending" scheme is only temporary:

What is most important is that, when we get back to normality, we do not have a system of taxpayer guarantees for mortgages.

That, King adds, would be a very bad thing….

10.44am BST

King finishes by telling the media that after 89 quarterly inflation reports, it's time to hand over to "the next generation" (Canada's Mark Carney).

10.43am BST

The Bank of England has also predicted a faster fall in UK inflation, but still expects CIP to be above its 2% target for most of the next two years.

Here's the key quote from today's quarterly inflation report:

The economy is likely to see a modest and sustained recovery over the next three years… [but will] remain weak by historical standards.

And it also predicts growth of 0.5% in the current quarter, up from 0.3% in the first three months.

Sir Mervyn King also warned that monetary policy cannot solve all the world's problems, and repeats a familiar theme – that the global economy must be rebalanced.

10.36am BST

BoE raises growth forecasts

The Bank of England has raised its forecast for UK GDP growth, in its new quarterly inflation report.

Sir Mervyn King, speaking now, says that this is the first time he's been able to predict a "brighter economic outlook" since the financial crisis began.

The BoE governor, who steps down this summer, pointed to the 0.3% rise in GDP in Q1 2013.

A recovery is in sight.

But King adds, though, that the main downside risk to UK GDP comes from overseas, and singles out the eurozone.

More to follow

10.32am BST

About that French triple-dip….

Correction: France is not, it appears, actually in a triple-dip recession.

It's certainly back in recession, but its now clear that previous data has been revised, wiping out an earlier contraction in the first half of 2012.

French GDP
Photograph: CNBC

As CNBC explains, the flash estimates for the first and second quarter of 2012 were -0.1 percent before being adjusted up to zero percent.

This seemed to catch a lot of people out. Apologies

More here: Le Big Debate: France Triple-Dip or Not?

10.20am BST

Greece and Cyprus also kept shrinking in the first quarter of the year:

10.10am BST

Eurozone recession in full

Here's the full details.

The eurozone economy shrank by 0.2% in the first three months of this year, as its recession dragged on — dragged down by contractions in France, Spain, Italy, and the Netherlands.

The wider EU economy shrank by 0.1% during the quarter.

This follows a 0.6% drop in eurozone GDP in the last quarter of 2012, and a 0.5% fall acoss the EU. So, the pace of decline is slowing.

But the data means the the eurozone economy is 1% smaller than a year ago, while EU GDP is 0.7% smaller.

The full details, from Eurostat, are here

Updated at 10.10am BST

10.01am BST

Eurozone still in recession

Breaking News: The eurozone recession has deepened, with a 0.2% drop in GDP in the first three months of this year.

9.59am BST

Greek bond yields tumbling

Amid the GDP gloom, Greek bonds are rallying in value this morning. This comes after rating agency Fitch raised its credit rating last night to B-, having concluded that the risk of the country exiting the euro has diminished.

The yield (measure of borrowing costs) on Greek 10-year bonds has tumbled by a whole percentage point to 8.34%. That's a really big move, as the Financial Times's Chris Adams breathlessly points out:

Last summer, Greek 10-year bonds were yielding 30% – so any fund manager who bought then is sitting on quite a profit.

But for Greeks, the economic position is still very, very tough.

As Yiannis Baboulias wrote in the New Statesman last Friday:

The government's decision to increase taxation on heating oil did not only leave many Greeks unable to heat their homes last winter, but also caused general revenue from taxes to drop by €291m, after consumption fell by 68.7%. Since the beginning of the year, due to this and other tax hikes, tax revenues were lower than the targets set by the government and the Troika in the first three months of 2013.

The most terrifying prospect Greece faces in the next few months though, is the devastating unemployment. Overall unemployment in Greece is now 27% while it goes up to 28.7% in certain regions.

9.52am BST

Graph: European GDP

Here's a great graph, showing how Europe's five largest economies have performed since the financial crisis began.

European GDP since 2008
Photograph: Markit

Germany leading the recovery, France stagnating for more than two years, the UK struggling to grow, and deep declines in Spain and Italy….

9.40am BST

UK unemployment data released

Britain's unemployment rate has fallen to 7.8% in the three months to March, down from 7.9% a month ago*.

The Office for National Statistics also reported a drop in the UK claimant count also dropped, with 7,500 fewer people claiming jobless benefit in April.

* – that's 7.9% in the three months to February. Today's data is also a rise compared to the 7.7% in the October-December period.

But the data also showed that wages are lagging well behind the rising cost of living in the UK. Average weekly earnings rose by just 0.8% in the first quarter of the year – the lowest on record. UK inflation is currently running at 2.7%.

Something for the Bank of England governor, Sir Mervyn King, to discuss at his final press conference at 10.30am….

Joe Bond, vice president of trading at City firm Abshire Smith, said the wage data was awful.

Updated at 11.21am BST

9.26am BST

Continental Europe lagging UK and US

The British economy, for once, is outshining its European neighbours.

We learned two weeks ago that UK GDP grew by 0.3% in the first quarter of this year, avoiding another recession. That performance looks even more creditable now, given the economic traumas across the Channel.

But America did better still, growing around 0.6% on a quarterly basis.

Updated at 9.45am BST

9.14am BST

With most eurozone countries having now reported their GDP data, it looks very likely that the region is still in recession.

Linda Yueh, the BBC's chief business correspondent, points out that Spain's economy is also still shrinking (its GDP data was released last week)

9.03am BST

Italy suffering longest recession on record

Italy is now in its longest recession since at least 1970, after its economy shrank again.

Italian GDP fell by 0.5% in the first quarter of this year, meaning its economy contracted by 2.3% over the last 12 months.

Italy has now been shrinking for seven quarters in a row — the longest recession since quarterly records began 43 years ago (according to Reuters).

Updated at 9.07am BST

9.00am BST

The French recession (see 6.44am) could deepen the split between Paris and Berlin, Paul Donovan of UBS has predicted.

He believes Francois Hollande could now renew his push for Europe to ease its fiscal plans:

The worst of times seem in evidence in the Euro area, where French GDP fell 0.2% on the quarter (the third time in four years France has had two consecutive quarters negative GDP). The real threat here is this spurs the French government to push for policies that are odds with those of Germany.

France has already been promised another two years in which to bring its deficit below the 3% target.

8.41am BST

Netherlands still in recession

The Dutch economy has contracted again, with GDP falling by 0.1% in the first quarter of this year.

The Netherlands entered recession three months ago, with unemployment rising and its housing market bubble having burst.

Once one of the strongest-loooking members of the eurozone, the Netherlands is now feeling the full force of the region's decline (there's a good piece on Spiegel here).

8.34am BST

Hungary return to growth

Hungary has bucked the trend this morning, roaring back to growth with a 0.7% rise in GDP in January-March.

Ironic, given Budapest has been at war with the European Union over the last year:

And as Bloomberg explains, the Hungarian government made a series of spending cuts last year and imposed high banking taxes:

Prime minister Viktor Orban sacrificed growth last year to reduce the budget gap and remove the threat of cuts in European Union funding less than a year before parliamentary elections.

The government boosted revenue from Europe’s highest bank levy and taxes on energy, retail and telecommunication industries, which damaged lending and investments.

Updated at 8.49am BST

8.18am BST

Czech Republic GDP slides as recession continues

Gloomy data from the Czech Republic this morning — GDP shrank by 0.8% in Q1 2013. That follows a 0.2% contraction in Q4 2012.

The Czech Republic has now been in recession for more than a year…

Updated at 8.46am BST

8.11am BST

More European GDP data hits the wires….

Austria's economy flatlined in the first three months of 2013. Data just released showed that its GDP was unchanged at 0.0%. That follows a 0.2% decline in the last quarter of 2012.

8.07am BST

European markets open lower

European stock markets have fallen in early trading. The French CAC shed 0.4%, the Italian FTSE MIB lost 0.45% and the Spanish IBEX fell 0.3%.In London the FTSE 100 is down just 4 points.

7.58am BST

France's economy is now 0.4% smaller than a year ago.

Here's how its economic outlook fared over the last four quarters.

Q1 2013: -0.2% quarter-on-quarter

Q4 2012: -0.2% q/q

Q3: 2012: +0.1% q/q

Q2: 2012: -0.1% q/q

Updated at 7.58am BST

7.39am BST

Will Eurozone recession continue?

We find out at 10am BST if the eurozone is still in recession, when overall GDP for the region is published.

Economists had expected a small contraction, of 0.1%. Today's weak data from France (6.44am) and Germany (7.06am) suggests the true figures might be worse…

If so, expect fresh calls for Eurozone leaders to adopt new growth measures, as a matter of urgency,

Michael Hewson of CMC Markets commented:

Today’s latest Q1 GDP numbers are expected to show that the European economy is far from on the right track as EU leaders continue to argue about the merits or otherwise of banking union while economic growth continues to remain elusive and unemployment continues to explode higher, especially for those under 25.

Updated at 7.40am BST

7.15am BST

Triple-dip recession for France

This is the third time France has fallen into recession since the financial crisis began, my colleague Angelique Chrisafis flags up.

It's an ignominious way for François Hollande to mark his first anniversary of being sworn in power, as the BBC's Gavin Hewitt flags up:

Updated at 7.19am BST

7.06am BST

German GDP misses forecasts

Disappointing GDP data from Germany, which posted growth of just 0.1% in the first quarter of 2013.

That's rather weaker than the 0.3% growth expected. 

The German contraction in the fourth quarter of 2012 has also been revised downwards to -0.7% (from -0.6%).

So the eurozone's largest economy has only just struggled back from its winter torpour.

7.02am BST

This graph shows how the French economy has struggled since the start of 2011.

French GDP
French GDP Photograph: /INSEE

That's from INSEE, the French statistics agency, which announced this morning that France was in recession. INSEE reported that manufacturing output was at a "standstill", while household expenditure was "sluggish"

Here's the full statement.

Updated at 4.44pm BST

6.44am BST

France back in recession

Good morning, and welcome to our rolling coverage of the eurozone financial crisis, and other events in the world economy.

France has fallen into recession, as Europe's second largest economy is dragged deeper into the eurozone slump.

Data just released showed that its economy shrank by 0.2% in the first three months of 2013, following a 0.2% contraction at the end of last year. Economists had expected a 0.1% drop.

The figures pile more pressure on François Hollande, who already faces falling public support, record unemployment and pressure from Brussels to reform the French economy.

We'll find out this morning if the eurozone itself is still in recession, with GDP data from several other countries due this morning – including Germany in a few minutes.

it's going to be a busy day… with UK unemployment at 9.30am and the Bank of England's quarterly inflation report — Sir Mervyn King's last one — at 10.30am.

I'll be tracking all the news and reaction through the day…

Updated at 4.44pm BST

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The European Central Bank cuts borrowing costs from 0.75% to 0.5%. Experts predict that more unconventional ECB easing could come in the months ahead. Italian PM wants action on jobs. Germany drags eurozone manufacturing output down…

 


Powered by Guardian.co.ukThis article titled “Mario Draghi urges no let-up in austerity reforms after eurozone rate cut – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 2nd May 2013 11.45 UTC

6.09pm BST

Closing summary

That's all for today, as Mario Draghi and crew head back to Frankfurt after a lively, and significant, meeting in Bratislava.

As my colleague Heather Stewart writes:

The European Central Bank has delivered an emergency quarter-point cut in interest rates but its president Mario Draghi cautioned governments in the recession-hit eurozone against "unravelling" their austerity policies .

The ECB's governing council announced the first cut in borrowing costs since July 2012, reducing interest rates to a record low of 0.5%.The bank's policy meeting in Bratislava made its decision against a backdrop of weak economic data including unemployment across the 17 member countries of the single currency hitting a record high of more than 12%

The euro fell more than 1% against the dollar to .304 in the wake of Draghi's comments. The ECB president also suggested that the ECB would consider imposing a negative interest rate on deposits held at the central bank, to prevent banks parking money at the ECB instead of lending it out to firms. The ECB's deposit rate already stands at zero.

Explaining the bank's decision to cut rates in his regular press conference, Draghi pointed out that GDP across the eurozone has now declined for five consecutive quarters, and, "weak economic sentiment has extended into spring of this year".

However, Draghi urged policymakers to keep faith with austerity amid a fierce debate in Europe about whether crisis-hit countries should be allowed to ease up on their drastic deficit-reduction plans.

"In order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits and continue, where needed, to take legislative action or otherwise promptly implement structural reforms, in such a way as to mutually reinforce fiscal sustainability and economic growth potential," he said.

European Central Bank (ECB) President Mario Draghi (2ndR) arrives for a press conference following the Governing Council Meeting of European Central Bank (ECB) on May 2, 2013  in Bratislava. AFP PHOTO/SAMUEL KUBANISAMUEL KUBANI/AFP/Getty Images HORIZONTAL
Photograph: SAMUEL KUBANI/AFP/Getty Images

Heather's full story is online here.

And you can follow full highlights of the press conference from 1.30pm

In other news…

The Italian prime minister, Enrico Letta, has called for more action on youth unemployment (see 12pm)

Eurozone manufacturing output has fallen again, driven by a drop in production in Germany (see 9.31am)..

But Germany's slump has slowed (see 9.45am).

And in Germany, the Neo-Nazi Golden Dawn party was blocked from using Syntagma Square for its 'Greeks only' food handouts (see 10.27am).

I'll be back tomorrow for another day of rolling eurozone developments, and the excitement of the monthly US jobs data. Until then, thank you and goodnight!

5.53pm BST

In the markets

European sovereign bonds have rallied pretty strongly today, pushing down bond yields deeper into 'safe haven' territory.

Here's a selection of 10-year bond yields:

• Germany: 1.16%

• France: 1.65%

• UK: 1.62%

• Italy: 3.76%

• Spain 4.03%

• Greece: 10.2% (having dipped below 10% earlier)

I wonder if these low bond yields were on Mario Draghi's mind earlier today, when he urged eurozone governments not to abandon their fiscal plans. Will such low borrowing costs embolden leaders in Italy and Madrid to push back harder against Brussels this summer?

Europe's stock markets finished the day in mixed mood, although there's a decent little rally on Wall Street this afternoon.

FTSE 100: up 9 points at 6460, + 0.15%

German DAX: up 48 points at 7961, + 0.6%

French CAC: up 2 points at 3858, + 0.05%

Spanish IBEX: down 12 points at 8406, -0.15%

Italian FTSE MIB: down 19 points at 16748, – 0.12%

And on Wall Street, the Dow Jones is currently up 111 points at 14812, +0.78%, after General Motors and other big companies announced higher profits.

Trader Damian Bagarozza, left, and specialist David Haubner work on the floor of the New York Stock Exchange Thursday, May 2, 2013. Stocks are opening higher on Wall Street, a day after the market's biggest fall in two weeks, after General Motors and other big companies announced higher profits.
Trader Damian Bagarozza, left, and specialist David Haubner work on the floor of the New York Stock Exchange Thursday, May 2, 2013. Photograph: Richard Drew/AP

5.02pm BST

Forgot to mention this earlier, but the ECB announced this afternoon that it is prepared to accept Cyprus's sovereign debt as collateral in its refinancing operations (the statement is here).

That is part of Cyprus's 'rehabilitation' now that its bailout programme has been agreed. Pawel Swidlicki of Open Europe, though, suspects trouble:

4.52pm BST

Michael Hewson: negative rate talk hit euro

Here's Michael Hewson of CMC Markets on the ECB rate decision, and press conference:

The admission that the governing council was keeping an open mind on negative deposit rates, in spite of the risks, was not expected… and precipitated a sharp sell-off in the euro currency, and a little bit of choppiness in equity markets.

Any expectation of some non-standard measures to help kick start lending to small businesses was left disappointed with only a nod to a continued discussion about any conclusions as to how to help SME lending.

 While Draghi expressed his concerns about the weak economic outlook, he was keen to impress on other EU countries that they should continue to press on with the currently agreed reform programs in remarks clearly aimed at the governments in France and Italy.

Updated at 4.56pm BST

4.28pm BST

The euro continues to slide, now down 1% or 1.3 cents against the US dollar at .304.

4.14pm BST

Greek bonds have rallied – and here’s why

Greek bonds have risen in value today to the point where its 10-year bond yields dipped below the 10% mark this afternoon.

Quite a recovery – given these bonds were trading at yields around 30% last June, even after Greece wrote of a substantial chunk of its debts (the vertical line last March):

Greek 10-year bond yields, to May 2013
Photograph: Thomson Reuters

The recovery reflects the perception that Greece is no longer at risk of plunging out of the eurozone anytime soon (the chatter these days is about Cyprus, Italy or even Germany quitting – for one reason or another).

And some analysts do see encouraging signs in the Greek economy. The economy is still contracting, but after five years of recession there is hope that GDP will start growing in 2014. At some point, the theory goes, the fiscal rebalancing (with its painful wage and benefit reductions and tough cuts to government spending) must translate into a more competitive economy. Even within the single currency.

As covered at 9.45am, the slump in Greece's factory sector slowed down last month. And yesterday, it began its privatisation programme by selling a €652m stake in a betting firm. That's not as much as Athens had hoped – but it's a start…..

Updated at 4.33pm BST

3.19pm BST

Mario Draghi has been signing the new €5 note for a group of young people, all born since the euro was created, while the European anthem rang out.

Draghi was in ebullient mood, calling euro notes:

 …the most visible and tangible symbol of European integration, used from one end of the continent to the other.

Just don't try taking too many out of Cyprus at once.

Draghi added:

The children who are here today are growing up in a continent of peace. They belong to the “euro generation” – they have only known one currency.

And the Telegraph's Bruno Waterfield kindly provides a photo:

3.05pm BST

Mario Draghi's suggestion that the ECB could charge banks who want to leave money with it has sent traders dashing into French and Belgian government bonds:

2.50pm BST

Tweet of the week

The ECB is now showing off its new €5 notes… but Charles Forelle of the WSJ would rather hear Draghi answer a question on Cyprus's capital controls:

Updated at 2.51pm BST

2.47pm BST

Press conference ends

The press conference is over with NO mention of the situation in Cyprus — no questions about the fiasco of its original bailout, or the ongoing capital controls, unprecedented in the (short) history of the eurozone.

2.44pm BST

Draghi: we’re frustrated about unemployment too

The final question harks back to Pope Francis's tweet about how unemployment is caused by a "self-centred mindset bent on profit at any cost" (see 12.16pm). Is the ECB frustrated that joblessness in the eurozone is at record highs?

"We are frustrated, yes", says Mario Draghi, who explains that the ECB has to work its powers through the financial system

We can't just throw money out of helicoptors. We have to go via the banking system.

Updated at 3.36pm BST

2.39pm BST

The traditional question from Ireland, on whether there's any progress on its push to restructure its promissary notes, is met with the traditional answer – no.

2.38pm BST

Draghi: We have not fallen out with Germany

Draghi denies that the ECB and Germany have clashed, following Angela Merkel's recent comments that eurozone interest rates would be rather higher if they were aimed at the German economy.

ECB independence is dear to all, and especially, I would say, to German citizens

The ECB president points out that every member of the eurozone has its own business cycle:

They are not synchronous and they differ very much across the euro area. So the monetary policy measures which can benefit in some may not benefit in others.

One of the challenges of running a single currency….

2.33pm BST

Draghi gives a bit more details on how the ECB will help small firms get credit — another of the decisions taken today.

Dubbed the ABS programme, the ECB's governing council has:

"decided to start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations.

But, but… didn't the practice of bundling loans into new securities that were then sold on to other banks actually help to cause the crisis, asks one journalist?

Draghi denies that the ECB would be encouraging banks to make dodgy loans. Instead, he suggests that lending conditions are actually improving, as the rejection rate for small firms seeking loans is dropping.

2.21pm BST

50 basis-point cut was on the table

Economist Frederik Ducrozet sums up Draghi's comments about whether there was unanimous support for today's decisions:

That's another reason the euro has fallen, of course.

Updated at 2.22pm BST

2.19pm BST

Euro falls

The euro took a dive against the US dollar following Mario Draghi's comments about the possibility of negative eurozone interest rates for commercial banks (see 2.15pm).

It has dropped more than a cent to as low as .308.

2.15pm BST

Draghi doesn’t rule out negative interest rates

Crumbs – Mario Draghi suggests that Europe could implement negative interest rates. Not for the man in the street, but for banks who want to lodge money with it.

The ECB's deposit facility rate was left at 0.0% today. But asked whether it could be cut further, Draghi says that the ECB has an "open mind". It would have unintended consequences, he says, but nothing that the ECB couldn't deal with.

(there's a great blog post on negative interest rates here, by Frances Coppola – The strange world of negative interest rates).

2.08pm BST

Draghi has given a strong hint that today's decision to cut interest rates was not unanimous.

He tells the press conference that:

There was a very strong pervading consensus towards an interest rate cut, within that the consensus was towards a 25-bais point cut.

2.06pm BST

Draghi's comments about taxes in Europe being too high has caused a stir:

2.04pm BST

Draghi: On growth vs austerity

Michael Steen of the FT
Photograph: ECB

Michael Steen of the Financial Times asks Draghi whether today's decision is "too little too late", given the weak state of the eurozone economy,

Draghi denies the charge, claiming that the ECB has been "extraordinarily accomodative". He points to rising stock markets and falling bond yields as signs that the ECB has been making decent progress.

Steen also asks Draghi to elaborate on his comments about how governments should not "unravel" their progress on deficit reduction (see 1.48pm). Is this his contribution to the growth-vs-austerity debate?

Draghi responds by reminding us of how the crisis began — with governments with deficit/GDP ratios which were too high, which meant they were losing the confidnce fo the financial markets.

We tackled those tail risks, Draghi insists (pointing to his OMT programme which could be used to buy peripheral government debt if needed). We are only "left with the memory" of those days of dangerous bond yields.

And there is no question that fiscal consolidation is contractionary in the short term, Draghi says. "Taxes were already too high in some countries", so obviously raising them higher would hit demand.

And countries need credibility, he continues — so they should not abandon the progress they have made in reducing their deficits and making structural reforms.

In Summary: Draghi is arguing that countries cannot simply abandon their plans for deficit reduction and embark on a borrowing spree to fuel growth.

1.54pm BST

Onto the Q&A — and the honour of the first question goes to a local journalist, who asks if Mario Draghi could imagine rates being cut below their new record low.

Draghi doesn't give a terribly straight answer in English – but explains that the ECB is watching the data, and "stands ready to act" if needed.

He also points to the ECB's decision to maintain its refinancing operations until July 2014 — we shouldn't underestimate the importance of this commitment, he claims.

1.48pm BST

Draghi: don’t unravel progress on government borrowing

Draghi's final prepared remarks focus on government deficits — he says it is crucial that eurozone governments do not "unravel" the progress made in reducing their borrowing needs.

That sounds like an intervention into the ongoing austerity-vs-growth row.

Draghi is arguing that governments must focus on structural reforms, to ensure long-term growth.

Updated at 1.49pm BST

1.46pm BST

Mario Draghi
Mario Draghi Photograph: /ECB

Draghi is rattling through the ECB's official statement – it'll be online in a few minutes.

The section on economic outlook is worth flagging up now:

Overall labour market conditions remain weak … weak economic sentiment has extended into the string of this year … euro area export growth should benefit from a recovcery in global demand … the improvements in financial markets since last summer should work their way through to the real economy… euro are economic activity should stabilise and recover gradually in the second half of the year. The risks … continued to be on the downside.

(grabbed from Reuters)

1.43pm BST

As expected, Draghi also reminds governments that they need to take advantage of the current stable markets and make structural reforms (this is one of his favourite themes)

1.42pm BST

Thirdly, the ECB has decided to begin discussions on how more support can be given to smaller firms through collateralising SME loans

(hopefully we should get more details on this in the Q&A)

1.41pm BST

The ECB is closely monitoring money market conditions, Draghi says, and has decided to continue its "main refinancing operations" until at least July 2014.

Updated at 1.41pm BST

1.37pm BST

Draghi says that today's interest rate cut should help the eurozone economy recover "later in the year".

1.36pm BST

Draghi begins by pointing to the weakness of the eurozone economy.

He says that the monetary and loan environment remains subdued, and that weak economic sentiment has extended into the spring.

Monetary policy will be accomodative for as long as needed, he add.

1.35pm BST

The ECB press conference begins with Mario Draghi telling reporters that a number of decisions have been taken, including new decision on credit availability.

He also revealed that European Commissioner Olli Rehn attended today's meeting,

1.34pm BST

The ECB press conference is underway

ECB press conference
Photograph: ECB

1.29pm BST

Watch the ECB press conference

You can watch the ECB press conference on this webcast (although it's a little slow to load right now).

It's also been transmitted live on Bloomberg TV.

1.26pm BST

Alice Ross, the FT's currency correspondent, points out that Draghi's views on inflation will be interesting:

The consumer prices index fell sharply to 1.2% last month, from 1.7%. In the ECB's world, price stability means an inflation rate close to, but below, 2%.

Alice has also summarised the immediate reaction to the rate cut over on the FT's site (registration required).

1.21pm BST

David Brown, of New View Economics, suggests today's rate cut is more symbolic than of real practical help:

The ECB rate cut is no surprise as it was well flagged by Draghi at last month's meeting. Is it enough? No. The marginal effect of the cut is very limited, but at least it should have some symbolic rallying effect on economic confidence.

1.20pm BST

My colleague Heather Stewart writes:

Mario Draghi, president of the European Central Bank, has delivered an emergency quarter-point cut in interest rates in a bid to kickstart the recession-hit eurozone economy.

After holding its policy meeting in Bratislava on Thursday, the ECB's governing council announced that it would reduce interest rates by a quarter-point, to 0.5%. It is the first cut since July 2012, shortly before Draghi promised to do "whatever it takes" to save the single currency and calmed markets in what became known as the "Draghi put".

Heather's full news story is here: Eurozone interest rates cut to 0.5%

1.15pm BST

Howard Archer of IHS Global Insight agrees that the ECB's big challenge now is to get credit flowing to small firms in the eurozone:

It seems unlikely that the ECB will take interest rates any lower than 0.50%, so attention is likely to increasingly focus on how the ECB can help facilitate getting more credit through to smaller and medium-sized companies in countries where they are finding it hard to get bank credit.

1.12pm BST

Lorcan Roche Kelly, Trend Macrolytics's chief Europe strategist, makes a very good point (as usual): 

Cutting the European Central Bank's marginal lending facility rate*from 1.5% to 1% could reduce the cost of taking emergency liquidity assistance from the ECB.

* – what the ECB charges banks to borrow from it

1.08pm BST

What will Draghi say?

Now attention turns to the ECB's press conference in Bratislava in 30 minutes time.

Sony Kapoor of the Redefine thinktank hopes president Mario Draghi will announce extra stimulus measures (such as the extra borrowing help for small firms explained at 11.22am)

Draghi, though, is also fond of reminding politicians that monetary policy can only do so much:

12.58pm BST

Key event

The ECB rate cut was generally expected (and well-flagged), as you'll know if you're been reading the blog this morning.

With eurozone inflation falling to 1.2%, well below the target of just under 2%, the governing council had every reason to cut rates to stimulate demand in the face of a pretty rubbish economic outlook.

There's no dramatic reaction in the financial markets. After an early wobble, the euro has actually risen slightly to .32.

12.50pm BST

As well as cutting its main refinancing rate from 0.75% to 0.5%, the ECB voted to leave its deposit rate (what it charged banks to leave cash with it) at 0.0%.

The marginal lending facility (what it costs banks to borrow from the ECB) is also cut to 1%, down from 1.5%.

Updated at 12.52pm BST

12.45pm BST

ECB DECISION

The European Central Bank has voted to cut interest rates by 0.25% to 0.5%.

More to follow!

12.40pm BST

Just five minutes to go until the ECB announces its monetary policy decisions, following today's meeting in Bratislava.

The financial markets are pretty calm — the euro is down 0.18 cents at .316. And the FTSE 100 is down 10 points at 6441.

12.25pm BST

City pundits and analysts are speculating about what the ECB might announce this afternoon.

Here's a couple of sensible suggestions:

And a couple of more frivolous ideas for what the ECB might call a new scheme to help small firms:

Updated at 12.26pm BST

12.16pm BST

The Pope tweets:

Yesterday Pope Francis spoke about the unemployment crisis during his weekly address in St Peter's Square (more details here).

Updated at 12.21pm BST

12.00pm BST

Letta: Youth unemployment crisis must be tackled

Enrico Letta and Jose Manuel Barroso hold a press conference in Brussels, Belgium.
Enrico Letta and Jose Manuel Barroso hold a press conference in Brussels, Belgium. Photograph: Isopix/Rex Features

Italy's new prime minister, Enrico Letta, rounded off his mini-tour of Europe this morning by calling for new measures to address eurozone youth unemployment.

On a visit to Brussels, Letta said politicians and officials need to make progress on the issue at next month's EU summit:

We would ask above all that the fight against youth unemployment should be the most important, most concrete message to come out of the June European Council.

The eurozone youth jobless rate hit a new record high of 24% last month, fuelling fears about a lost generation and social unrest.

Updated at 12.32pm BST

11.22am BST

What might the ECB do?

The ECB's governing council faces a tricky dilemma today. There are plenty of reasons to ease monetary policy (this morning's weak manufacturing data is just the latest), which is why a rate cut is pencilled in.

But that alone will not a) cheer the markets, and b) (more importantly) provide much of a stimulatory boost to the eurozone.

Firms who are struggling to stay afloat in Italy or Spain, for example, are not suddenly going to take out expansionary loans on the back of a quarter-point rate cut. And banks with unrecognised bad debts in the vault aren't going to suddenly stop hoarding capital either.

As Carsten Brzeski, senior economist at ING, puts it:

Data released since the April rate-setting meeting have provided further evidence that more monetary action could be needed in the euro zone…

But as long as the transmission mechanism is not working, a rate cut could simply go up in smoke.

Which is why several City anaysts believe Draghi may announce new measures to help small firms who do want to borrow.

Other options in the toolkit include full-blown quantitative easing (don't get your hopes up) or 'verbal' intervention — basically Draghi telling us all how long he thinks rates might stay at current levels.

It is worth remembering that Draghi has already stabilised the eurozone and dragged down peripheral bond yields in his tenure as ECB president. That recovery, though, has still not made its way to the streets, homes and offices of the euro area,

Kit Juckes of Société Générale sums it up (typically) well:

The bottom line on the ECB today is that the real world is a different place from the fantasy world of markets. And the ECB has done a far, far better job of curing the market world than the real one.

That is to say, we have a steady currency, tight spreads, low yields, and equity markets that are up on the year. Now, Mario, you need to tackle the real world's woes of recession, impending deflation, and catastrophic unemployment. And that is far, far harder…

Re-Define's Sony Kapoor agrees that a rate cut is not enough:

While Marc Ostwald of Monument Securities reckons the ECB will leave rates unchanged, as it hasn't finished preparing the unconventional measures it wants to deploy alongside it:

The rationale is simple…a rate cut will do nothing to help the distressed peripheral economies (or indeed Germany), given the monetary transmission mechanism remains severely impaired…as such the ECB needs to find some further 'unconventional measures' to try and enhance the efficacy of a refi rate cut, and comments from various ECB officials (above all Constancio and Asmussen) last week made it clear that the process of coming up with such measures is by no means complete.

10.54am BST

France has sold €4bn of 10-year debt at a record low yield of 1.81%, as the bond market bubble continues to drive borrowing costs lower.

Traders bid for twice as much debt as Paris had on offer – which helped to drive down the bond's interest rate to its all-time low.

The French economy may be struggling, but that isn't deterring investors who are hungry for yield (especially as Central Banks maintain such loose monetary policy).

10.27am BST

Clampdown on Golden Dawn’s food handouts in Athens

Away from economic data….the mayor of Athens has declared a victory for democracy after banning the neo-Nazi Golden Dawn party from handing out free food in Syntagma Square.

Golden Dawn was barred from using Syntagma for its regular food handouts to the needy today. Mayor Giorgos Kaminis took the decision amid growing alarm over its "Greeks only" policy – in line with its virulent anti-immigrant views.

Kaminis told Skai TV.

Syntagma Square will never be used again by anyone to hand out goods,

This square belongs to the city’s residents. Only the municipality can decide how it is used.

Greece's Kathimerini reports that riot police blocked Golden Dawn from accessing Syntagma this morning. Instead, the party apparently distributed its food at its own headquarters.

Golden Dawn's food handouts have helped to build the party's popularity among Greeks suffering through its lengthening recession. 

It is vowing to continue the food handouts: As Helena Smith wrote last night:

Pledging to defy a ban by the capital's mayor, the extremists said they would go ahead with the handout of traditional Orthodox Easter fare, including lamb and eggs, to Greeks afflicted by draconian austerity.

"It is food that is aimed for the thousands of Greek families blighted by the genocidal policies of the memorandum," said the party, referring to the loan agreement Athens has signed with international creditors to keep the debt-crippled country afloat.

The neo-fascist organisation said the event was aimed solely at those Greeks who could not afford to enjoy Easter because of budget cuts and record levels of unemployment.

"Priority will be given to families with three or more children," it said in a statement. "We remind the mayor that in Greece we still have a democracy."

9.55am BST

Heartening news from Britain's construction sector: it clawed its way back towards growth in April, with a monthly PMI of 49.4 (up from 47.2). Construction has been dragging UK GDP down in recent months — at this rate, it might actually help the UK grow this quarter….

9.45am BST

Greek manufacturing slump is slowing

Greek manufacturing PMI to April 2013
Photograph: Markit

Amid the gloom of Europe's strinking manufacturing base, Greece's factory sector actually posted its best monthly data in 21 months.

At 45, Greece's manufacturing PMI still showed a contraction, but it's a significantly better result than March's 42.1. Markits report showed a smaller fall in new orders than previously, and a slowdown in the rate at which firms cut jobs.

Greece won't have turned the corner until new orders start to rise and firms begin rehiring. Markit warned that the sector will still drag on the Greek economy for several months. But it could be a glimmer of hope….

9.31am BST

German manufacturing output stumbles…

Eurozone manufacturing PMI, to April 2013
Photograph: Markit

Europe's economic downturn has worsened, with manufacturing output sliding to a four-month low in April.

The decline was mainly due to shrinking activity in Germany. But while Europe's biggest economy had a worryingly weak month, there were encouraging signs in Greece (more to follow).

Markit's final manufacturing PMI survey for the eurozone came in at 46.7, which is a slightly more painful contraction than March's 46.8.

Here are the key numbers:

Germany: 48.1, down from March's 49 [anything below 50=shrinking output]

France: 44.4, up from March's 44.0

Italy: 45.5, up from 44.5

Spain: 44.7, up from 44.2

Greece: 45.0, up from 42.1

9.05am BST

OECD takes red pen to Italian forecasts

The OECD has given Italian prime minister Enrico Letta a reminder of the challenge he faces, by slashing its economic projections for Italy.

It cut its forecast for Italy 2013 GDP to -1.5% from 1.0% (in line with the IMF's latest projection).

The OECD also hiked Italy 2013 Debt/GDP Forecast To 131.5% from 130.4%, and its 2014 prediction to 134.2% From 132.2%.

Reminder: Greece's austerity package is designed to drag its debt/GDP ratio down to 120% by 2020 — seen by the IMF as a key measure of debt sustainability.

8.47am BST

Spanish manufacturing output slides again

Spain's manufacturing sector has now been shrinking for two years, according to a new survey showing the Spanish downturn continued last month.

Markit's monthly manufacturing PMI (a measure of activity across the sector) came in at 44.7; slightly better than March's 44.2, but still showing a steep decline.

Markit's Andrew Harker warned that there was "nothing in the survey" to suggest an end to the slump.

Another signal to the ECB that economic activity in the periphery is shrinking.

8.30am BST

Guy Johnson, Bloomberg's man in Bratislava, reports that president Draghi has been whisked in for the meeting:

8.28am BST

The euro has dropped a little this morning, as a rate cut looks increasingly likely (but not everyone believes the ECB governing council will do it) – currently down 0.2% at .315.

Many European traders are catching up after yesterday's May Day holiday:

Updated at 8.28am BST

8.14am BST

All eyes on the European Central Bank

Good morning, and welcome to our rolling coverage of the latest events in the eurozone financial crisis and across the world economy.

Mario Draghi, president of the European Central Bank, takes centre-stage again today as the ECB gathers for its monthly meeting.

With the eurozone economy shrinking, inflation dropping and unemployment at record highs, there's a strong expectation that the ECB will heed the danger signs and cut eurozone interest rates – trimming the main refinancing rate from 0.75% to 0.5%.

But some economists are hoping for more decisive action from Draghi — such as new measures to stimulate bank lending to Europe's small businesses.

The ECB has decamped to Slovakia, Bratislava for today's meeting. We get the decision at 12.45 BST, but followed by the closely-watched press conference at 1.30pm BST.

We shouldn't pretend that a small cut in interest rates will cure the patient, though.

As Jennifer McKeown of Capital Economics points out:

The possible announcement of policies to stimulate bank lending, particularly to SMEs and in the region’s periphery, might be more helpful.

But even this would leave the ECB lagging behind other central banks.

So, we'll see. I'll be watching the events in Bratislata, along with other developments around the eurozone and beyond….

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

PMIs from the euro-zone’s largest economies point to widening gulf between France and Germany. Grim outlook for France’s economy. UK public finances better than expected. US jobless claims rise and existing homes sales inch higher…



Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: French economy worsens as Germany powers ahead” was written by Josephine Moulds, for guardian.co.uk on Thursday 21st February 2013 15.02 UTC

2.58pm GMT

And with that I’m afraid we’re going to close the blog early today. Thanks for all your comments.

2.57pm GMT

Markets hammered by French data

European markets have been hammered today, on the back of data showing the French economy continues to falter, and fears that the US could switch off its stimulus programme.

  • UK FTSE 100: down 1.64%, or 105 points, at 6290
  • France CAC 40: down 1.87%
  • Germany DAX: down 1.68%
  • Spain IBEX: down 1.72%
  • Italy FTSE MIB: down 2.81%

2.47pm GMT

UK public finances disappointing – IFS

Back to the UK’s public finance data again (see 9.40am and following), which the highly-respected Institute for Fiscal Studies says will be a disappointment for George Osborne

Rowena Crawford at the IFS said:

As the chancellor prepares for his budget next month, he will likely be disappointed by today’s public finance figures. January is an important month for receipts but, although growth in income tax receipts was strong, this was partially offset by very weak growth in corporation tax receipts. Together this leaves tax receipts running below the growth forecast for the year as a whole. Spending continues to run higher than forecast, due to strong growth in spending on both welfare benefits and on the delivery and administration of public services.

As a result borrowing is now on course to be almost £7bn higher this year than the OBR forecast in December. Therefore borrowing is more likely to be slightly higher rather than slightly lower than last year’s level, although much uncertainty remains and things could still change in the final two months of the year.

What matters more than the level of borrowing this year is the outlook for revenues and spending in the medium term. Some of the extra borrowing so far this year is due to Whitehall departments underspending by less than assumed. This may not persist and therefore might not concern the chancellor – in particular if the money is being spent well.

Potentially more concerning is the low growth in tax receipts and the high growth in spending on welfare benefits: were these to persist into future years then the large planned fiscal tightening might need to be increased.

Updated at 3.02pm GMT

2.42pm GMT

Dutch consumer morale hits a low

There are clouds gathering over the Netherlands, with reams of data out today showing it could struggle to hold onto its prized triple-A credit rating. An unholy trinity of releases showed:

  • Consumer confidence hit its lowest point since records began in 1986, at -44 points
  • Unemployment hit its highest level in around 16 years
  • House prices dropped at their sharpest rate over a year since 1995

Updated at 2.44pm GMT

2.12pm GMT

Growth in US factory activity slows slightly

And here comes US manufacturing PMI data, which looks pretty good. The pace of growth of the factory sector slowed in February, but remained near a nine-month peak thanks to strong domestic demand.

Markit’s manufacturing PMI came dropped back to 55.2 from 55.8, still comfortably above the 50 mark that separates growth from contraction.

But job creation in the sector hit a three-month low. Chris Williamson at Markit said:

While the survey therefore paints an encouraging picture of the manufacturing sector, helping to drive a return to growth for the economy as a whole in the first quarter of this year, firms still need to see greater confidence in the longer-term economic outlook for employment numbers to pick up again.

2.06pm GMT

Ireland looks to issue 10-year bond before summer

Back to Ireland, which is apparently looking to issue a 10-year bond in the first half of this year.

Reuters reports that Irish finance minister, Michael Noonan, who is on a visit to London, said Ireland wanted to prove it is ready to exit its bailout programme.

I think the issuance will be 10-year and that will be one of the serious tests of market conditions and of our ability to get back into the market. I would like that we would be back in the markets fully by 2014… and at present I think we are on track.

2.02pm GMT

Panic-driven austerity could lead to eurozone breakup, say economists

Panic-driven austerity in the eurozone produced the double-dip recession and could have even more dire consequences, write two economists on the VOX blog.

Paul De Grauwe of the London School of Economics and Yuemei Ji of the University of Leuven argue that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north.

The conclude that resistance to austerity measures could once again raise the spectre of countries wishing to leave the eurozone.

The intense austerity programs that have been dictated by financial markets create new risks for the eurozone. While the ECB 2012 decision to be a lender of last resort in the government bond markets eliminated the existential fears about the future of the eurozone, the new risks for the future of the eurozone now have shifted into the social and political sphere. As it becomes obvious that the austerity programmes produce unnecessary sufferings especially for the millions of people who have been thrown into unemployment and poverty, resistance against these programs is likely to increase. A resistance that may lead millions of people to wish to be liberated from what they perceive to be shackles imposed by the euro.

Updated at 2.39pm GMT

1.52pm GMT

US jobless rise more than expected

More US data reveals that jobless claims across the Atlantic rose more than expected last week, but remain at levels consistent with a steady improvement in the jobs market.

Initial claims for unemployment benefits rose 20,000 to a seasonally adjusted 362,000, compared with forecasts of 355,000.

Ryan Sweet, a senior economist at Moody’s Analytics, told Bloomberg:

Businesses just seem to be sitting tight with regard to layoffs, which is reason for optimism. If we get through these hurdles over the next couple months the job market should begin to improve more noticeably.

Updated at 1.55pm GMT

1.47pm GMT

US inflation unchanged

US inflation was unchanged in January, which should make it easier for the Federal Reserve to maintain its ambitious stimulus programme.

Official data showed that weak petrol and food prices helped suppress annual inflation, which came in at 1.6%, down from 1.7% in December.

1.24pm GMT

French minister fights back

The French minister who recieved a letter lambasting the “lazy” French (see 8.50am) has retaliated, reports the Telegraph. Arnaud Montebourg, minister for industrial renewal in France, told Maurice Taylor, chief executive of US tyremaker Titan:

Your comments, which are as extremist as they are insulting, display a perfect ignorance of our country, France.

He pointed out that since Titan is “20 times smaller” than “French technology leader” Michelin, which is “35 times more profitable”, Taylor “could have learned and gained enormously from a French base.”

Updated at 2.10pm GMT

12.06pm GMT

UK back in the currency wars, says economist

The pound regained some ground today against the dollar, after the better-than-expected public finances data. But it is expected to stay weak, as a result of signs the Bank of England could expand the quantitative easing programme.

Sterling was down 0.1% on the day at $1.5223, recovering for a two-and-a-half-year low it hit earlier in the day.

But, says Nick Beecroft of Saxo Bank, the UK is very much back in the currency wars.

When the UK economy hit the doldrums in the wake of the credit crunch in 2008, authorities were left with two main weapons to fight their way out of recession: low interest rates and a weaker sterling to help boost exports. Given that, historically, low rates have failed to boost consumer spending by alleviating households’ debt burden, UK policy makers will be tempted to manipulate their currency.

When asked about the perceived potential benefits of QE, central bankers of the US, UK and the Eurozone will wax lyrical about some combination of improved monetary transmission, improved sentiment through higher asset prices, cheaper government bond rates, leading to lower mortgage rates and project discount rates, and fear of inflation which promotes near term consumption, but the one benefit that dare not speak its name is currency debasement. We’ll never hear an explicit admission from any of those central banks, that a major corollary benefit of their QE programme is a decline in the value of their currency. That would be tantamount to a declaration of economic war – a trade war – such as the one which so damagingly extended and deepened the 1930’s Depression.

The trouble is that, with the political uncertainty about the future of the UK’s relationship with the EU hampering investments and British export performances since 2000 being the worst among the G20 nations, achieving economic growth will be difficult. The question is: how long will the Bank of England be able to keep its powder dry and refrain from currency devaluation.

Updated at 12.25pm GMT

11.38am GMT

UK factory orders better than expected

Back to the UK, where factory orders improved more than expected in February.

The CBI’s industrial trends survey rose to -14 from -20 in January, beating expectations of a reading of -15.

Of the 436 manufacturers, 15% responded that total order books were above normal and 29% said they were below, giving a balance of -14%

The export order book balance also rose to -20 from -29.

Anna Leach of the CBI said:

The rebound in manufacturing orders and expectations for output growth provide some further signs of improvement in the outlook for the UK economy. However, exports order books are likely to remain relatively weak until global conditions, especially in the eurozone, improve more markedly.

11.28am GMT

Irish finance minister sees compromise on EU bonus talks

Sticking with Ireland, Irish finance minister Michael Noonan says he expects a compromise to be secured on a proposal to cap bankers’ bonuses.

His view is of particular interest as Ireland currently holds the European Union’s rotating presidency.

Negotiations to introduce a cap on bankers’ bonuses in the European Union stalled on Tuesday after EU countries and the bloc’s parliament clashed over how far to go in curbing pay for the industry’s top earners.

Noonan said on Bloomberg TV:

We think there is a median where a settlement can be reached without upsetting the cost base in the city of London or without depriving people of rightfully earned bonuses. But is has to be done in a new formulation.

Updated at 11.32am GMT

11.16am GMT

Spain bond sale sees good demand

Over to the debt markets, where Spain has sold more bonds than targeted, thanks to strong demand.

Madrid sold €4.2bn of debt due in 2015, 2019 and 2023, compared with a target of €3bn-€4bn, and borrowing costs eased.

The bond due in 2019 had an average yield of 4.275%, almost 2.5 percentage points lower than yields paid at its last outing in July, at the height of worries about the eurozone.

The bond due in 2015 had an average yield of 2.54%, compared with 2.82% in February.

The bond due in 2023 sold at a yield of 5.2%, in its first auction since it was introduced.

But traders said the sale was helped by the amount of money central banks are pumping into markets. Lyn Graham-Taylor at Rabobank said:

This is a strong set of results and continues the theme of decent demand for Spanish debt. We still believe this to be largely driven by the large amount of central bank liquidity in the system rather than an improvement in the fundamentals of Spain and major progress towards fiscal union being made by the eurozone.

Ireland, meanwhile, sold €500m of three-month Treasury bills at a yield of 0.24% – close to the lowest levels it has reached since Ireland returned to the debt markets last year.

Updated at 11.31am GMT

10.36am GMT

UK public finances flattered by one-offs, says economist

Here’s David Tinsley of BNP Paribas on the UK public finances data. It seems the longer the economists have taken to digest the figures, the gloomier they are…

The UK public sector finances get more confused with reclassifications by the month. But looking through the smoke, things don’t look too jolly.

The figures are being flattered by one-offs, but the big picture is the consolidation effort stalled in 2012/13. Indeed, the underlying deficit actually rose a little. The best one can say is that it is against a backdrop where the economy showed zero growth, so at least the rise wasn’t larger. But there may be a storm brewing if the economy doesn’t show some growth soon.

Updated at 10.39am GMT

10.29am GMT

EU parliament president tells Italians how to vote

The president of the European parliament has told Italians not to vote for Silvio Berlusconi in this weekend’s elections, in what looks like an unwise move that could easily backfire.

Martin Schulz – once compared to a Nazi concentration camp guard by Berlusconi – urged Italian voters to ‘make the right choice’. He said:

Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behaviour in government and personal escapades.

Much is at stake in the forthcoming elections, including making sure that the confidence built up by (prime minister) Mario Monti is not lost. I am very confident that Italian voters will make the right choice for their country.

The fear is that his comments will prompt a backlash in Italy.

Updated at 10.34am GMT

10.11am GMT

Here’s Chris Williamson on the public finances data, which he says makes it likely the UK will lose its triple-A rating.

The government’s borrowing target for the year of £108.5bn is still looking unrealistic. Borrowing for the year is now looking likely to come in around £5-10bn higher than the government was hoping, and could easily end up higher than the £120bn seen in 2011-12 if tax revenues continue to disappoint.

With borrowing rising and the economy stagnating over the past year, the UK’s AAA credit rating is looking increasingly at risk. The spring budget will need to address the concern that more stimulus is needed besides central bank action in order to get the economy on a sustainable recovery path. Without a credible plan from the government to break the vicious circle of a sluggish economy, low tax revenues and rising public sector borrowing, the credit rating agencies are likely to lose their patience.

Updated at 11.14am GMT

10.02am GMT

QE ‘profits’ reduce UK deficit less than hoped

It should be noted, the UK public finances data enjoyed a £3.8bn boost from ‘profits’ from the Bank of England’s holdings in the gilt market, as a result of the quantitative easing programme.

But the ONS estimates that this interest income will only reduce the deficit by £6.4bn, significantly less than the £11.5bn the government’s independent budget watchdog estimated in December.

Reuters writes that this is because the ONS would not allow the full amount transferred to count towards reducing the budget deficit.

Updated at 10.10am GMT

9.58am GMT

UK data cuts threat of AAA downgrade – economist

The UK could escape the embarrassing fate of losing its prized triple-A credit rating, writes James Knightley of ING, following better than expected public finances data (see below).

This may be perceived as lowering the threat of an imminent AAA rating downgrade from one of the major ratings agencies and so is going to be a short term positive for sterling.

But George Osborne still faces a difficult decision at next month’s budget, writes Capital Economics:

With borrowing still very high and fiscal progress appearing to have ground to a halt, the dilemma faced by the Chancellor at next month’s Budget over whether to tighten fiscal policy, or loosen and go for growth, remains acute.

9.51am GMT

But UK borrowing still higher than last tax year

But it is still not clear whether the UK chancellor will be able to say that deficit reduction is on track when he presents his budget in less than a month.

Borrowing since the start of the tax year in April 2012 came to £93.8bn, excluding a one-off boost from the transfer of Royal Mail pension assets.

That is 1.6% higher than at the same point in the 2011/12 tax year, and Osborne faces a tough task to meet his target to bring full-year borrowing down to £108.5bn, from around £120bn in 2011/12.

Marc Otswald of Monument Securities says, leaving aside the slightly larger than expected monthly surplus, there is nothing to comfort Osborne in the data. He points out some of the low lights of the ONS report (citing figures for the tax year to date, compared with the same period in the previous tax year):

- Income Tax receipts a little lower but that is no surprise given
a weak economy

- Corporation Tax still very weak £36.8bn vs. £40.5bn

- VAT receipts up: £85bn vs. £83.8bn, but that is in fact
less than the pace of inflation… so weak

- Outlays – horrible, net departmental outlays £476.9bn vs.
£466.3bn, with some offset from Interest payments due to fall
in Gilt yields – so much for getting the budget under control

9.40am GMT

UK public finances show big surplus in January

There was good news for George Osborne this morning, with Britain’s public finances showing a bigger than expected surplus in January.

The government’s preferred measure of public borrowing, which strips out some of the effects of its bank bailouts, showed a surplus of £11.4bn in January.

That is up from £6.4bn pounds in January 2012 and above analysts’ forecasts of a surplus of £8.15bn. January is typically a good month for tax receipts, as it marks the deadline for self-assessed tax returns to be paid.

9.21am GMT

Eurozone data could push ECB to cut rates

The ECB’s bond-buying programme may have improved sentiment but it has not lifted economic activity, says Howard Archer of IHS Global Insight.

The purchasing managers survey reinforce concern that while the eurozone economic environment has been helped by a marked reduction in sovereign debt tensions, lower bond yields and improved business confidence since late-2012 (largely due to the ECB unveiling its bond buying policy) this is still not really feeding through to lift economic activity.

He says the data could push the ECB to cut rates.

The relapse in manufacturing and services activity in February puts renewed pressure on the ECB to cut interest rates, especially given the recent strength of the euro. We suspect that the ECB will remain reluctant to trim interest rates for now, but it could buckle if the eurozone continues to falter.

9.18am GMT

Here’s Capital Economics on the eurozone data.

The fall in the composite eurozone PMI in February puts a dent in hopes that the region would emerge from recession in the first quarter. On past form, the index points to a quarterly fall in GDP of about 0.3%, after Q4’s 0.6% fall….

The fall in the French PMI is more worrying – at face value the index is now consistent with a 1% quarterly fall in GDP. In all, then, the latest PMI number supports our view that the improvement in the financial markets will not be enough on its own to kick start an economic recovery.

Updated at 9.38am GMT

9.16am GMT

Eurozone services data dash hopes of recovery

Ouch. Eurozone PMIs do not look good, with services dropping in February, dashing hopes that the region could emerge from a recession soon.

The flash services PMI – one of the earliest monthly indicators of economic activity in the region – dropped from 48.6 to 47.3 in February, a big miss from analyst expectations of a rise to 49.

Chris Williamson of Markit highlighted the growing divide between Germany and France.

Digging into the data shows increasing schisms within the eurozone. National divergences between France and Germany have widened so far this year to the worst seen since the survey began in 1998. Germany is on course to grow in the first quarter. In contrast, Frances’s downturn is likely to deepen, bringing the euro area’s second-largest member more in line with the periphery than with the now solitary-looking German ‘core’.

9.06am GMT

Grim outlook for Europe’s second largest economy

Here’s Markit’s graph showing just how bad it looks in France. The composite PMI, which usually preempts GDP data fairly accurately, is sliding dramatically.

This morning the French media suggested the EU Commission is expected to cut its already grim forecast for France’s economy and budget deficit this year, citing a report due out Friday.

Le Monde and Le Point reported that the commission’s economic experts have reduced their forecast for France’s economic growth this year to 0.1% from 0.4%.

The country’s deficit is now forecast at 3.6% of GDP, up from a prior estimate of 3.5%, which would miss the Maastricht treaty target of 3%.

France is the second largest economy in the eurozone and problems there signal problems right at the very heart of the currency bloc.

8.50am GMT

French work ethic attacked

One man will be unsurprised by the miserable data out of France (see 8.20am) and that is Maurice “Morry” Taylor Jr, the head of US tyre company Titan International, which yesterday launched a blistering attack on the French work ethic.

My colleague Kim Wilsher in Paris reports:

Taylor, a 1996 US Republican presidential candidate, revealed he was no loss to the international diplomatic service in his letter to the minister, who had suggested he might like to take over a Goodyear tyre factory in the economically struggling industrial heartland of northern France, near Amiens.

“Do you think we’re stupid?” Taylor wrote to Montebourg in the letter, which was made public on Wednesday. “I’ve visited this factory several times. The French workers are paid high wages but only work three hours. They have one hour for their lunch, they talk for three hours and they work for three hours. I said this directly to their union leaders; they replied that’s the way it is in France.

8.39am GMT

Markets hit by Fed split

Over to the markets, which are suffering after minutes released last night showed signs of a split over the US Federal Reserve’s stimulus programme.

  • UK FTSE 100: down 1.2%, or 80 points, at 6314
  • France CAC 40: down 1.2%
  • Germany DAX: down 1.2%
  • Spain IBEX: down 1.75%
  • Italy FTSE MIB: down 2%

8.35am GMT

German data points to economic rebound

German business activity, meanwhile, increased for a third straight month in February, adding to signs the region’s largest economy is rebounding after GDP declined in the fourth quarter.

The data points to a widening gulf between it and the region’s second largest economy, France, which continues to flounder.

The German composite PMI, which accounts for more than two thirds of the economy, stood at 52.7 in February. That was down from January’s 54.4, but still comfortably above the 50 mark that separates growth from contraction.

Tim Moore at Markit said:

Despite the slight loss of momentum since January, the survey suggests that Germany can still be relied upon as an engine for the eurozone.

Updated at 8.52am GMT

8.29am GMT

The six problems with Italy and how to solve them

While we wait for Germany’s PMIs, check out the Guardian’s spread on Italy in the paper this morning.

My colleague Lizzie Davies in Rome numbers the six things wrong with Italy and how to solve them, starting with the effects of austerity.

She goes on to highlight the plight of women in the country run for years by Silvio Berlusconi, a man better known for his bunga bunga parties than anything else. She writes:

Held back by ingrained cultural attitudes, inadequate public services and political under-representation, they may have better educational qualifications than their male counterparts but they are significantly less likely to be in paid work.

8.20am GMT

French services sector shrinks at fastest rate in four years

The French data is predictably bad. The French services sector shrank in February at its fastest rate in nearly four years, suggesting it is far from a turnaround.

The services PMI came in at 42.7 in February, compared with 43.6 last month. The manufacturing index ticked up to 43.6, but remains well below the 50 mark that separates growth from contraction.

The composite PMI, which accounts for roughly two-thirds of French economic output, dropped to 42.3 from 42.7 in January.

Chris Williamson at Markit said:

There is a fairly consistent picture showing that the French business sector is suffering its worst downturn since the height of the financial crisis.

Updated at 8.22am GMT

8.13am GMT

Today’s agenda

A quick look at today’s agenda, before we plunge into the French PMIs.

  • France PMIs for February: 7.58am
  • Merkel addresses the Bundestag on the EU budget: 8am
  • Rajoy speaks in State of Nation debate: 8am
  • Italian election candidates hold press conference: 8.10am
  • Germany PMIs for February: 8.28am
  • Eurozone PMIs for February: 8.58am
  • UK public sector borrowing for January: 9.30am
  • UK CBI trends for February: 11am
  • US inflation for January: 1.30pm
  • US weekly jobless claims: 1.30pm
  • US PMIs for February: 1.58pm

In the debt markets, the UK is selling a £2.25bn of a 10-year gilt; while Spain is selling €3bn-€4bn of bonds maturing in 2015, 2019 and 2023.

8.05am GMT

Good morning and welcome back to our rolling coverage of the eurozone crisis and other global economic events.

The state of the French economy will be in focus this morning, with eurozone PMIs set to show a widening gulf between France and Germany.

UK chancellor George Osborne will also be in the spotlight when the public sector borrowing figures are released. These could offer some relief after the miserable 4G auction proceeds, as January is traditionally a strong month for tax receipts.

Later in the day, we’ve got a Spanish 10-year bond auction, as Mariano Rajoy’s government continues to take advantage of lower rates. And there’s a key UK gilt auction, which could suffer from the news that Mervyn King voted for more QE at the Bank of England’s last meeting.

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GDP across 34 Organisation for Economic Co-operation and Development members fell 0.2% in final quarter of last year. All major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have reported falls in output at the end of last year…



Powered by Guardian.co.ukThis article titled “OECD economies shrank at end of 2012″ was written by Larry Elliott, economics editor, for guardian.co.uk on Tuesday 19th February 2013 11.25 UTC

The world’s richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Co-operation and Development said.

The Paris-based thinktank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.

All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the thinktank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.

The 0.2% decrease followed a 0.3% expansion in the third quarter, and resulted in a slowdown in the annual rate of growth in the developed world. GDP growth in the OECD was 0.7% higher in the fourth quarter of 2012 than it was a year earlier, down from the 1.2% annual pace of expansion in the year to the third quarter of 2012.

Among the major seven economies, the US showed the fastest annual growth, expanding by 1.5% between the fourth quarter of 2011 and the fourth quarter of 2012. Italy was the weakest performer, contracting by 2.7% over the same period.

For 2012 as a whole, GDP growth in the OECD stood at 1.3%, down from 1.9% in 2011.

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Mariano Rajoy states that Span’s government is not planning to seek a bailout. French economy barely grew in third quarter of 2012. Nowotny: reasons for optimism over 2013. Schauble says “the worst is over for eurozone”. Is Japan the ghost of Europe’s future?..



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish PM predicts tough 2013″ was written by Graeme Wearden, for guardian.co.uk on Friday 28th December 2012 14.06 UTC

2.03pm GMT

Former Greek finance minister denies Lagarde List claims

Back to Greece, and our correspondent Helena Smith has full details of the allegations that broke today against former finance minister George Papaconstantinou, related to the list of alleged tax evaders (see also 12.42pm)

Helena writes:

Drama has erupted over revelations, now being made by the leading Greek daily Ta Nea, that the three names linked to former finance minister George Papaconstantinou in the famous Lagarde list are in fact relatives he allegedly sought to protect.

The three have been named as the two daughters of his politician uncle, the late Michalis Papaconstantinou, and one of their husbands with Ta Nea describing the account of at least one of the holders at the Geneva branch of HSBC as containing $US 1.222.000.

“These individuals, who had been dropped from the [original] list, allegedly held two accounts one of which included $US 1.222.000 while the movement of sums on the other [account] do not appear as it was a closed [account]. This is what emerged from the comparison of the two lists as a result of the investigation by the economic prosecutors Grigoris Peponis and Spyros Mousakitis,” Ta Nea wrote on its website.

As reported earlier, the new list arrived in cinematographic fashion in Athens a few days before Christmas. Ever since prosecutors have been earnestly studying whether it differs from the original handed to Papaconstantinou in April 2010.

But with Papaconstantinou adamantly denying making any changes to the list, Greek prosecutors are being cautious. Helena adds:

In the shrill climate that prevails in Greece, where calls for justice ring ever louder among a population blaming their country’s financial mess almost exclusively on the wrongdoing of politicians, prosecutors are also cautioning against a witch-hunt – one in which Papaconstantinou, who has stringently denied any suggestion that he tempered with the list, would be an easy victim.

The latest list reportedly contains the names of 2,062 individuals according to prosecutors who will study whether any of the depositors actively evaded taxes. The new list will be presented to parliament once it has been handed over to the ministry of justice, the paper says.

The reports have caused quite a storm on Twitter. And as the WSJ’s Matina Stevis explains, they have the potential to rock Brussels too.

Updated at 2.06pm GMT

1.22pm GMT

Rajoy went on to defend his austerity programme, claiming Spain would be in an “immeasurably worse situation” without it.

The priority now, he says, is to lay foundations for improving the economy in future.

1.16pm GMT

Here’s Rajoy’s full quote on the bailout issue:

We are not thinking of asking the European Central Bank to intervene and buy bonds in the secondary market…But we can’t rule it out in the future.

1.06pm GMT

Rajoy: don’t expect to ask for a bailout

Mariano Rajoy went on to credit the European Central Bank for calming the markets, through its offer of an unlimited bond buying programme to countries in distress.

But he also reiterated that he does not expect to apply for a bailout, thus triggering ECB action. Spain will ask for help if needed, though, he added.

That confidence reflects the recent drop in Spain’s borrowing costs since the summer, when the ECB’s Mario Draghi made his move.

1.01pm GMT

Rajoy: 2012 was tumultuous, 2013 will be tough

Spanish Prime minister Mariano Rajoy is giving his end-of-year press conference now.

Rajoy began by saying that 2012 has been a tumultuous year, but one that is ending with some calm in the financial markets.

He then warned that 2013 will be tough — particularly the first half of the year as the ongoing recession continues to bite.

After his first full year in office, Rajoy pinned the blame for the economic crisis on his predecessors.

Things have been more difficult than we expected.

And while austerity has been very unpopular, Rajoy argued that his tough policies are “starting to pay off”.

he added:

I will not ask for patience…or [or] blind faith, but understanding and solidarity.

Updated at 1.01pm GMT

12.42pm GMT

There are reports in Greece that former finance minister, George Papaconstantinou, is implicated on the ‘Lagarde List’ of suspected tax evaders.

Local media are claiming that three names “linked” to Papaconstantinou appear on the new version of the list obtained by the Greek government this month. However, they apparently do not appear on the version that came to light recently after being originally mislaid.

Papaconstantinou, who was finance minister when Christine Lagarde handed over the list, has robustly denied the suggestion that he manipulated the list in any way.

More to follow!

12.16pm GMT

Over in Athens, our correspondent Helena Smith says the architect of Greece’s admittance into the eurozone has ended the year with a damning indictment of the single currency bloc.

Helena writes:

Greece’s former prime minister Kostas Simitis, who oversaw the country’s entrance to the euro zone in 2001, slammed what he described as the “structural flaws” of the euro zone in an article published in today’s Frankfurter Allgemeine Zeitung.

Electing to use the prominent German daily to make the point that it was wrong to single out Greece as the sole instigator of the worst economic crisis to befall Europe since the Second World War, the German-educated erstwhile socialist leader said the entire architecture of the euro zone had to change. The founders of monetary union, he charged, had wrongfully believed that banks would automatically stop lending to euro zone states that had become overly indebted. “Trust in the power of the market to regulate everything was overly excessive,” he wrote.

A permanent solution to the crisis could only come “through deeper economic and political union,” said Simitis, a revered moderniser in his time even if Greece was later exposed to have cooked the books to get into the cherished common currency bloc. Reality, he argued, was now pressing for “a mutual contribution [to solving the crisis], the extent of which can not be foreseen only by legal texts.”

The biting commentary from one of Greece’s leading Europeanists will add fuel to the argument that Berlin will ultimately have to change tune if the euro zone is ever to properly function.

11.52am GMT

While we wait for Mariano Rajoy’s press conference…. economist Shaun Richards flags up that Spain’s GDP data for 2011 has been revised down today.

He fears that Spain will continue to suffer in 2013:

It is plain that the beat goes on in Spain and that the drums are beating a depressionary rhythm. So far the official numbers have not fully encapsulated this but perhaps today’s downwards revision for 2011 will be followed by others for 2012. The downwards spiral was caused by a boom and then bust in both her housing and banking markets which if the latest data is any guide are still developing. It appears that credit to other parts of the economy are being reduced too which is not a good sign either.

One bright spot is her balance of payments performance which has improved through this crisis and in July was positive for the first time in the Euro era. The trouble is that whilst there has been an export improvement this also represents a fall in imports due to economic weakness.

Also we see that in terms of bond yields they have retreated from the highs of the middle of this year and her benchmark ten-year is now far from where it began 2012 at 5.28%. The problem is that as problems and debts continue to build this is still much too high.

So we see that the problems of 2012 for Spain’s economy look set to carry on into 2013 with no respite in sight. In a country with an unemployment rate already at 25.02% as of the official numbers for the third quarter that is a prospect beyond chilling which sends a shiver down the spine. Unemployment of 5,778,100 is already far too high.

More here: What is happening in Spain’s economy and what is the outlook for 2013?

11.41am GMT

Heads-up: Spain’s prime minister, Mariano Rajoy, is due to give his end of year press conference this lunchtime (probably around 1.30pm local time, or 12.30pm GMT).

In the meantime, the Spanish stock market is losing ground – with the IBEX 35 now down 1.6%.

Bankia has tumbled another 25%, following yesterday’s news that existing shareholders will lose almost all their stakes when it is recapitalised.

11.28am GMT

Nowotny optimistic about 2013

European Central Bank policy maker Ewald Nowotny has joined the ranks of eurozone players predicting that 2013 will be a calmer year.

Nowotny, the governor of Austria’s central bank, said that eurozone leaders had made real progress in 2012. He cited the agreement on eurozone banking supervision, the decision to hand Greece its loan tranche this month, and the creation of the permanent bailout fund.

Altogether these are important measures that allow for cautious optimism for a way out of the crisis in 2013.

This follows Germany finance minister, Wolfgang Schauble’s, prediction that the worst is over for the eurocrisis….

Speaking of which, Reuters has rounded up the experts* whose predictions of a disaster in 2012 didn’t come true:

Euro doomsayers adjust predictions after 2012 apocalypse averted.

* Paul Krugman, Nouriel Roubini and Willem Buiter all get namechecked

11.01am GMT

Reassurance from Spain

One piece of good news this morning — capital is flowing back into Spain’s banking sector, as fears over the break-up of the eurozone subside.

The Bank of Spain reported a capital inflow of €12.1bn for October, the second month running in which more money moved into the Spanish banking sector than out of it.

It follows Mario Draghi’s famous pledge to defend the euro at all costs — but analysts caution against getting too excited.

As Martin van Vliet, senior economist at ING, told Reuters:

This confirms that ever since Draghi said he would do whatever it takes to save the euro, the capital flight has stopped and partially reversed…

It’s a positive development…but Spain is not out of the woods yet and the situation can change overnight.

10.26am GMT

Italian bond auction results

Over to Italy, where the Treasury has just raised €5.87bn through an auction of long-term bonds.

The cost of borrowing was the highest since October — 10-year bonds were sold at a yield of 4.48%, from 4.45%.

But there’s nothing too alarming here really – and no suggestion that the impending election is alarming the bond market.

World First’s chief economist, Jeremy Cook, certainly isn’t panicking:

10.07am GMT

Rather like an overstuffed Christmas diner, the UK stock market is struggling to move this morning.

The FTSE 100 is currently down just 0.37 points, somewhat to the chagrin of those who made the trip into the City:

Other European markets have fallen:

German DAX: down 9 points at 7646

French CAC: down 13 points at 0.36%

Spanish IBEX: down 79 points at 8201, – 0.1%

Italian FTSE MIB: down 51 points at 16356, – 0.3%

Updated at 10.08am GMT

9.39am GMT

Speaking of Japan, its Nikkei share index hit another 21-month high on its final trading day of 2012.

Traders are buying shares in anticipation of a huge injection of stimulus by the Bank of Japan. The NIkkei finished 72 points higher at 10,395, and analysts reckon it will break through 11,000 by early February.

Still some way shy of its lifetime peak of over 38,900 in 1989….

9.31am GMT

Kit Juckes: Europe must learn from Japan

Kit Juckes, global macro strategist at Société Générale, is concerned by France’s weak growth (see 8.37am) and Japan’s shrinking industrial output (see 9.18am). He writes:

Japan is stuck with deflation, Europe is stuck with recession. French Q3 GDP is flat y/y, which makes for a stagnant core and shrinking edges to the Euro Zone.

With a Dickensian flourish, Kit argues that Japan could be the Marley to Europe’s Scrooge:

Europe has much to learn from Japan’s woes. And indeed, if Europe wants to see more growth and a lower debt level than Japan has seen in the 23 years since the Nikkei peaked, they’d better get learning.

Don’t expect your currency to be weak just because your economy is, is one lesson. The correlation between the euro’s value and peripheral bond spreads tells us the euro does well whenever the Euro-crisis is put on the back-burner, as is now the case. But a strong euro is no more reason to cheer than a strong yen.

The ghost of Christmas yet to come can be seen by Eurocrats any time they want to brush up on modern Japanese economic history. Act now or deflate at your peril.

Updated at 9.31am GMT

9.18am GMT

The consequences of Europe’s weak economy continue to be felt in Japan, where industrial output has slipped again.

Industrial production in the world’s third-largest economy fell by 1.7% in November, compared with a year ago.

It adds impetus to new prime minister Shinzo Abe’s plans for a stimulus package and looser economic policies. But with Japan already in recession and battling deflation, it’s another reason to be downbeat about 2013.

8.59am GMT

Hot on the heels of France’s updated GDP data comes another fall in Spanish retail sales.

Retail sales across Spain slumped 7.8% in November, compared with a year earlier. That’s the 29th monthly fall in a row.

Spanish retailers have already admitted that Christmas did not go well, as the public suffered from the recession, austerity cut backs and tax rises.

Ainhoa Garcia, spokeswoman for the Spanish Commerce Confederation, told Reuters yesterday:

The Christmas campaign didn’t take off the way it was expected to and we know sales are down compared to 2011 though we don’t have the figures yet.

8.37am GMT

French GDP growth cut

Good morning, and welcome to another day of rolling coverage of the eurozone financial crisis, and other events across the world economy.

We start with some disappointing news for France. New GDP data released this morning showed that its economy barely grew in the third quarter of 2012. GDP increased by a paltry 0.1%, not the +0.2% first estimated.

The revision means France economy failed to post any growth at all over the last 12 months, and reinforces the fact that the eurozone itself is in a double-dip recession (as covered here last month).

The weak performance was driven by a drop in imports (which fell by 0.5%) and business investment (-0.6%). That suggests French firms were hunkering down during the early months of François Hollande’s presidency.

The data comes hours after the latest jobless data showed that the number of people out of work in France has risen for the 19th month in a row, to its highest level in nearly 15 years.

The French unemployment total rose by 29,300 in November, to 3.13 million. France’s unemployment rate is already 10.3%, rather worse than the UK, Germany or the US — but still below the eurozone average.

So while the worst of the crisis may be abating, Europe’s economy remains troubled. And with America’s fiscal cliff problems also unresolved, it feels like a nervy end to the year……

As usual, I’ll be covering the latest news, reaction and market moves through the day.

Updated at 8.40am GMT

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