Euro-Zone Economy Steadies; Split Emerges The euro-zone economy steadied in the three months to March as a surprisingly strong rebound in Germany was balanced by contractions in Italy and Spain
The European Union’s official statistics agency Eurostat on Tuesday said euro-zone GDP was unchanged from the fourth quarter, and from the first quarter of 2011. That followed a contraction of 0.3% in the fourth quarter.
Like Italy, the Dutch economy contracted for a third straight quarter, by 0.2%. (…) a number of economies in central and Eastern Europe with close trade and investment ties to the euro zone contracted. The Czech economy shrank by 1%, while Hungary’s economy contracted by 0.7% and Romania’s economy contracted by 0.1%.
Don’t cheer too loudly on this “better than expected” performance as Markit warns:
The PMI business surveys have tracked the downturns in growth in all major Eurozone countries over the past twelve months, which following strong upturns early last year, and for all four largest euro nations the
surveys suggest that growth turned down again in April, suggesting that the region as a whole was contracting at a quarterly rate of around 0.5% at the start of the second quarter.
Germany is likely to be the strongest performer again in the second quarter, though the PMI for April is merely signalling stagnation and any further decline would suggest GDP could contract over the quarter as a whole.
Germany’s two largest steelmakers forecast sharp drops in full-year operating profits as a fragile economy continues to weigh on demand and prices for their products.
ThyssenKrupp AG and Salzgitter AG both warned that the sovereign debt crisis in the eurozone as well as rising prices for energy and raw materials still pose considerable threats for the global economy.
They added, however, that trading conditions are expected to improve in the remainder of the year, echoing comments from the world’s largest steelmaker by output—ArcelorMittal —which last week said demand for its products is steadily improving.
Madrid backs talks that may create €270bn lender
Talks on forming government collapse
“The government would have to stand by the program,” Juncker told reporters after chairing a meeting of euro-area finance ministers in Brussels late yesterday. “If there are dramatic changes in circumstances, we wouldn’t close ourselves off to a debate over extending the deadlines.”
But, this am:
SCHAEUBLE SAYS GREECE MUST IMPLEMENT PROGRAM TO STAY IN EURO
Centrist politicians are failing to grasp the new political reality
But even as the Dutch right splits over austerity policies, a poll released on Monday highlights similar divisions on the left. It suggests voters are turning against the last-minute budget deal reached after the government fell between the ruling liberals and centre-left opposition parties.
Foreign direct investment into China fell for the sixth straight month in April, the latest sign of trouble for the world’s second-largest economy.
FDI into China fell 0.74% from a year earlier to $8.4 billion in April, the ministry said in a statement. In March, FDI fell 6.1% from a year earlier to $11.76 billion. In the first four months of the year, FDI fell 2.38% from a year earlier to $37.9 billion.
FDI from the U.S. rose by 1.9% to $1.05 billion in January to April, while FDI from the European Union plummeted by 27.9% to $1.9 billion, the ministry said. FDI from Japan, however, rose 16% to $2.7 billion in first four months.
Electricity output data hints at a steeper slowdown
Less closely watched economic data released in recent days, including figures for electricity, rail cargo and bank loans, have all shown a steep drop in activity that appears to have caught policymakers by surprise.
China’s electricity consumption in April hasn’t been published yet but electricity output increased just 0.7 per cent last month from a year earlier, compared with a 7.2 per cent increase in March and an 11.7 per cent annual increase in April 2011.
Rail cargo volumes in the first few months of the year increased by low single digits or about half the pace they were growing this time last year and banks extended far fewer new loans than expected.
Well, China’s power consumption stats came out last night:
Power use growth lowest in 16 months China’s power consumption increased 3.7 percent in April to 389 billion kilowatt-hours, the slowest in 16 months.
Less power consumption in industrial sectors, which dropped to only 1.56 percent from 11.2 percent last year, was a main reason for the decrease. Power consumption by residents and service sectors still maintained double digit growth. (Chart above, courtesy of ISI)
Companies Aim to Start Spending Trillions They’re Hoarding Only 34% of CFOs say they’re sticking with a strategy of building rainy-day funds. That’s a notable change from last year, when 62% of respondents said they were preserving cash in case of emergency.
North American executives are especially bullish: 56% of those surveyed planned to spend reserves instead of saving compared with 28% who said the opposite. Drilling down, U.S. respondents were more willing to open their wallets than their peers, with nearly two-thirds talking about using cash on mergers and acquisitions.
In Latin America, 61% of respondents were pro-spending, while in Europe, 44% were pro-spending, and 35% anti-spending. The Asia-Pacific region was the anomaly: 33% of respondents there talked about spending, while 41% wanted to keep hoarding.
Forecasters surveyed by The Wall Street Journal expect the economy to grow slowly but steadily this year, with the unemployment rate barely budging.
When is the last time we saw steady growth?
The Union Pension Bomb Multi-employer plans look to be in big trouble.
Multi-employer plans in the U.S. are underfunded by some $369 billion. An estimated $43 billion of that off-balance-sheet liability belongs to the 44 S&P 500 companies that are exposed to multi-employer plans. The other 88% of the $369 billion is borne by small, mid-cap or private firms that may be even less prepared to cover the obligations. The report says Safeway’s $6.9 billion in liabilities amount to 76% of the company’s market cap, for example.
All of this ought to be especially embarrassing to Washington, which requires annual filings to the Department of Labor on multi-employer plans and measures their financial health. But Labor uses an “actuarial” reading of the numbers, which envisions an average (and hefty) 7.5% rate of return on investments, smoothed over five years. Even under that generous view, about 500 plans—or 37%—are less than 80% funded and thus considered financially troubled.
Credit Suisse applies a more realistic “fair value” reading—which uses a lower rate of return and current liabilities. By that standard, only 4% of multi-employer plans are healthy and many are exposed as accounting scams.