Euroland Economic News

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Ireland's economy surges ahead of eurozone
DOW JONES NEWSWIRES SEPTEMBER 18, 2014 11:30PM

Ireland's economy was the fastest-growing in Europe during the three months to June as it continued to recover from a property-market and banking collapse that forced the government to rely on financing from the International Monetary Fund and the European Union until late last year.

Ireland's Central Statistics Office on Thursday said gross domestic product rose 1.5 per cent from the first quarter and 7.7 per cent from the second quarter of 2013. For the eurozone as a whole, economic output was flat in the second quarter, while Latvia recorded the second most rapid expansion in the EU, a 1.0 per cent increase from the three months to March.

Ireland's economic growth has been disappointing in recent years, and below the expectations of the government and its international lenders. That largely reflected weak growth in the rest of the eurozone and the UK, which kept a lid on demand for Ireland's exports.

But the return to rapid growth in the UK and a more modest expansion in the eurozone have given Ireland a boost, and the country finally appears to be experiencing a strong recovery. The CSO said exports helped drive growth in the second quarter, as did investment spending, which was up 9.1 per cent.

Ireland's finance minister welcomed the figures, noting that the year-to-year rate of expansion was the highest since the "early 2000s," when the country's high rates of growth earned it comparisons with east Asia, and the label "Celtic Tiger."

"These figures show that the Irish economy is in a very strong position for the remainder of 2014 and as we enter 2015," Michael Noonan said. "The government remains committed to building upon and sustaining this recovery and we will do nothing that will put it at risk."

However, the legacy of large mortgage debts, high levels of unemployment and higher tax bills left consumer spending relatively weak, expanding by just 0.3 per cent from the first quarter.

With the stronger growth, government tax revenues have picked up, making it more likely the government will meet its target of reducing its budget deficit to 3 per cent of GDP in 2015 from a peak of more than 30 per cent of GDP in 2010.

As a result of surging deficits and debts, the government was locked out of the international bond markets in 2010, forcing it to ask the EU and IMF for help. But borrowing costs have plummeted over the past two years, and it is now less expensive for the government to borrow from the bond markets than from the IMF.

The government last week secured the approval of the rest of the EU to repay a large portion of EUR22.5 billion ($US29.1 billion) of loans from the IMF early by selling new bonds to private investors, a move that it estimates will save it EUR375 million annually in interest payments over the coming five years.

"Ireland's strong economic growth will allow it to continue to improve its fiscal position, a process which will be further helped by its early repayment o f bailout loans to the IMF," said Jonathan Loynes, chief European economist at Capital Economics.

Mr Loynes estimated that even with slower growth in the second half of his year, the economy could expand by "something close to 5 per cent" in 2014. Such an expansion would be much stronger than that forecast by the Irish government, which expects the economy to grow by 2.1 per cent this year and by 2.7 per cent next.

The government's fast improving financial situation has raised hopes that Ireland's long period of austerity may be coming to an end. The government first raised taxes and cut spending in 2008, and has done so each year since then. But it is now possible that in its 2015 budget announcement due October 14, the government will announce some tax cuts.

To be sure, Ireland's debts remain very high, and without a sustained period of rapid growth, it will be difficult to quickly reduce that burden. The country has lost many well educated young people to emigration, but despite that outflow, has an unemployment rate of 11.2 per cent.

The nation's banks are still recovering from the property collapse, and both businesses and households find credit hard to come by.

Household incomes have yet to recover from post-crisis declines, with figures released Monday by the European Union's statistics agency showing workers' pay was 0.6 per cent lower in the second quarter than in the same period a year earlier. In the eurozone as a whole, pay rose by 1.2 per cent.

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Spain records best ever tourism figures
AAP SEPTEMBER 23, 2014 12:00AM

Spain attracted just over nine million foreign visitors in August, the highest ever figure for a single month, setting the country up for its best-ever year for tourism and giving a boost to the economy.

The number of foreign tourists rose 8.8 per cent in August over the same time last year to an unprecedented 9.07 million, the tourism ministry said in a statement on Monday.

It is the first time that Spain, the world's third most popular tourism destination after the United States and France, has attracted more than nine million foreign visitors in a single month, it added.

The recovery in Britain and Germany - where most visitors to Spain traditionally come from - has fuelled the tourism boom, which has also been helped by holidaymakers shunning traditional competitors such as Egypt and Turkey because of political turmoil.

Tourism is crucial to the slowly recovering yet jobs-scarce Spanish economy, accounting for about 11 per cent of all economic activity.

Spain has shown a gradual economic pick-up since emerging from recession in mid-2013 but still suffers from a 24-per cent unemployment rate.

British tourists led the influx in August, the height of the summer holidays, with 2.14 million visitors, followed by the French, with 1.98 million visitors, and Germans, with 1.29 million.

The number of holidaymakers from Russia fell by 8.6 per cent to 260,124 as the weak Russian ruble and the crisis over Ukraine took its toll.

Visitors from the United States soared by 35.4 per cent to 147,404.

The most popular destinations were the northeastern region of Catalonia, the Balearic islands and the southern region of Andalusia, which are famous for their beaches.

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Germany warns of interrupted growth trend
DOW JONES NEWSWIRES SEPTEMBER 22, 2014 9:45PM

Germany's central bank on Monday sought to dispel fears of an abrupt interruption to the country's growth trend, though cautioned that some positive recent data were supported by one-off factors that didn't accurately represent the state of the economy.

The Deutsche Bundesbank's monthly report said industrial data for July were artificially supported by the timing of school holidays and that such growth is unlikely to be repeated in August.

"After disappointing economic data for June, July data have surprised positively," the bank's report said. "This dispels fears of an abrupt end of the economic upward movement."

"Along with a still-positive business climate, this is supported above all by a labor market that is still in a good condition, and consumers that haven't adjusted their income expectations and consumption plans despite a cloudier economic outlook," the bank wrote.

The comments suggest that Europe's largest economy is poised to grow again in the second half of the year, after contracting 0.6 per cent in annual terms in the second quarter.

The central bank warned that some data in July were supported by unique factors and don't signal a long-term trend.

For example, "the strong growth of industrial production is to a considerable extent due to school holidays being concentrated in August," the Bundesbank said. This meant the usual decline in production in July due to holidays was smaller than usual, and in August, "a counter movement is to be expected."

The Bundesbank said a better indicator of the fundamental tempo of the economy is sentiment indicators, which fell in August.

Industrial output grew 1.9 per cent on the month in July -- its fastest pace in over two years -- the economy ministry reported earlier this month, far outperforming analysts' expectations. Sentiment data have continued to slide, however. The ZEW survey of financial analysts for September fell last week for the ninth straight month, though at a much slower pace than in August. The Ifo business survey for September is due Wednesday. Experts polled by Dow Jones Newswires expect a slight decline.

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New loans program on track: Draghi
AFP SEPTEMBER 23, 2014 4:15AM

European Central Bank chief Mario Draghi has dismissed market disappointment about demand from banks for a new lending program launched last week, saying it had been within the expected range.

Addressing the European Parliament in Brussels on Monday, the central banker said the Targeted Long-Term Refinancing Operation (TLTRO) to pump more liquidity into the financial system was on track but needed time to take full effect.

The Frankfurt-based central bank reported it had leant €82.6 billion ($114.7bn) to 255 banks as it began the program, designed to boost the economy by encouraging private-sector loans.

"This is within the range of take-up values we had expected based on banks' revealed behaviour under previous programs," Mr Draghi said.

The amount borrowed by eurozone banks came in below forecasts by analysts who had pencilled in an uptake of at least €100bn for the TLTRO.

Mr Draghi noted that in December banks would have another opportunity to borrow funds under the program.

This will entitle them to borrow an amount "equivalent to up to seven per cent of their outstanding stock of loans to the non-financial private sector", excluding loans for house buying.

"The September and December operations should be assessed in combination," Mr Draghi said.

The second round of lending is scheduled for December 11.

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Analysis of whether it is the banks that are unwilling to lend or there is no demand for credit is paramount with different implications and policy adjustments. LTRO was in excess of EUR1tr

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Europe's corporate borrowing set to hit pre-crisis peak
DOW JONES NEWSWIRES SEPTEMBER 30, 2014 12:15AM

It's turning out to be a big year for corporate borrowing in Europe.

According to Fitch, European corporate debt issuance could hit its highest level in seven years in 2014, with bond activity surging particularly sharply as banks remain hesitant to lend in the face of stringent forthcoming stress tests.

According to the ratings company, €595bn ($US749.7 billion) of debt was issued by European corporates during the first half of the year, of which €246bn took the form of bonds. If that pace of issuance continues, the full-year figure will likely eclipse every other year since 2007, when corporates issued €1.491 of debt, it added.


As well as the gradual economic recovery, Fitch attributes the rise to historically-low long-term funding costs in the bond market. Companies across all sectors, ratings classes and regions have tapped the bond market in recent years -- many raising billions -- to lock in cheap funding costs before global interest rates rise.

Investors hungry for yield in the low-return environment, meanwhile, have been increasingly willing to buy lower rated credit, enabling even junk-rated firms to sell bonds -- many for the first time.

According to Fitch, 37 per cent of total new bonds have come from junk-rated -- or high yield-companies -- marking an all-time record.

Geographically, French issuers dominated bond market activity during the first half of 2014, accounting for 29 per cent of issuance, followed by Germany with 23 per cent, the UK with 18 per cent and Italy with 9 per cent. In loan markets, France dominated with 22 per cent, followed by Germany with 21 per cent, the UK with 18 per cent and Spain and the Netherlands tying for fourth place as they accounted for 9 per cent of loan issuance each.

Over the coming months, Fitch said that both loan and bond volumes could additionally be boosted by a surge in merger and acquisition activity.

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Gloom gathers over eurozone outlook
DOW JONES NEWSWIRES SEPTEMBER 29, 2014 11:30PM

Businesses and consumers across the 18 countries that share the euro were more downbeat about their prospects in September than at any time since the end of 2013, likely reflecting disappointment with the pace of the eurozone's economic recovery and the conflict in Ukraine.

The decline in confidence also indicates that new stimulus measures announced by the European Central Bank in early September have so far failed to convince households and business leaders that the economic outlook will improve.

Indeed, businesses reported they expect their selling prices to be weaker than they did before the measures were announced, while consumers also lowered their expectations for inflation.

The ECB's measures are intended to end a period of very low inflation. But figures released by Spain, Belgium and Germany Monday suggested the annual rate of inflation in the eurozone may have fallen to a fresh five-year low in September.

The European Commission Monday said its Economic Sentiment Indicator -- a measure of consumer and business confidence -- fell to 99.9 in September from 100.6 in August. Economists had expected a decline to 100.0.

That brought the ESI below its long-term average, going back to 1990, for the first time since November 2013.

The decline in confidence suggests households and businesses are unlikely to raise their spending in coming months, and that eurozone economic growth is unlikely to pick up significantly, having evaporated in the second quarter.

The stagnation of the eurozone economy in the second quarter was a key factor in persuading the ECB to announce a fresh package of stimulus measures on Sept. 4, including cutting the bank's key interest rates and two bond-buying programs.

It is too early for those measures to affect growth and inflation, but the commission's survey indicates that neither consumers nor businesses view the ECB's measures as having the potential to improve the outlook for the economy and their own prospects.

The central bank's governing council meets Thursday in Naples, Italy, and isn't expected to announce any fresh measures to boost the economy. But in a fresh sign that the risk of a slide into a period of deflation is increasing, Belgium's statistics agency Monday said consumer prices fell by 0.12 per cent in the 12 months to September, the first annual drop since November 2009.

The European Union's statistics agency will release data for the eurozone Tuesday. Many analysts expect a weakening from 0.4 per cent to 0.3 per cent in September, which would be a five-year low and significantly below the ECB's target of just below 2 per cent.

However, the annual rate of inflation in Germany measured was unchanged at 0.8 per cent in September, Germany's Federal Statistics Office said Monday. And while Spain's statistics agency said consumer prices fell again in the 12 months to September, the rate of decline eased to 0.3 per cent from 0.5 per cent in Aug.

The Spanish and German figures may raise hopes that eurozone inflation has hit its low point and will gradually grind higher in coming months. With food and energy prices very low in Europe last fall, annual comparisons for these sectors should start rising in October, said RBC Capital Markets economist James Ashley. Analysts refer to this as base effects.

A growing number of economists say they believe the ECB should and will embark on a program of large-scale asset purchases, known as quantitative easing, in coming months.

The Organization for Economic Cooperation and Development, and the European Bank for Reconstruction and Development have this month called for QE. They were joined Monday by an influential group of economists affiliated with the Centre for Economic Policy Research, a network of 800 researchers who study the European economy.

"The ECB should catch up with the other major central banks in an aggressive policy of quantitative easing," the economists wrote in an annual report on the world economy. "A forceful intervention with outright purchases of sovereign bonds -- as well as private securities -- is the correct tool for dealing with excessive downward pressure on inflation."

They added that if the ECB delays for too long, policy makers "risk resurgence of pressures on the sustainability of the eurozone itself."

The measure of industrial confidence fell to minus 5.5 from minus 5.3, reflecting a drop in export orders despite a weakening of the euro's exchange rate since May.

The measure of consumer confidence fell to minus 11.4 from minus 10.0, reflecting a more pessimistic assessment of the outlook for the economy and revived worries about the jobs market.

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Eurozone inflation hits 5-year low
DOW JONES NEWSWIRES SEPTEMBER 30, 2014 7:15PM

The annual rate of inflation in the eurozone fell further below the European Central Bank's target in September, and to its lowest level since October 2009.

The decline is a setback to the ECB which, earlier this month, launched a series of measures designed to boost growth and start to move the inflation rate back toward its goal of just below 2.0 per cent. It is too soon for those measures to have had an impact, but the further drop in the rate at which consumer prices are increasing underlines the severity of the threat confronting policy makers.

The European Union's statistics agency said consumer prices were just 0.3 per cent higher than in September 2013, as the inflation rate slowed from 0.4 per cent in August. The inflation rate has now been below 1.0 per cent for 12 straight months.

Figures released by Eurostat also showed that the jobless rate was unchanged at 11.5 per cent in August from in July, while the number of people without work fell by 137,000, leaving 18.35 million unemployed. More up-to-date figures for Sept. released by Germany's labour agency Tuesday recorded a surprise 12,000 rise in the number of people without work.

The decline in the inflation rate was expected by forecasters and is unlikely to prompt an immediate response from the ECB when its governing council meets on Thursday in Naples, Italy.

Policy makers are likely to take some time to assess the impact of the two waves of stimulus measures announced since June, which include cheap, medium-term loans to banks, cuts in key interest rates, and purchases of asset-backed securities and covered bonds.

There are reasons to expect the rate of inflation will begin to pick up from next month. With food and energy prices very low in Europe last fall, annual comparisons for these sectors should start rising in October. Analysts refer to these statistical forces as base effects.

However, inflationary pressures are likely to remain very weak. Surveys of businesses have pointed to a weakening of activity as the third quarter has progressed, making it unlikely that the eurozone economy has picked up significantly after stagnating in the second quarter.

And other surveys released on Monday showed that businesses and consumers across the 18 countries that share the euro were more downbeat about their prospects in September than at any time since the end of 2013, likely reflecting disappointment with the pace of the eurozone's economic recovery and the conflict in Ukraine.

Worryingly for the ECB, businesses said they expect their selling prices to be weaker than they did before the measures were announced, while consumers also lowered their expectations for inflation.

There are some signs of a pick-up in consumer spending. Germany's statistics agency said retail sales in the eurozone's largest member surged 2.5 per cent in August, the largest month-to-month rise in over three years. And France's statistics agency said consumer spending rose by 0.7 per cent in August, having fallen at the same rate in July.

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German 10-year funding costs fall to record low
DOW JONES NEWSWIRES OCTOBER 02, 2014 12:30AM

Germany's funding costs fell to a record low at the 10-year bond auction on Wednesday with the yield dipping below 1 per cent, amid latest signs that the economic recovery in the eurozone is cooling and ahead of the European Central Bank's monthly policy meeting on Thursday.

Bond yields fall when prices rise and in Germany's case, sluggish eurozone growth, low inflation and loose monetary policy have made Bunds a red-hot investment.

The German Finance Agency sold €4.108 billion ($US5.20 billion) of the August 2024-dated Bund at an average yield of 0.93 per cent, down from 1.05 per cent at the previous outing in less than a month ago.


The €5 billion offer attracted €4.663 billion demand, leaving the auction "technically uncovered," not an unusual scenario at German debt sales. The Finance Agency, as usual, retained a part of the offer, to sell it via the secondary markets later.


German Bunds received a renewed boost last week and closed below 1 per cent last Thursday after German business confidence fell in September to its lowest level in more than a year, suggesting that Europe's largest economy is unlikely to return to strong growth as it scrambles to recover from an economic contraction in the second quarter.

And on Wednesday, eurozone manufacturing data disappointed, with the sector barely managing to expand in September.

Inflation data aren't a help either. Inflation in the eurozone fell to a five-year low of 0.3 per cent in September, hovering significantly below the ECB's target of below but close to 2 per cent.

In a quest to drive inflation higher from the current uncomfortably low level in the past few months, the ECB announced a covered bond and assets backed securities purchase program starting in October but the exact terms, such as volumes and time horizon are yet to be announced Thursday, when the ECB's next policy meeting is due.

Investors and analysts are also eyeing potential hints about when and under what conditions the ECB would expand the program into a broad-based quantitative easing to include government bonds.

The series on offer is an existing issue that was reopened.

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http://www.cnbc.com/id/102052865?trknav=...:topnews:3

ECB reveals asset purchase plan, skimps on detail
Jenny Cosgrave | @jenny_cosgrave
7 Hours Ago
CNBC.com

European Central Bank (ECB) President Mario Draghi gave more details of its asset purchase programs on Thursday, but left markets uneasy by failing to give clear guidance on their size.

Speaking at a press conference following the ECB's monetary policy decision, where it kept rates on hold, Draghi revealed that it would start buying covered bonds from the middle of October, and asset-backed securities (ABS) in the fourth quarter.

Asset-backed securities are pooled loans put together by banks which have been made to companies or consumers, including mortgages and credit cards. The bundled loans are then sold on to other banks but also to insurers, pension funds.
These measures - which are the latest in a host of stimulus measures launched by the ECB - will last for at least two years, and will have a "sizeable" impact the ECB's balance sheet, Draghi said.

Read MoreECB live blogolice clash with protesters in Naples

ECB President Mario Draghi
Pier Marco Tacca | Getty Images
ECB President Mario Draghi
"This program is orientated to boost lending to SMEs (small and medium-sized enterprises)," Draghi said at a press conference in Naples, adding that the ABS buying plan is designed to be "simple and transparent".

'Extreme irritation'

But analysts were left scratching their heads after the bank offered little reassurance on the size of the program and did not hint at a full-blow quantitative easing plan.

"In the past Draghi had signaled that he would like the ECB's balance sheet to return to the peak seen in 2012 (which would imply an additional 1.1 trillion euros), however, he played down the notion of returning to past peaks – a sign that the governing council either did not support the notion, or that it understands that it may not be possible," European economist at Schroders, Azad Zangana, said in a note following the press conference.

Zangana highlighted that the available stock of ABS was approximately 250 billion euros - whereas the available stock of covered bonds was approximately 650 billion euros.

"However, these figures also include sub-standard issuance, which the ECB has ruled out buying," he said. "We believe the ECB is aware of this problem, which is why it has not set a purchase target."

European equity markets fell sharply across the board as Draghi spoke, with banking stocks particularly badly hit. The euro strengthened slightly against the euro.

Read MoreDraghi: ECB to purchase asset-backed securities

Meanwhile, Marc Ostwald, strategist at ADM Investor Services, said investors were left disappointed because all Draghi offered was an air of "extreme irritation".

Some details

The ECB revealed that both senior and guaranteed mezzanine tranches of ABS would be purchased, in primary and secondary markets. Senior tranches of asset backed securities are considered to be less risky, as the class of debt is safer and more protected in the case of a default, whereas mezzanine tranches are riskier.
The new measures would help strengthen forward guidance on rates and push the balance sheet of the central bank "towards the size it was in 2012", Draghi said, adding that getting inflation rates closer to 2 percent was the bank's ultimate goal.

The bank's balance sheet has shrunk by around 1 trillion euros ($1.26 trillion) since 2012 and is now at roughly 2 trillion euros.

Junk-rated countries

Draghi said the ABS program will be as "inclusive as possible", but also prudent. As such, the central bank said it would buy bundles of bank loans from countries like Greece and Cyprus, with "junk" ratings, as long as they meet certain criteria.

The detail of the programs came after the ECB kept interest rates at record lows on Thursday, after last month's shock decision to cut them further and launch fresh stimulus measures.

Read MoreEuro zone inflation falls again ahead of Draghi decision
Draghi surprised the market in September by cutting the bank's main refinancing operations to a new low of 0.05 percent. The rate on the marginal lending facility was also decreased and the rate on the deposit facility was cut further into negative territory.