Eurozone falls back into recession

The eurozone fell back into recession in the third quarter after the combined economy of the 17-member bloc contracted for the second consecutive month, dragged down by the Netherlands and peripheral nations.
Eurostat, the EU’s statistics office said the region’s economy

contracted by 0.1 per cent in June to September, compared with the previous three months. This follows from a 0.2 per cnet decline in the second quarter.
The wider EU avoided recession after recording growth of 0.1 per cent in the third quarter, largely thanks to an Olympics-related boost in the UK.
Germany and France expanded in the third quarter, but the outlook remained bleak as the crisis engulfing the eurozone takes its toll on the region’s largest economies.
France escaped recession as its economy unexpectedly grew 0.2 per cent in the three months ending September from a revised 0.1 per cent contraction in the previous quarter, said Insee, France’s national statistics agency.
Meanwhile, German economic growth slowed in the same period, meeting analysts’ forecasts, adding to evidence that Europe’s largest economy is flagging on the back of the crisis. GDP rose 0.2 per cent after growing 0.3 per cent in the second quarter.
There was little optimism about future growth. Andreas Rees, chief German economist at UniCredit, said that the latest data should be taken “with a pinch of salt” as the deepening recession in several eurozone countries will continue to have a negative impact on German manufacturing and exports.
“On average, our growth forecast [for Germany] remains on track with economic activity remaining flat or even shrinking slightly in the second half of this year,” he said.
The Netherlands, the eurozone’s fifth-largest economy, suffered much more than expected in the third quarter, contracting 1.1 per cent from the previous three months. Many economists had expected a contraction of about 0.2 per cent.
Economists said that Germany and the Netherlands were being affected by the deepening recession in the southern European countries as GDP growth continued to contract in Greece, Portugal and Spain.
The spillover of the debt crisis that has engulfed Europe’s peripherywas also evident from eurozone industrial production data, which fell at the fastest rate in three years in September, down 2.5 per cent from August.
France’s slight increase in economic activity – the first spout of economic growth for a year – provides little respite in a country suffering from rising unemployment, depressed business sentiment and contracting industrial output.
“France’s GDP rise is certainly surprising and somewhat at odds with the general tone of the surveys and data,” said Howard Archer, economist at IHS Global Insight. “The rise in consumer spending seems unlikely to be sustained given high and rising unemployment, low confidence and an increasing fiscal squeeze so we suspect there will be French contraction in the fourth quarter.”
The International Monetary Fund warned this month that France risks falling behind crisis-hit Italy and Spain unless it pushed through key reforms to boost competitiveness and stimulate its ailing economy.
President François Hollande, who has come under mounting criticism for being ineffective at managing the French economy, vowed late last month to stem the country’s industrial decline by taking urgent action, including cutting high labour costs.

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Eurozone falls back into recession

The eurozone fell back into recession in the third quarter after the combined economy of the 17-member bloc contracted for the second consecutive month, dragged down by the Netherlands and peripheral nations.

Eurostat, the EU’s statistics office said the region’s economy contracted by 0.1 per cent in June to September, compared with the previous three months. This follows from a 0.2 per cnet decline in the second quarter.

The wider EU avoided recession after recording growth of 0.1 per cent in the third quarter, largely thanks to an Olympics-related boost in the UK.

Germany and France expanded in the third quarter, but the outlook remained bleak as the crisis engulfing the eurozone takes its toll on the region’s largest economies.

France escaped recession as its economy unexpectedly grew 0.2 per cent in the three months ending September from a revised 0.1 per cent contraction in the previous quarter, said Insee, France’s national statistics agency.

Meanwhile, German economic growth slowed in the same period, meeting analysts’ forecasts, adding to evidence that Europe’s largest economy is flagging on the back of the crisis. GDP rose 0.2 per cent after growing 0.3 per cent in the second quarter.

There was little optimism about future growth. Andreas Rees, chief German economist at UniCredit, said that the latest data should be taken “with a pinch of salt” as the deepening recession in several eurozone countries will continue to have a negative impact on German manufacturing and exports.

“On average, our growth forecast [for Germany] remains on track with economic activity remaining flat or even shrinking slightly in the second half of this year,” he said.

The Netherlands, the eurozone’s fifth-largest economy, suffered much more than expected in the third quarter, contracting 1.1 per cent from the previous three months. Many economists had expected a contraction of about 0.2 per cent.

Economists said that Germany and the Netherlands were being affected by the deepening recession in the southern European countries as GDP growth continued to contract in Greece, Portugal and Spain.

The spillover of the debt crisis that has engulfed Europe’s peripherywas also evident from eurozone industrial production data, which fell at the fastest rate in three years in September, down 2.5 per cent from August.

France’s slight increase in economic activity – the first spout of economic growth for a year – provides little respite in a country suffering from rising unemployment, depressed business sentiment and contracting industrial output.

“France’s GDP rise is certainly surprising and somewhat at odds with the general tone of the surveys and data,” said Howard Archer, economist at IHS Global Insight. “The rise in consumer spending seems unlikely to be sustained given high and rising unemployment, low confidence and an increasing fiscal squeeze so we suspect there will be French contraction in the fourth quarter.”

The International Monetary Fund warned this month that France risks falling behind crisis-hit Italy and Spain unless it pushed through key reforms to boost competitiveness and stimulate its ailing economy.

President François Hollande, who has come under mounting criticism for being ineffective at managing the French economy, vowed late last month to stem the country’s industrial decline by taking urgent action, including cutting high labour costs.

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BREAKING NEWS : - Lacker Says Fed Bond Buying Has Few Benefits and Risks Inflation

Federal Reserve Bank of Richmond President Jeffrey Lacker said the Fed’s third round of bond buying will increase inflation risks and complicate the pull- back from record stimulus while not fueling economic growth.

“The benefits of that action are likely to be small, because it’s unlikely to improve growth without also causing an unwelcome increase in inflation,” Lacker said today in remarks prepared for a speech at the University of Virginia in Charlottesville. “Adding to our balance sheet increases the risks we’ll have to move quickly when the time comes to normalize monetary policy and begin raising rates.”

The economy is recovering at a “relatively sluggish” pace, and the decline in unemployment “has been disappointingly slow,” Lacker said today to students, faculty and business leaders. Low housing demand, shaken consumer confidence and “political gridlock” among lawmakers unable to agree on a federal budget plan are inhibiting the expansion, he said.

Lacker, who has dissented against every Federal Open Market Committee decision this year, has said he opposed new asset purchases because allocating credit is the responsibility of Treasury or Congress. The Fed last month said it will purchase $40 billion in mortgage bonds a month and hold the main interest rate near zero until at least mid-2015.

The Fed’s third round of quantitative easing, announced Sept. 13, has no end date or fixed total amount, unlike the first two programs of bond buying. In the first, starting in 2008, the Fed bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

Initial Claims

A report from the Labor Department yesterday showed that initial claims for unemployment benefits declined last week to a four-year low, which may have reflected difficulty adjusting the data for seasonal swings. The jobless rate unexpectedly fell in September to 7.8 percent, the lowest since President Barack Obama took office in January 2009.

The world’s largest economy expanded at a 1.3 percent pace from April through June, slower than a prior estimate of 1.7 percent, after growing at a 2 percent rate in the first quarter. Economists predict gross domestic product will grow 1.8 percent in the third quarter and 1.9 percent in the fourth, according to the median of 92 estimates in a Bloomberg survey.

Lacker said in Sept. 15 statement that he “strongly opposed” buying more mortgage bonds because the purchases will “distort investment allocations and raise interest rates for other borrowers.” He said that “channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve,” according to the statement.

Record Stimulus

Also last month, the Fed district bank chief said that even the central bank’s use of record stimulus may not be enough to cut the jobless rate because of the severity of the shock from the credit crisis. Monetary policy can’t offset how “various frictions impede the economy’s adjustment to various shocks,” Lacker said in a Sept. 18 speech in New York.

Lacker, 56, dissented four times in 2006 in favor of higher interest rates. He has been president of the reserve bank since 2004 and previously was its director of research. The Richmond Fed district includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.

 

SOURCE :- BLOOMBERG

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BREAKING NEWS : - Lacker Says Fed Bond Buying Has Few Benefits and Risks Inflation

Federal Reserve Bank of Richmond President Jeffrey Lacker said the Fed’s third round of bond buying will increase inflation risks and complicate the pull- back from record stimulus while not fueling economic growth.

“The benefits of that action are likely to be small, because it’s unlikely to improve growth without also causing an unwelcome increase in inflation,” Lacker said today in remarks prepared for a speech at the University of Virginia in Charlottesville. “Adding to our balance sheet increases the risks we’ll have to move quickly when the time comes to normalize monetary policy and begin raising rates.”

The economy is recovering at a “relatively sluggish” pace, and the decline in unemployment “has been disappointingly slow,” Lacker said today to students, faculty and business leaders. Low housing demand, shaken consumer confidence and “political gridlock” among lawmakers unable to agree on a federal budget plan are inhibiting the expansion, he said.

Lacker, who has dissented against every Federal Open Market Committee decision this year, has said he opposed new asset purchases because allocating credit is the responsibility of Treasury or Congress. The Fed last month said it will purchase $40 billion in mortgage bonds a month and hold the main interest rate near zero until at least mid-2015.

The Fed’s third round of quantitative easing, announced Sept. 13, has no end date or fixed total amount, unlike the first two programs of bond buying. In the first, starting in 2008, the Fed bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

Initial Claims

A report from the Labor Department yesterday showed that initial claims for unemployment benefits declined last week to a four-year low, which may have reflected difficulty adjusting the data for seasonal swings. The jobless rate unexpectedly fell in September to 7.8 percent, the lowest since President Barack Obama took office in January 2009.

The world’s largest economy expanded at a 1.3 percent pace from April through June, slower than a prior estimate of 1.7 percent, after growing at a 2 percent rate in the first quarter. Economists predict gross domestic product will grow 1.8 percent in the third quarter and 1.9 percent in the fourth, according to the median of 92 estimates in a Bloomberg survey.

Lacker said in Sept. 15 statement that he “strongly opposed” buying more mortgage bonds because the purchases will “distort investment allocations and raise interest rates for other borrowers.” He said that “channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve,” according to the statement.

Record Stimulus

Also last month, the Fed district bank chief said that even the central bank’s use of record stimulus may not be enough to cut the jobless rate because of the severity of the shock from the credit crisis. Monetary policy can’t offset how “various frictions impede the economy’s adjustment to various shocks,” Lacker said in a Sept. 18 speech in New York.

Lacker, 56, dissented four times in 2006 in favor of higher interest rates. He has been president of the reserve bank since 2004 and previously was its director of research. The Richmond Fed district includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.

 

SOURCE :- BLOOMBERG

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