Monday, April 14, 2014 Monday, April 7, 2014 Monday, March 17, 2014 Sunday, March 16, 2014 Friday, March 14, 2014 Thursday, March 13, 2014 Friday, February 28, 2014

BRUSSELS—The European Union forecast tepid growth for most of the region through 2015 and warned that lingering debt burdens and the specter of deflation could sabotage the recovery.
Economists at the European Commission predicted a mild recovery over the next two years. The impact of budget austerity, a major drag on growth since the euro-zone debt crisis flared in 2009, is expected to fade this year. Meanwhile, policy overhauls in the euro zone’s weaker economies are starting to bear fruit, helping to boost their export sectors, the commission said.
Growth in the euro area is forecast at 1.2% this year and 1.8% next, after two consecutive years of contraction. That won’t be enough to make much of a dent in euro-zone unemployment, which is seen hovering near record highs of 12% in 2014 and 11.7% in 2015.
But the lackluster recovery faces some daunting obstacles. Debt owed by governments, households, businesses and banks remains too high in many of the bloc’s countries, the commission report said. And low inflation in the euro zone, or even the possibility of outright deflation, threatens to make the debt problems even worse.
"Much depends on the stability of inflation expectations for the medium term," said Marco Buti, the director general of the commission’s economics division. "Should they shift lower, the corresponding increase of real interest rates and the debt burden would make it harder for growth to accelerate."
The commission forecasts inflation in the euro zone at 1% this year and 1.3% next, well below the European Central Bank’s target of just under 2%. Eurostat on Monday said inflation in the euro area is running at 0.8%. The ECB’s meeting on March 6 is shaping up to be pivotal, with analysts divided on whether falling inflation readings will prompt the ECB to cut interest rates or adopt other stimulus.
The commission’s thrice-annual forecasts serve as a guide for how much austerity governments are expected to undertake to meet the EU’s budget rules, which generally require budget deficits under 3% of gross domestic product. While the bloc’s overall budget is seen falling below that level this year, some of the biggest euro-zone countries still have work to do to meet their targets.
France has pledged to bring its deficit to under 3% of GDP in 2015, yet the commission forecasts the deficit next year at 3.9% of GDP. In Spain, the government has pledged to bring its deficit to under 3% in 2016. Hitting that target will require significant new cuts, as the budget deficit is forecast to hit 6.5% of GDP in 2015.
The commission, which monitors and enforces the EU’s budget rules, has in recent years relied more on the “structural” balance—the actual budget balance adjusted for the strength of the economy—to evaluate national budget programs. That approach has allowed it to give national governments such as Spain and France more time to cut their deficits, since Europe’s weak economy is depressing tax revenues and increasing social spending.The commission’s thrice-annual forecasts serve as a guide for how much austerity governments are expected to undertake to meet the EU’s budget rules, which generally require budget deficits under 3% of gross domestic product. While the bloc’s overall budget is seen falling below that level this year, some of the biggest euro-zone countries still have work to do to meet their targets. - (WSJ)

BRUSSELS—The European Union forecast tepid growth for most of the region through 2015 and warned that lingering debt burdens and the specter of deflation could sabotage the recovery.

Economists at the European Commission predicted a mild recovery over the next two years. The impact of budget austerity, a major drag on growth since the euro-zone debt crisis flared in 2009, is expected to fade this year. Meanwhile, policy overhauls in the euro zone’s weaker economies are starting to bear fruit, helping to boost their export sectors, the commission said.

Growth in the euro area is forecast at 1.2% this year and 1.8% next, after two consecutive years of contraction. That won’t be enough to make much of a dent in euro-zone unemployment, which is seen hovering near record highs of 12% in 2014 and 11.7% in 2015.

But the lackluster recovery faces some daunting obstacles. Debt owed by governments, households, businesses and banks remains too high in many of the bloc’s countries, the commission report said. And low inflation in the euro zone, or even the possibility of outright deflation, threatens to make the debt problems even worse.

"Much depends on the stability of inflation expectations for the medium term," said Marco Buti, the director general of the commission’s economics division. "Should they shift lower, the corresponding increase of real interest rates and the debt burden would make it harder for growth to accelerate."

The commission forecasts inflation in the euro zone at 1% this year and 1.3% next, well below the European Central Bank’s target of just under 2%. Eurostat on Monday said inflation in the euro area is running at 0.8%. The ECB’s meeting on March 6 is shaping up to be pivotal, with analysts divided on whether falling inflation readings will prompt the ECB to cut interest rates or adopt other stimulus.

The commission’s thrice-annual forecasts serve as a guide for how much austerity governments are expected to undertake to meet the EU’s budget rules, which generally require budget deficits under 3% of gross domestic product. While the bloc’s overall budget is seen falling below that level this year, some of the biggest euro-zone countries still have work to do to meet their targets.

France has pledged to bring its deficit to under 3% of GDP in 2015, yet the commission forecasts the deficit next year at 3.9% of GDP. In Spain, the government has pledged to bring its deficit to under 3% in 2016. Hitting that target will require significant new cuts, as the budget deficit is forecast to hit 6.5% of GDP in 2015.

The commission, which monitors and enforces the EU’s budget rules, has in recent years relied more on the “structural” balance—the actual budget balance adjusted for the strength of the economy—to evaluate national budget programs. That approach has allowed it to give national governments such as Spain and France more time to cut their deficits, since Europe’s weak economy is depressing tax revenues and increasing social spending.The commission’s thrice-annual forecasts serve as a guide for how much austerity governments are expected to undertake to meet the EU’s budget rules, which generally require budget deficits under 3% of gross domestic product. While the bloc’s overall budget is seen falling below that level this year, some of the biggest euro-zone countries still have work to do to meet their targets. - (WSJ)

Sunday, February 16, 2014 Thursday, February 13, 2014

"We expect that woes in emerging markets may continue to provide occasional worries for global markets similar to what was experienced during periods of the euro zone crisis in 2011 and 2012," William Stone, chief investment strategist at PNC Wealth Management wrote in a report titled "Emerging Markets are the New Eurozone" last week. 
"Our expectation is that emerging markets will also fail to drag the global economy into crisis. (But) investors should position themselves to be able to withstand any volatility from the concerns, since investors forced out of stocks during the euro zone crisis paid a heavy price in terms of missed market returns as the worries passed," he said. 
The selloff in emerging markets has been triggered by a combination of factors from the US Federal Reserve`s pullback in its bond buying program - which has provided global markets with ample liquidity in recent years - to concerns over the growth outlook for China. The “Fragile Five” - India, Indonesia, Brazil, Turkey and South Africa - markets have been among the worst hit given their vulnerabilities including twin fiscal and current-account deficits, falling growth rates and above-target inflation.
Rajiv Biswas, chief economist, Asia-Pacific at IHS Global Insight agrees contagion from the emerging market troubles will be on a far lesser scale than the euro zone debt crisis. “Euro zone contagion was driven by the toxic assets on US and European bank balance sheets related to subprime securities, which translated into a systemic EU banking system crisis and deep contraction in bank credit,” Biswas said. — (CNBC)

"We expect that woes in emerging markets may continue to provide occasional worries for global markets similar to what was experienced during periods of the euro zone crisis in 2011 and 2012," William Stone, chief investment strategist at PNC Wealth Management wrote in a report titled "Emerging Markets are the New Eurozone" last week. 

"Our expectation is that emerging markets will also fail to drag the global economy into crisis. (But) investors should position themselves to be able to withstand any volatility from the concerns, since investors forced out of stocks during the euro zone crisis paid a heavy price in terms of missed market returns as the worries passed," he said. 

The selloff in emerging markets has been triggered by a combination of factors from the US Federal Reserve`s pullback in its bond buying program - which has provided global markets with ample liquidity in recent years - to concerns over the growth outlook for China. The “Fragile Five” - India, Indonesia, Brazil, Turkey and South Africa - markets have been among the worst hit given their vulnerabilities including twin fiscal and current-account deficits, falling growth rates and above-target inflation.

Rajiv Biswas, chief economist, Asia-Pacific at IHS Global Insight agrees contagion from the emerging market troubles will be on a far lesser scale than the euro zone debt crisis. “Euro zone contagion was driven by the toxic assets on US and European bank balance sheets related to subprime securities, which translated into a systemic EU banking system crisis and deep contraction in bank credit,” Biswas said. — (CNBC)
Friday, February 7, 2014 Tuesday, January 28, 2014 Sunday, January 26, 2014

However, while spreads (and yields) tumble in all the PIIGS, with Italian yields at almost 7-year lows, it is perhaps surprising to some that Italian bad loan rates are at their highest on record. 

I think most of the divergence is due to high hopes that the worse has passed along with the added security that the ECB stands ready to do….well “whatever it takes.”  
Should economic growth falter, markets will begin to worry about the ECB’s promise and will push the central bank to execute on its promise.  
However, the important detail is that growth continues in Europe so these possible “mispricings” are likely to continue.
One more issue to mention is that a hard landing in China could shift investor sentiment enough to negatively affect the delicate state of affairs in Euroland.   

However, while spreads (and yields) tumble in all the PIIGS, with Italian yields at almost 7-year lows, it is perhaps surprising to some that Italian bad loan rates are at their highest on record

I think most of the divergence is due to high hopes that the worse has passed along with the added security that the ECB stands ready to do….well “whatever it takes.”  

Should economic growth falter, markets will begin to worry about the ECB’s promise and will push the central bank to execute on its promise.  

However, the important detail is that growth continues in Europe so these possible “mispricings” are likely to continue.

One more issue to mention is that a hard landing in China could shift investor sentiment enough to negatively affect the delicate state of affairs in Euroland.   

Wednesday, January 22, 2014 Monday, January 13, 2014
Europe will be forged in crises and will be the sum of the solutions adopted from these crises. Jean Monnet

(Source: irishtimes.com)