Europe Consumer Spending, Exports Help Ease Recession
European consumer spending rose for the first time in more than a year in the second quarter and exports fell at a slower pace, helping to ease the worst recession in more than 60 years.
Household spending in the euro area increased 0.2 percent after declining 0.5 percent in the first quarter, the European Union’s statistics office in Luxembourg said today. Exports fell 1.1 percent after an 8.8 percent drop in the previous three months. Gross domestic product declined 0.1 percent, the office said, confirming an initial estimate published on Aug. 13.
European companies from France’s Vivendi SA to Germany’s Henkel AG have reported higher earnings, suggesting government efforts to encourage spending and fight the economic slump are gaining traction. While confidence in the economic outlook increased for a fifth month in August, European Central Bank President Jean-Claude Trichet has said that rising unemployment may slow the recovery.
“Shrinking times are over and the recovery can set in,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. Still, “don’t count on private consumption as a growth driver in the near future. The recovery will be strongly dependent on exports and the pick-up in global demand.”
European producer prices fell a record 8.5 percent in July from a year earlier, according to a separate report. The drop reflected the impact of oil prices, which have fallen by half since reaching a record close to $150 a barrel in July 2008.
‘Worst is Over’
The euro was down 0.2 percent at $1.4202 as of 1:53 p.m. in London. Stocks declined, with Europe’s Stoxx 600 slipping 1.1 percent to 229.16.
Today’s GDP report was in line with economists estimates. The economy shrank 2.5 percent in the first quarter, the most since the euro-area data were first compiled in 1995.
“The worst is over for the time being,” Jean-Claude Juncker, who heads the group of euro-area finance chiefs, told reporters in Brussels today. Still, “the time has not yet come to withdraw the fiscal stimulus.”
From a year earlier, GDP dropped 4.7 percent in the second quarter after shrinking 4.9 percent in the first quarter. Euro- area GDP has declined for five straight quarters, the longest contraction since the data series started 14 years ago.
‘Deep Scars’
International Monetary Fund Chief Economist Olivier Blanchard said in a paper published on Aug. 18 that the global economy is starting to gather strength from a crisis that left “deep scars.” The Washington-based lender with 185 member nations sees the euro-area economy shrinking 0.3 percent in 2010 after a 4.8 percent contraction this year.
Adding to signs of recovery, European industrial output increased more than economists forecast in June and investor confidence rose to a 12-month high last month. In Germany business confidence rose for a fifth month in August.
Paris-based Vivendi, owner of phone companies SFR and Maroc Telecom, yesterday reported better-than-expected second-quarter net income. Dusseldorf, Germany-based Henkel said on Aug. 5 that second-quarter profit more than tripled.
Government Action
In Germany, Chancellor Angela Merkel, who faces national elections this month, is spending about 85 billion euros ($121 billion) in an effort to rekindle growth, including incentives to boost car purchases. The program was one of the reasons the economy unexpectedly returned to growth in the second quarter.
Government spending across the euro region rose 0.4 percent in the second quarter after increasing 0.7 percent in the previous three months, today’s report showed.
Volkswagen AG, Europe’s biggest carmaker, last month raised its full-year sales forecast after the subsidies helped spur demand for its Golf and Polo compacts.
While signs of an economic recovery have prompted speculation about central banks’ exit strategies from stimulus measures, the ECB is showing little willingness to depart from its current strategy of offering banks unlimited cash, buying covered bonds and keeping interest rates at a record low.
The ECB tomorrow will probably keep its key rate at 1 percent, according to all 58 economists in a Bloomberg survey. The central bank, which will announce its rate decision at 1:45 p.m. in Frankfurt, also will publish revised forecasts.
“Any tightening of monetary policy by the ECB still looks highly improbable until well into 2010,” said Howard Archer, chief euro-region economist at IHS Global Insight in London.
With companies including Amsterdam-based ING Groep NV and Germany’s Siemens AG cutting jobs, consumers may keep spending plans on hold. European retail sales fell for a 15th month in August, the Bloomberg purchasing managers index showed.
Euro-region unemployment rose to 9.5 percent in July, the highest in more than 10 years. The European Commission forecasts the jobless rate will reach 11.5 percent next year.
“We will have to accept that unemployment will have to augment, maybe significantly, and that will have a bearing on the evolution of growth,” Trichet said last month. “We have to remain ourselves very cautious and also very prudent.”