Euro zone GDP contraction slows, but retail sales worse than forecast
A run of economic figures for the euro zone all showed the same thing – growth remains elusive.
While Eurostat confirmed today that the euro zone as a whole – and nine of its 17 members – were in recession at the end of the first quarter, a separate survey from the statistics office showed retail sales falling a monthly 0.5% in April.
The monthly survey of sentiment from financial information company Markit also pointed to a further contraction in activity during May.
The figures paint a fairly grim picture just as the European Central Bank’s governing council prepares to discuss what to do to get the ailing euro zone economy growing again. Tomorrow’s policy decision is not expected to yield much, or anything, exciting.
The pace of the euro zone’s economic contraction slowed quarter-on-quarter in the first three months of this year, EU statistics showed today.
But lower retail sales in April pointed to continued weakness in household demand.
Eurostat confirmed its earlier estimates that euro zone GDP fell 0.2% quarter-on-quarter in the three months from January to March for a 1.1% year-on-year contraction.
That came after a 0.6% decline in euro zone quarterly output in the previous three months.
The smaller fall in the first quarter of 2013 was mainly due to a stabilisation of inventories and household demand, which, unlike in the previous three months, did not weigh down the overall result.
But retail sales data, a proxy for consumer demand, fell more than expected in April, pointing to continued weakness of private consumption at the start of the second quarter. Economists said that was to be expected given record high unemployment of 12.2%.
Retail sales in the euro zone fell 0.5% in April from March to give a 1.1% year-on-year decline. Economists polled by Reuters had expected only a 0.1% monthly fall and a 0.8% annual contraction.
Eurostat GDP data showed there was a 0.1 percentage point positive contribution to the overall result from euro zone net trade in the first three months of the year – but only because imports declined more than exports, another signal of very weak domestic demand.
The positive net trade was, however, more than offset by a sharp fall in investment, which subtracted 0.3 percentage points from the overall final figure, leaving it at -0.2%.
The contribution from government spending, constrained by fiscal consolidation to regain market confidence in euro zone public finances, was zero, for the third quarter running.
Economists noted that private investment, especially in southern Europe where the recession was the deepest, was constrained by expensive credit to companies, as banks there are reluctant to lend to firms despite record low ECB lending rates. Such tight credit conditions in the south of the continent are now a top policy challenge for the euro zone.
The European Commission expects the euro zone to start growing again on a quarterly basis already from the second quarter, with a 0.1% quarterly expansion forecast.
The European Central Bank also expects the euro zone to start growing later this year. “The economic situation in the euro area remains challenging but there are a few signs of a possible stabilisation, and our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year,” ECB President Mario Draghi said earlier this week.
Euro zone business activity slump eases
Earlier data showed that Euro zone business activity shrank at a slightly slower pace last month. But a chronic shortage of new orders means an economic recovery still looks some way off.
Markit’s euro zone composite PMI, which gauges how thousands of businesses across the region fare each month, rose in May to 47.7 from 46.9, unchanged from a preliminary reading.
Although the index improved for the second month in a row, it has been rooted below the 50 threshold that signals growth for all but one month since September 2011.
Survey compiler Markit said the figures suggest the euro zone’s longest-ever recession will extend into the current quarter with a roughly 0.2% economic contraction.
“Policymakers and politicians will nevertheless seek solace in the fact that the rate of decline has now eased for two consecutive months, and that Germany is stabilising,” said Chris Williamson, chief economist at Markit. “Downturns have also eased in France, Italy and especially Spain since earlier in the year,” he added.
But Williamson said it was hard to see what could drive a return to growth outright anytime soon, adding that stabilisation is perhaps the best the euro zone economy will see in the next few months.
The recession has resulted in the highest unemployment rate in the euro zone’s history, reaching 12.2% and leaving 19.4 million people out of work.
The PMI suggested there was little chance of that being reversed soon, as the composite employment index slipped to 47.2 in May, a three-month low, from 47.4 in April.
A dearth of new orders in the services sector, which accounts for the bulk of the private economy, means it is by no means certain the surveys will improve again next month.
The services PMI, which covers companies ranging from banks to caterers, ticked up to 47.2 in May from 47, but showed order books shrinking at a slightly faster rate.
The individual euro zone country PMIs released earlier today showed services companies in all four of the bloc’s biggest economies – Germany, France, Italy and Spain – suffered declining business activity last month.
Firms became less optimistic about the prospects for the coming year, which counters data last week showing that confidence in the euro zone economy grew more than expected in May. The services business expectations index slipped to 54.2 in May, its weakest reading this year.