Euro-zone Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

Introduction

The Euro is used in 13 countries that make up the Euro-zone, and together make up the the largest economy in the world with a GDP of $14.527 trillion or 30% of the world's GDP. The Euro-zone feature some of the largest economies in the world including Germany (3rd), France (6th), Italy (7th), and Spain (9th). Its other members are Austria (26th), Belgium (18th), Finland (33rd), Greece, Ireland (31st), Luxembourg, Netherlands (16th), Portugal (35th), and Slovenia. Since its inception in 1999, the Euro has solidified its reputation as a viable alternative to the Dollar as a "reserve" currency. Since 2002, the Euro has steadily appreciated versus the dollar, rising almost 50% during that time.

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Euro-zone's Fundamental Indicators and Chart

Monthly Data for July, 2008

Date	EST	Indicator	Actual	Forecast	Previous
7/1	4:00am	Manufacturing PMI	49.2	49.1	49.1
		Final Version for June Germany: 52.6, pr. 53.6 France: 49.2, pr. 51.5 Italy: 46.9, pr. 48.0 Spain: 40.6, 43.8 Manufacturing in the Euro-zone overall remained close to its preliminary estimate from June 23rd. In May, the final version was 50.6, so there is confirmation now of a move into contraction. France's activity fell to its lowest since May 2005, while Italy was at its lowest level since 2001. Spain's activity sank to its lowest level since records begain in 1998. Capsule Comment from Preliminary Release (June 23rd): Activity in the manufacturing and services sectors fell below the 50 boom-bust level separating expansion from contraction for the first time in 5 years. The data suggests that slowdown many have seen in the data already is hitting home with the prospect of an interest rate increase by the ECB also looming for July. Higher fuel prices are causing consumers to buy less durable goods such as automobiles, hampering manufacturing, while a strong Euro is dampening the demand for European exports.
7/1	5:00am	Unemployment Rate	7.2%	7.1%	7.2% 7.1%
		For May (s.a.) Provided by EuroStat Official Release: PDF The unemployment rate remained at 7.2% in May, as April's jobless rate was revised to 7.2% from 7.1%. This was also the case for March and February. That returns the record low to 7.2%. With inflation climbing, wage growth in Europe may be set to accelerate to 3.3% in the 1st quarter which is a scenario that worries the European Central Bank. ECB policy members have been very clear that inflation expectations have the potential to climb higher if wage increases bring about second-round effects on prices. The bank is set to raise rates to 4.25% this week, as CPI hit 4% for June according to preliminary data.
7/2	5:00am	Producer Price Index m/m	1.2%	0.9%	0.8%
		For May Provided by: EuroStat Current Release: PDF PPI y/y: 7.1%, forecast 6.7%, pr 6.1% (Apr), 5.8% (Mar) Energy prices in May pushed Euro Area industrial producer price inflation to an annual pace of 7.2%, the highest since January of 1990 when the records began. Excluding energy, prices are up 0.3% on the month, and 3.8% on the year. Energy costs climbed 4.1% on the month, and 18% on the year. This bolsters the case for the ECB to increase rates tomorrow by 25 bps.
7/3	4:00am	Services PMI	49.1	49.5	49.5
		Final Version for June Germany: 52.1, prel. 53.3, pr. 53.5 (May), 54.9 (Apr) France: 50.1, prel. 49.2, pr. 50.5 (May), 52.8 (Apr) Italy: 50.1, pr. 48.1 The services sector in the Euro-zone fell into contraction from its 50.6 reading in May. UK and US services also faltered and were below the 50 boom-bust level. Today's final version was lower than the preliminary release that showed the PMI at 49.5. Capsule Comment from Preliminary Version (June 23rd): "Activity in the manufacturing and services sectors fell below the 50 boom-bust level separating expansion from contraction for the first time in 5 years. The data suggests that the slowdown many have seeing in the data for the Euro-zone already is hitting home with the prospect of an interest rate increase by the ECB also looming for July. Higher inflation is cutting into consumers and firms purchasing power, limiting the services they are using. Higher prices for things like airline tickets are dampening demand for services that may not be considered necessities. Consumer confidence has become increasingly pessimistic and will impact how much they will spend in the economy."
7/3	5:00am	Retail Sales m/m	1.2%	0.4%	-0.7% -0.6%
		For May Provided by: Eurostat Official Release: PDF Retail Sales y/y: 0.2%, forecast -0.7%, pr. -2.9% (Apr), -2.3% (Mar) Retail sales in the Euro-zone rose 1.2%, about three times higher than what was expected, rebounding from April's drop. The annual pace recovered as well, climbing to show a positive 0.2% change compared to April's record low -3%. Despite the better reading, its results may be temporary as consumers are feeling the weight of inflation and companies are facing tougher times in a slowing global economy.
7/3	7:45am	Interest Rate Statement	4.25%	4.25%	4.00%
		Provided by: European Central Bank Official Release: Press Release Official Release: Introductory Statement The ECB raised interest rates to a seven-year high of 4.25% in order to combat red-hot inflation. It comes despite signs that the economy is cooling. The increase was signaled far in advance, and was not a surprise to the markets. Inflation hit a 16 year high, with June preliminary reading showing annual consumer inflation at 4%. The ECB is concerned that high consumer inflation will cause wages to increase at too fast a pace, creating a wage-spiral and increasing inflation expectations. Some countries like Spain and France are concerned the ECB is not paying enough attention to the growth outlook as it deteriorates with high oil prices, a strong Euro making European goods more expensive abroad and continuing tight credit conditions. The statements by ECB President Trichet did not seem to reinforce the perception that the ECB was signaling further rate hikes ahead, and the EUR/USD had a swift move downward in favor of the Dollar. The pair fell from its high near 1.59 to trade almost 150 pips lower at one point near 1.5750. From the Release: "On the basis of our regular economic and monetary analyses, we decided at today’s meeting to increase the key ECB interest rates by 25 basis points. This decision was taken to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term. HICP inflation rates have continued to rise significantly since the autumn of last year. They are expected to remain well above the level consistent with price stability for a more protracted period than previously thought. Moreover, continued very vigorous money and credit growth and the absence thus far of significant constraints on bank loan supply in a context of ongoing financial market tensions confirm our assessment of upside risks to price stability over the medium term. At the same time, while the latest data confirm the expected weakening of real GDP growth in mid-2008 after exceptionally strong growth in the first quarter, the economic fundamentals of the euro area are sound. Against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long-term inflation expectations firmly anchored in line with price stability. This will preserve purchasing power in the medium term and continue to support sustainable growth and employment in the euro area. On the basis of our current assessment, the monetary policy stance following today’s decision will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead."
7/3	8:30am	ECB President Trichet Speaks
		Official Release: ECB Introductory Statement ECB President Trichet opened his speech highlighting downside risks to the outlook of economic growth, which caused the EUR/USD to sink about 90 pips, despite another weak report from US monthly job data. The rest of the introductory statement focused on recent high CPI rates, and the risks to price stability, including price-wage negotiations. The EUR/USD continued falling, reaching close to 1.5750 in teh 20 minutes following Trichet's comments.
7/7	4:30am	Sentix Investor Confidence	-9.3	2.5	5.2
		For July Provided by: Sentix
7/9	5:00am	Gross Domestic Product q/q	0.7%	0.8%	0.8%
		Final Release for 1st Quarter Provided by: EuroStat Official Release: PDF GDP y/y: 2.1%, advance 2.2%, pr. 2.2% Europe's economic growth for the 1st quarter was revised down in the final version. GDP expanded 0.7% compared to the originally estimated 0.8%. The Euro-zone economy is cooling with indicators from manufacturing, services and consumer spending on the decline. Exports from Germany are also declining as the strong Euro makes European goods more expensive abroad while demand abroad slacks as a result of a global slowdown. From the Release: "In the first quarter of 2008, household2 final consumption expenditure increased by 0.2% in the euro area and by 0.3% in the EU27 (after –0.1% and +0.1% in the previous quarter). Investment grew by 1.6% in the euro area and by 1.0% in the EU27 (after +1.1% and +1.4%). Exports rose by 1.9% in the euro area and by 2.0% in the EU27 (after +0.4% and +0.7%). Imports increased by 2.0% in the euro area and by 1.7% in the EU27 (after –0.2% and –0.1%)."
7/10	5:00am	ECB Monthly Bulletin
		For July Provided by: European Central Bank June's Release: PDF On the Global Economy: "Global economic activity continues to be dampened by the economic weakness in the United States, by the global repercussions of the fi nancial turmoil and increasingly by high oil and non-oil commodity prices. The slowdown in economic growth concerns mainly developed economies, as economic growth remains robust in emerging markets. At the same time, headline consumer price infl ation in OECD countries remains high, boosted by sharp rises in oil and non-energy commodity prices. On balance, the risks to the outlook for global growth continue to lie on the downside." On Inflation: "In June 2008 euro area HICP infl ation is estimated to have further increased to 4.0%, from 3.7% in May, most likely owing to renewed increases in energy prices. Elevated and persistent external price pressures stemming from oil and food commodity price developments, combined with intensifying domestic pipeline pressures and an acceleration of wage dynamics, point to a protracted period of high annual rates of infl ation. On the basis of current futures prices for oil and food commodities, euro area HICP infl ation is likely to remain well above 2% for quite some time, moderating only gradually in 2009. Risks to price stability over the medium-term horizon remain clearly on the upside and have increased further over the past few months. These risks include notably the possibility of further increases in energy and food prices. There is also a very strong concern that price and wage-setting behaviour could add to infl ationary pressures via broadly based second-round effects. Furthermore, there are potential upside risks from unanticipated rises in indirect taxes and administered prices."
7/14	5:00am	Industrial Production m/m	-1.9%	-2.3%	1.0% 0.9%
		For May Provided by Eurostat News Release: PDF Industrial Production y/y: -0.6%, forecast 0.3%, pr. 4.0% Euro-Area's industrial production stumbled in May after an upwardly revised 1.0% growth in April. Broken down into components, intermediate goods output declined 1.4%, energy goods down 2.7%, capital goods down 2.4%, durable consumer goods down 3.3%, while non-durable consumers goods are down 1.2%. May's figures highlight a deepening slowdown the Eurozone is feeling in recent months. Germany, Europe's largest economy for example has scaled back production in March, April, and May, at the pace of -0.5%, -0.8%, -2.4%. Global demand is shifting down as consumers tighten their belts and the strong euro also makes European exports less competitive. Prospects of a ECB rate hike is limited even though the bank's mandate is price stability.
7/15	5:00am	ZEW Economic Sentiment	-63.7	-56.0	-52.7
		For July Provided by: ZEW Indicator of Economic Sentiment Official Release: Press Release From the Release: "The economic expectations for the euro zone declined significantly in July as well. The indicator decreased by 11.0 points and now stands at minus 63.7 points. The indicator for the current economic situation in the euro zone dropped by 11.2 points and now stands at minus 3.3 points."
7/16	5:00am	Consumer Price Index y/y	4.0%	4.0%	4.0%
		Final Version for June Provided by: EuroStat Official Release: PDF Core CPI y/y: 1.8%, forecast 1.8%, pr. 1.7% The final version of consumer inflation in the Euro-zone for June matched the preliminary estimate of 4%. In May the rate was 3.7%. In the report, part of which is reproduced below, transportation, food and housing led the increase. The ECB has already acted aggressively to counter the rising inflation by hiking rates to 4.25%, but as most of the inflation recently is a result of higher oil and therefore energy prices, it remains to be seen if inflation will cool. Certainly, growth in the Euro-zone has seen a decline in the 2nd quarter. From the Release: "The main components with the highest annual rates in June 2008 were transport (7.1%), food (6.4%) and housing (6.1%), while the lowest annual rates were observed for communications (-1.6%), recreation & culture (0.1%) and clothing (0.7%). Concerning the detailed sub-indices, fuels for transport (+0.69 percentage points), heating oil (+0.40) and milk, cheese & eggs (+0.21) had the largest upward impacts on the headline rate, while garments (-0.20), cars and telecommunications (-0.18 each) had the biggest downward impacts. The main components with the highest monthly rates were transport (1.4%), housing and hotels & restaurants (0.6% each), and the lowest were clothing (-0.7%), communications (-0.1%), recreation & culture and education (0.0% each). In particular, fuels for transport (+0.18 percentage points), heating oil (+0.06) and accommodation services (+0.03) had the largest upward impacts, while garments (-0.07), vegetables (-0.05) and rents (-0.02) had the biggest downward impacts."
7/16	5:00am	Consumer Price Index m/m	0.4%	0.4%	0.6%
		Final Version for June Provided by: EuroStat
7/18	5:00am	Trade Balance	-1.5B	0.8B	2.2B
		For May (s.a.) Provided by: EuroStat Official Release: PDF Trade Balance n.s.a.: -€4.6B, forecast -€1.0B, pr. €2.3B The European trade balance reported a seasonally adjusted 1.5 billion deficit, which surprised forecasts on the downside. Exports were down 3.4% as global growth cools and the Euro's strong appreciation has reduced the competitiveness of European exports abroad. Euro-zone exports to the US was down 4% in the four month through April, compared to last year. Trade with China and Russia was much robust increasing 19% and 24% respectively. Both Germany and France saw weaker export sales. From the Release: "The first estimate for the euro area (EA15) trade balance with the rest of the world in May 2008 gave a 4.6 bn euro deficit, compared with +1.4 bn in May 2007. The April 2008 balance was +2.5 bn, compared with +2.0 bn in April 2007. In May 2008 compared with April 2008, seasonally adjusted exports fell by 3.4% and imports by 1.3%."
7/23	5:00am	Industrial New Orders m/m	-3.5%	-1.3%	2.0% 2.5%
		For May - (s.a.) Provided by: EuroStat Official Release: PDF Industrial New Orders y/y: -4.4%, forecast 3.2%, pr 12.3% (Apr), -3.7% (Mar) Euro-zone industrial orders disappointed forecasts for the May period, falling 3.5%. The consensus forecast was for a drop of 1.3%. The figure reverses all of April's 2% gain. European exports are facing weaker demand from the US and the UK, and European companies face higher operating costs and consumers faced with rising inflation. GDP growth is expected to be weaker in 2nd quarter as manufacturing activity contracts in the face of higher costs, mainly oil and energy, and weakening foreign demand. From the Release: "In May 2008 compared with April 2008, new orders for chemicals & chemical products fell by 0.5% in both the euro area and the EU27. Manufacturing of basic metals & fabricated metal products decreased by 2.4% and 1.9% respectively. Electrical & electronic equipment dropped by 3.0% in the euro area and by 4.5% in the EU27. Manufacturing of machinery & equipment declined by 4.1% and 7.7% respectively. Textiles & textile products fell by 4.2% in the euro area and by 1.7% in the EU27. Transport equipment decreased by 7.0% and 8.5% respectively." EUR/USD - Greenback Gains for Second Day: The Euro was lower against the Dollar overnight, falling to test the area near 1.5720 following the release. After the NY open the the Euro fell further to breach 1.57. European stocks gained overnight and the EUR/JPY pair tested 169.70 overnight, but gave up its gains in NY morning trading.
7/24	3:33am	Manufacturing PMI	47.5	48.7	49.2
		Preliminary Version for July Germany: pr. 52.6 (Jun), 53.6 (May) France: pr. 49.2 (Jun), 51.5 (May) Italy: pr. 46.9 (Jun), 48.0 (May) Spain: pr. 40.6 (Jun), 43.8 (May) Activity in the manufacturing sector declined sharply in July, falling to 47.5 from June's 49.2, according to preliminary data. Manufacturing is being pressured by weaker global demand, and lowers domestic sales as companies and consumer curtail spending. Producers are being forced to raise prices as a result of higher input costs, mainly any derivatives of oil and energy. Activity in services was down as well, and a third release today showed German business confidence falling to its lowest in 2001.
7/24	3:33am	Services PMI	48.3	48.8	49.1
		Preliminary Version for July Germany: pr. 52.1 (Jun), pr. 53.5 (May), 54.9 (Apr) France: pr. 50.1 (Jun), 50.5 (May), 52.8 (Apr) Italy: pr. 50.1 (Jun), 48.1 (May) Activity in the services sector showed another month of contraction, preliminary data for July revealed. Manufacturing was down as well, and German business confidence fell to the the lowest since Sept. of 2001. Several factors that have been in the works including surging oil prices, a stronger euro and a global slowdown that originated in the US housing meltdown, are now pressuring the euro-zone economy and it is showing. More detailed data will become available the first week of August.
7/24	4:00am	Current Account	-7.3B	-0.5B	1.5B -0.3B
		For May (s.a.) Provided by: European Central Bank Official Release: Press Release Current Account (n.s.a.): -21.4B, pr. -9.2B (Apr), -5.7B (Mar), 8.1B (Feb) From the Release: "The working day and seasonally adjusted current account of the euro area recorded a deficit of EUR 7.3 billion in May 2008 (corresponding to a deficit of EUR 21.4 billion in non-adjusted terms). This reflected deficits in current transfers (EUR 5.9 billion) and goods (EUR 3.3 billion), which were partly offset by a surplus in services (EUR 2.7 billion). The income account was close to balance."
7/25	4:00am	M3 Money Supply y/y		10.3%	10.5%
		For July (s.a.) Provided by: European Central Bank M3 s.a. (3M - June): forecast 10.4%, pr. 10.4% (May), 10.7% (Apr), 11.0% (Mar)

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Central Bank Watch - Latest European Central Bank Decision

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June
5th, 2008

Actual

Forecast

Revised Form

4.00%

N/A

Provided by: European Central Bank
Official Release: Press Release
Official Release: Introductory Statement

The ECB held rates steady at 4%, as was expected, as it tries to continue to combat persistently high inflation. Firms and consumers are dealing with record energy and elevated food costs, cutting into profits and incomes. Workers are demanding higher wage increases to keep up with prices, which is a type of second-wave inflation that the Governing Council is concerned about. In the meantime, workers are consuming less to compensate for higher prices. There are signs that in addition to lower spending, the Euro-zone economy is starting to feel the pressure of higher credit costs and a stronger Euro. As the ECB has to balance both higher inflation and weakening growth, it is expected that it will maintain its 4% rate for the rest of the year, though those policy makers most concerned about inflation may call for an increase in rates. ECB President Trichet admitted that several members made the case for higher rates during his question and answer session following his press conference.

In his introductory remarks, Trichet stated that price stability is the prime objective of the central bank. Inflation had "significantly" increased since last year and would remain at elevated levels for longer than first thought. The central bank was "in a heightened state of alertness" and that anchoring these inflation expectations would be their main concern. "The Governing Council is monitoring wage negotiations and price-setting behavior in the euro area with particular attention." He also noted that the growth seen in the 1st quarter was due to temporary factors and that there was high uncertainty surrounding the economic outlook and that downside risks to growth prevail.

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Central Bank Watch - Bank Officials' Comments

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November 08 (ECB President Trichet) -- Trichet explained, in a press conference following today's ECB announcement to hold rates at 4%, that inflation risk is still elevated in the mid-term. He continues to wait out more developments and did not use the word "vigilance" regarding inflation concern. He did say he was ready to act to stem the inflation, which he expected to be above the 2.0% target in coming months.

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Economic and Financial Profile

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Growth in Europe

After relatively slow growth in 2003 (0.8%), 2004 (2.0%), and 2005 (1.3%), the Euro -zone growth rate accelerated in 2006 (2.8%). The expansion has been helped by strong exports to China, Russia, the United States. Capital goods produced by German firms have seen strong demand. There has also been a pickup in company spending within the Euro-zone, and unemployment eased putting more money into the pockets of consumers.

As growth picked up, inflation became a problem, and the Central Bank went on a rate hiking campaign between March 2006 and June 2007, raising rates from 2.25% to 4%. In August, further hikes were shelved as a credit crunch hit the global markets, and sent worries of reduced global growth. Though the Euro-zone has seemed to weather the credit-crunch well enough so far, projections for growth in 4th quarter 2007 and 2008 may see some declines.

Euro's Appreciation vs Dollar:

Since 2002, the Dollar has been sliding against the Euro. In 2007, as 1 Euro is approaching $1.50, the Dollar is beginning to lose its undisputed title as the "world's reserve currency." With the rise of the Euro, central banks around the world have been shifting some of their portfolio's away from Dollars, weakening demand for the "greenback".