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 June, 2008

Date	EST	Indicator	Actual	Forecast	Previous
6/2	4:00am	Manufacturing PMI	50.6	50.5	50.5
		Final version for May The final version of Manufacturing PMI rose slightly from its 50.5 preliminary release. It was at 50.7 in April. Capsule Comment from Preliminary Release on May 23rd: "Activity in the manufacturing sector was weaker in May, with the PMI falling to 50.5 from 50.7, a preliminary report showed. The accompanying Services PMI fared worse, with activity far below expectations. The 2nd quarter is shaping up to be a much rougher period for the Euro-zone as a high Euro, record high oil prices, and slackening demand from the US will weight on manufacturing. Just yesterday, industrial new orders data showed a sharp fall of 1%."
6/3	5:00am	Producer Price Index m/m	0.8%	0.8%	0.7%
		For April Provided by: EuroStat Official Release: PDF PPI y/y: 6.1%, forecast 6.1%, pr. 5.8% (rev from 5.7%) Producer prices in the Euro-zone kept up their hot pace, accelerating to an annual rate of 6.1% in April, the fastest in more than seven years. On the month, prices were up 0.8%. Companies are being pressured by higher food and energy costs, and those prices are being passed on to consumers. Energy prices for producers were up 14.3% on the year (compared to 12.7% in March), while food prices increased 9.8% annually (compared to 10%). Consumer prices hit 3.6% in the flash estimate for May. The data implies that the ECB will continue to remain vigilant in regards to the medium term outlook for inflation and will continue their policy of holding interest rates steady at 4%.
6/3	5:00am	Gross Domestic Product q/q	0.8%	0.7%	0.7%
		Preliminary Release (Second Release) for 1st Quarter Provided by: EuroStat Official Release: PDF GDP y/y: 2.2%, advance 2.2%, pr. 2.2% The Euro-zone economy grew 0.8% in the 1st quarter, compared to an earlier estimate of 0.7%. Despite a difficult environment including a higher Euro, record oil prices and turmoil in financial markets, the Euro-zone was still able to have a relatively strong quarter. The 4th quarter figures were revised down to a growth rate of 0.3% from 0.4%. GDP growth was led by investment spending which was up 1.6% for the first 3 months of the month. Exports were up 1.9%, while imports increased 1.8%. Germany's economy grew in the 1st quarter at the fastest pace in 12 years, as a mild winter helped boost construction spending. Expectations are for weaker performance from Germany and the Euro-zone as the factors laid out earlier are starting to dent manufacturing, the services sector and consumer confidence. That implies that the strong growth of the 1st quarter will not be repeated in the 2nd quarter. The slowdown does not appear to be as pronounced as it was in the US, and the ECB will be able to maintain its current policy of holding interest rates steady in order to combat high inflation. From the Release: "During the first quarter of 2008, household final consumption expenditure increased by 0.2% in the euro area (after -0.1% in the previous quarter). Investments grew by 1.6% (after +1.0%). Exports rose by 1.9% (after +0.3%). Imports increased by 1.8%(after -0.3%)."
6/4	4:00am	Services PMI	50.6	50.6	50.6
		Final version for May Germany Services PMI: 53.5, forecast 53.7, prel. 53.7, pr. 54.9 France Services PMI: 50.5, forecast 50.7, prel. 50.7, pr. 52.8 Italy Services PMI: 48.1, forecast 49.5, pr. 49.8 Spain Services PMI: 43.3, pr. 42.5 The final version of services PMI matched the preliminary estimate. It showed a reading of 52 in April. Retail sales in the Euro-zone fell today as consumers are becoming more pessimistic about the economic situation as a result of high inflation and an unwillingness by the ECB to lower interest rates from their 6-year high of 4%. Services activity cooled in Germany, France and Italy. Indications are that second quarter growth in the Euro-zone will be lower than the during the 1st quarter. If this leads to a cooling in inflation then the ECB may act to lower rates, but currently its stance is to stamp out inflation which continues to run high as a result of ever increasing oil and food prices. Capsule Comment from May 23rd preliminary release: "Activity in the services sector in the Euro-zone cooled by a larger than expected amount. The preliminary measure for May's Services PMI fell to 50.6. This level matches a 4 1/2 year low that we saw in January. Drops were led by industries such as banking and telecommunications as consumers have tightened their wallets in response to higher inflation and higher credit costs. Manufacturing also declined, to 50.5 from 50.7, though this fall met expectations."
6/4	5:00am	Retail Sales m/m	-0.6%	0.2%	-0.9% -0.4%
		For April Provided by: Eurostat Official Release: PDF Retail Sales y/y: -2.9%, forecast -0.8%, pr. -2.3% (rev. from -1.6%) Retail sales in the Euro-zone saw a sharp drop in April, mirroring earlier data from Germany last week. Sales were down 0.6% on the month, and fell 2.9% compared to the same time last year. The annual rate was expected to decline only 0.8%. The 2.9% drop is the largest since records began in 1995. Consumers, faced with higher prices scaled back their purchases of food and other goods. Consumers are worried about the economic picture, as high inflation and high interest and weakening prospects for the global economy means the Euro-zone may be facing some tough times ahead. Lower spending may put the brakes on inflation, which would give the ECB room to lower rates in order to bolster growth, but until that plays out in the data, its unlikely the Governing Council will act. From the Release: Monthly changes: In April 2008, compared with March 2008, "food, drinks and tobacco" decreased by 1.0% in the euro area and by 0.6% in the EU27. The non food sector fell by 0.5% and 0.2% respectively. Annual Changes: In April 2008, compared with April 2007, retail trade of “food, drinks and tobacco” fell by 3.4% in the euro area and by 2.0% in the EU27. The non food sector decreased by 2.4% in the euro area, but grew by 0.3% in the EU27.
6/5	7:45am	ECB Interest Rate Statement	4.00%	4.00%	4.00%
		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.
6/5	8:30am	ECB President Trichet Speaks
		Provided by: European Central Bank Official Release: Introductory Statement See above comment for "ECB Interest Rate Statement" for analysis and info.
6/9	4:30am	Sentix Investor Confidence	5.2	3.0	3.5
6/12	5:00am	ECB Monthly Bulletin
		For June Provided by: European Central Bank Official Release: PDF (17.5MB) From the Release: "On Wages: Following contained developments in all labour cost indicators at the euro area level in 2007, with some signs of a pick-up towards the end of the year, the latest data available point to a strong acceleration in labour cost growth in early 2008. In the first quarter of 2008 the annual growth rate of negotiated wages rose to 2.7%, compared with an average of 2.2% in 2007, the strongest acceleration recorded by this indicator since the early 1990s. It was driven by markedly higher wage settlements in some countries (in particular Germany, Italy and the Netherlands) and may reflect the improvement in the labour market in recent years. This acceleration is likely to reflect a persistently tightening labour market, the unwinding of past wage moderation in some countries or sectors (notably in the public sector) and/or the phasing-out of policy measures reducing social security contributions. In order to assess potential risks to inflation, wage developments will thus need to remain under close scrutiny in the period ahead. On Inflation: The euro area inflation outlook has continued to deteriorate in the short term. HICP inflation has remained above 3% for the past seven months and is now expected to remain high for a more protracted period than previously thought. The ongoing surge in crude oil prices signals further upward pressure on infl ation, although the outlook is surrounded by considerable volatility. Moreover, further processed food price increases cannot be excluded, despite some slowdown in short-term dynamics. In addition, domestic pipeline pressures are elevated, wages are accelerating, and inflationary pressures in the services sector are increasing."
6/12	5:00am	Industrial Production m/m	0.9%	-0.1%	-0.5% -0.2%
		For April Provided by: EuroStat Official Release: PDF Industrial Production y/y: 3.9%, pr. 1.6% (rev from 3.1%) Industrial production rose 0.9% in April in the Euro-zone, surprising forecasts of another small decline. Production gains in France (1.4%) and Italy (0.7%) outweighed weakness in Germany (-0.7%). The data may have been distorted by extra working days as a result of an early Easter. Production is expected to cool in the Euro-zone as the global economy slows and the strength of the Euro makes European goods more expensive abroad. The industry with the highest production growth was capital goods which increased 2% after falling 1.6% in March. Durable consumer goods also saw a 1.7% increase after falling 1.6% in March. Energy production was down 1.4%. The Euro fell against the Dollar, and the better than expected release stalled that fall, though for the day, the pair was more than a 100 pips down.
6/13	5:00am	Labor Cost Index y/y	3.3%	2.9%	2.9% 2.7%
		For 1st Quarter Provided by: EuroStat Official Release: PDF Labor costs grew 3.3% in the first quarter, the fastest rate since 2003. The increase was larger than forecast, as workers are negotiating higher salaries in the face of higher inflation. This is exactly the scenario the ECB spelled out in its monthly report, in that higher inflation will cause second-round effects such as wages to rise in an inflation spiral. ECB President Trichet signaled that recent data had caused a discussion in the last meeting where several members pressed for an interest rate increase in July. From the Release: "Total hourly labour costs in the euro area rose by 3.3% in nominal terms in the year up to the first quarter of 2008, compared with 2.9% for the previous quarter. The two main components of labour costs are wages & salaries and non-wage costs. In the euro area, wages & salaries grew by 3.7% in the year up to the first quarter of 2008, and non-wage costs by 2.3%, compared with 3.2% and 2.0% respectively for the fourth quarter of 2007. The breakdown by economic activity shows that in the euro area hourly labour costs rose at an annual rate of 3.7% in industry, 4.0% in construction and 3.0% in services up to the first quarter of 2008."
6/13	6:00am	Employment Change q/q	0.3%		0.3% 0.2%
		For 1st Quarter Provided by: EuroStat Official Release: PDF The number of people employed in the euro-area rose 0.3% in the first quarter, which amounts to 446K jobs. This figure matched the 4th quarter, where employment was revised up to show a 0.3% increase from the original 0.2%. From a year earlier, employment growth slowed to 1.6% from 1.8%. Employment took a hit in Italy which saw a -0.2% change for the quarter. Germany saw a 0.5% increase, the same as teh 4th quarter.
6/16	5:00am	Consumer Price Index m/m	0.6%	0.6%	0.3%
		Final Version for May Provided by: EuroStat
6/16	5:00am	Consumer Price Index y/y	3.7%	3.6%	3.3%
		Final Version for May Provided by: EuroStat Official Release: PDF Core CPI y/y: 1.7%, forecast 1.8%, pr. 1.6% European consumer inflation accelerated to 3.7% on an annual basis in May, a worrisome figure for the European Central Bank. In April, the annual rate was 3.3 and today’s data was higher than the 3.6% forecast by economists. Inflation was driven by price increases for fuel for transport (15.2%), heating oil (47.5%), and the price of milk, eggs, and cheese (14%). An increase in commodity prices is pushing up costs for consumers and firms, weakening economic growth. The ECB has signaled that it is ready to hike rates by a quarter-point in July in order to combat inflation. It wants to avoid an inflation spiral in which price increases to food and energy cause workers to demand higher wages, feeding a cycle of higher prices.
6/17	5:00am	ZEW Economic Sentiment	-52.7	-43.9	-43.6
6/17	5:00am	Trade Balance	2.2B	-0.5B	-2.4B
		S.A. for April.
6/23	4:00am	Manufacturing PMI	49.1	50.2	50.6
		Advanced Estimate for June 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.
6/23	4:00am	Services PMI	49.5	50.5	50.6
		Preliminary version for June Germany Services PMI: 53.3, forecast 53.1, pr. 53.5 (May), 54.9 (Apr) France Services PMI: 49.2, forecast 50.8, pr. 50.5 (May), 52.8 (Apr) 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.
6/25	5:00am	Industrial New Orders m/m	2.5%	-0.5%	-1.2% -1.0%
		For April - (s.a.) Provided by: EuroStat Official Release: PDF Industrial New Orders y/y: 11.7%, forecast 2.7%, pr -3.7% Industrial new orders rose 2.5% on the month, and 11.7% on the year in April. Both results surpsrised forecasts on teh upside and boosted the Euro against the Dollar. Main contributors were the textile products (5.6%) and basic metals and fabricated metals prodcuts (3.2%). Machinery and equipment also rose by 2.6%, while electrical and electronic equipment grew 2.2%. Transport equipments edged up 0.3% and chemicle and chemicle products decreased 0.2%.
6/27	4:00am	Retail PMI	44.0		53.1
		For June Provided by: PR Newswire Official Release: Press Release Germany: 44.9, pr. 56.6 (May), 44.6 (Apr) France: 48.7, pr. 59.6 (May), 46.2 (Apr) Italy: 36.3, pr. 38.8 (May), 31.4 (Apr) A mid-month survey of economic conditions in the euro area retail sector, fell from 53.1 in May to 44.0 in June, marking the second-sharpest sales decline in the survey's four-and-a-half year record. Sales declined in all three of the largest euro countries Germany, France, and Italy. The food and drink sector saw notable sales increase, although it was linked to higher prices. Business optimism is deteriorating and retailers are cutting employment. Companies are also retraining their purchase of goods to a minimum due to the high costs.
6/27	4:00am	Current Account	-0.3B		-13.2B -15.3B
		For April (s.a.) Provided by: European Central Bank Official Release: Press Release Current Account (n.s.a.): -9.2B, pr. -5.7B (rev from -7.8B Mar), 8.1B (Feb) From the release: The working day and seasonally adjusted current account of the euro area was close to balance in April 2008 (corresponding to a deficit of EUR 9.2 billion in non-adjusted terms). This reflected deficits in current transfers (EUR 7.4 billion) and income (EUR 2.1 billion), which were offset by surpluses in goods (EUR 5.9 billion) and services (EUR 3.3 billion).
6/27	5:00am	Economic Sentiment Indicator	94.9	96.5	97.1
		For June Provided by: European Commission Official Release: PDF Services: 9, pr. 8 (May), 7 (Apr), 9 (Mar), 10 (Feb) Industrial: -5, pr. -2 (May), -2 (Apr), -1 (Mar), 0 (Feb) Consumer: -17, pr. -15 (May), -12 (Apr), -12 (Mar), -12 (Feb) The Economic Sentiment Indicator (ESI) is a compilation of indexes of various sectors. It fell to 94.9 the lowest since May 2005, pushed down by decreases in the industrial, consumer, retail trade, and construction sectors. Services managed to improve. An increasingly pessimistic European consumer, facing rising inflation for energy and food, will start spending less on other goods, lowering domestic demand just as a high Euro and weakening global growth slows gains in the exports industry. The European economy will be facing periods of stagflation now. The ECB is set to raise rates in order to try and fight off inflation, but that will only add more strain to domestic firms and consumers. From the Release: " In June, the Economic Sentiment Indicator (ESI) continued to decline in both the EU and the euro area. It fell by 2.5 points in the EU and by 2.7 points in the euro area, to 94.6 and 94.9 respectively. In both regions, the ESI remains below its long-term average. The sectoral developments in the two areas were broadly similar and were characterised by a fall in all confidence indicators except for services, which increased slightly. The decline in confidence in the manufacturing sector was more marked in the euro area than in the EU.
6/27	5:00am	Consumer Confidence	-17	-16	-15
		For June Provided by: European Commission Official Release: PDF Services Confidence: 9, pr. 8 (May), 7 (Apr), 9 (Mar), Industrial Confidence: -5, pr. -2 (May), -2 (Apr), -1 (Mar) The Economic Sentiment Indicator (ESI) is a compilation of indexes of various sectors. It fell to 94.9 the lowest since May 2005, pushed down by decreases in the industrial, consumer, retail trade, and construction sectors. Services managed to improve. An increasingly pessimistic European consumer, facing rising inflation for energy and food, will start spending less on other goods, lowering domestic demand just as a high Euro and weakening global growth slows gains in the exports industry. The European economy will be facing periods of stagflation now. The ECB is set to raise rates in order to try and fight off inflation, but that will only add more strain to domestic firms and consumers. From the Release: " In June, the Economic Sentiment Indicator (ESI) continued to decline in both the EU and the euro area. It fell by 2.5 points in the EU and by 2.7 points in the euro area, to 94.6 and 94.9 respectively. In both regions, the ESI remains below its long-term average. The sectoral developments in the two areas were broadly similar and were characterised by a fall in all confidence indicators except for services, which increased slightly. The decline in confidence in the manufacturing sector was more marked in the euro area than in the EU.
6/27	5:00am	Business Climate Indicator	0.14	0.40	0.54
		For June Provided by: European Commission Official Release: PDF From the Release: "After a rebound in May, the Business Climate Indicator (BCI) for the euro area decreased in June. The current level of the indicator suggests that industrial production growth weakened in the second quarter of this year, although it still points to a production growth rate which is above its historical average. All the five underlying components of the BCI registered a decrease. The industrial managers' appraisal of the production trend in recent months and their total order books deteriorated sharply, while their assessment of the stocks of finished products, production expectations and export order books declined moderately."
6/30	5:00am	Consumer Price Index y/y	4.0%	3.9%	3.7% 3.6%
		Preliminary Version for June Provided by: EuroStat Official Release: PDF Consumer inflation in the Euro-zone is expected to be 4.0% in June according to the flash estimate issued by Eurostat. the figures was 3.7% last month, and is now double the ECB target of 2%. High inflation has been slowing the Euro-zone economy already, along with high oil prices and a strong Euro. The data will add extra pressure on the ECB to be hawkish on inflation when they are expected to raise rates on Thursday.

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Central Bank Watch - Latest European Central Bank Decision

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September
4th, 2008

Actual

Forecast

Revised Form

4.25%

N/A

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

The ECB kept interest rates at 4.25% in a bid to fight inflation even as the euro-region teeters on the brink of recession. Policy members continue to be concerned about inflation to wages and seems to have keep the same biases as in their meeting last month. Limiting second-round effects has been a consistent message from the ECB in recent months. Consumer inflation eased to 3.8% in August from a 16-year high of 4% in July, but that figure is still far above the ECB's target of 2%.

The EUR/USD had been climbing overnight, and reached an session high near 1.4545. It fell following the release, and was wavering back and forth as Trichet held his press conference.

From the Release: "To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms the assessment of upside risks to price stability over the medium term. The information that has become available since the last meeting of the Governing Council has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time. The growth of broad money and credit aggregates is now showing some signs of moderation, but the still strong underlying pace of monetary expansion points to continued risks to price stability over the medium term. The latest economic data also confirm the weakening of real GDP growth in mid-2008. This reflects partly an expected technical reaction to the strong growth seen in the first quarter as well as dampening effects from global and domestic factors, including direct and indirect effects from high commodity prices. Against this background, it remains imperative to avoid broad-based second-round effects in wage and price-setting. In full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that we are resolute in our determination to keep medium and long-term inflation expectations firmly anchored in line with price stability, thereby preserving purchasing power in the medium term and supporting sustainable growth and employment in the euro area. On the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. We will continue to monitor very closely all developments over the period ahead."

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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".