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 August, 2008

Date	EST	Indicator	Actual	Forecast	Previous
8/1	4:00am	Manufacturing PMI	47.4	47.5	47.5
		Final Version for July Germany: 50.9, pr. 52.6 (Jun), 53.6 (May) France: 47.1, pr. 49.2 (Jun), 51.5 (May) Italy: 45.3, pr. 46.9 (Jun), 48.0 (May) Spain: pr. 40.6 (Jun), 43.8 (May) The final version of manufacturing PMI stuck close to the preliminary release, registering a 47.4. The Euro-zone has entered a serious period of slowdown. Consumer and business confidence is being eroded, which will affect orders for goods. Today, Germany's retail sales data highlighted the difficulties the economy faces. With the ECB hiking rates in its last meeting, conditions may only get harder for firms and consumers. Capsule Comment for Preliminary Release (July 24th): "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."
8/4	4:30am	Sentix Investor Confidence	-15.3	-10.0	-9.3
		For August Provided by: Sentix The Euro-zone Sentix Investor Confidence fell 6 points to -15.3 for the August period, the lowest level for the index in 5 years. High inflation, a strong euro, and expectations that the job market is weakening all weighed on sentiment. The gauge of current conditions fell to 0.0 from 11.75, while expectations dipped to -29.50 from -28.25. The global slowdown hit the Euro-zone in the middle of the 2nd quarter with new orders falling, which will ease production capacity and lead to some layoffs.
8/4	5:00am	Producer Price Index m/m	0.9%	0.8%	1.2%
		For June Provided by: EuroStat Official Release: PDF PPI y/y: 8.0%, forecast 7.9%, pr 7.1% (May), 6.1% (Apr), 5.8% (Mar) Producer prices in the Euro-zone grew at an annual rate of 8% in June, the largest seen since records began in 1990. In May annual producer inflation was 7.1%. Prices were pushed up by energy costs which are up a record 21.4% compared to a year ago. On the month, producer prices were up 0.9%, with energy costs up 2.7%, slower than the 4.1% seen in May. The ECB acted by raising interest rates to a seven-year high of 4.25% last month, and even though it would like to see inflation numbers coming down, it may not be in much of a position to do anything this week. From the Release: " Monthly Changes: In June 2008, compared with the previous month, prices in total industry excluding the energy sector rose by 0.4% in both the euro area and the EU27. Prices in the energy sector increased by 2.7% and 3.3% respectively. Intermediate goods gained 0.5% in the euro area and 0.7% in the EU27. In both zones, non-durable consumer goods rose by 0.3%. Capital goods increased by 0.2% in the euro area and by 0.3% in the EU27. Durable consumer goods remained stable in both zones. Annual changes: In June 2008, compared with June 2007, prices in total industry excluding the energy sector increased by 4.0% in the euro area and by 4.6% in the EU27. Prices in the energy sector rose by 21.4% and 27.0% respectively. Intermediate goods gained 4.8% in the euro area and 5.8% in the EU27. Non-durable consumer goods increased by 4.8% and 5.3% respectively. Durable consumer goods gained 2.3% in the euro area and 2.4% in the EU27. Capital goods rose by 2.0% and 2.4% respectively."
8/5	4:00am	Services PMI	48.3	48.3	48.3
		Final Version for July Germany: 53.1, pr. 52.1 (Jun), pr. 53.5 (May), 54.9 (Apr) France: 47.5, pr. 50.1 (Jun), 50.5 (May), 52.8 (Apr) Italy: 45.6, pr. 50.1 (Jun), 48.1 (May) The final version of Euro-zone services activity matched preliminary data of a PMI measuring 48.3. That is a fall from 49.1 in June. French services contracted for the first time since June 2003, while Italy hit a ten-year low of 45.6. With Euro-zone retail sales data disappointing forecasts, the EUR/USD fell in favor of the Dollar overnight, though this services releases was most likely already factored in from preliminary data. Comment from Preliminary Release (July 24th): "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."
8/5	5:00am	Retail Sales m/m	-0.6%	-0.6%	1.2%
		For June Provided by: Eurostat Official Release: PDF Retail Sales y/y: -3.1%, forecast -1.3%, pr. 0.2% (May), -2.9% (Apr) Retail sales in the Euro-zone for the month of June were down 0.6% on the month and 3.1% on the year. The fall in the pace of sales compared to a year ago was the worst in 13 years. Surging prices for energy and food are cutting into discretionary spending, limiting consumer spending. GDP growth may grind to a halt in the 3rd quarter if the economy falls into a deeper slowdown, and it may be up to the ECB to cut rates next year to help growth. At this point, policy makers want to see a reduction in consumer inflation before they sound dovish on interest rates. EUR/JPY - Euro Weakens vs Yen, Despite Strong Stocks: The Euro-Yen pair, similar to the Aussie pair earlier, saw a steep decline. From its open there was a 180 pip swing in the Yen's favor as there was an exit from carry trade. The pair now sits near its level from Friday. The fall comes despite stocks in Europe being in the green, up on falling oil prices.
8/7	7:45am	ECB Interest Rate Statement	4.25%	4.25%	4.25%
		Provided by: European Central Bank Official Decision: Press Release Official Release: Introductory Statement The ECB left rates at a seven-year high in order to fight inflation even as signs mount that the economy is slowing considerably. Trichet, in his press conference following the decision, said the Council expected such a retraction to growth in the 2nd quarter after robust growth in the 1st quarter. He reiterated that anchoring price expectations is still its main concern as the bank tried to make clear in the last meeting when it raised rates from 4% to 4.25%. Most of the statement was a reminder of last month's message. He went on to say that the recent weak data coming from the Euro-zone is the downside risks the bank had anticipated materializing. The 2nd and 3rd quarters growth figures already are accounted for as the Euro-zone hits a trough" in GDP growth. Oil and food prices remain "high and volatile" which continue to pressure producer and consumer prices. Part of the introductory statement is reproduced below. 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 increasing upside risks to price stability over the medium term. Annual inflation rates are likely to remain well above levels consistent with price stability, and monetary aggregates continue to grow vigorously, with so far no signs of significant constraints on bank loan supply. The latest economic data point to a weakening of real GDP growth in mid-2008, which in part was expected after the exceptionally strong growth in the first quarter. Against this background, it remains crucial to avoid broadly 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 it is our strong 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."
8/7	8:30am	ECB President Trichet Speaks
		Provided by: European Central Bank Official Release: ECB Introductory Statement See "ECB Interest Rate Statement" above for commentary.
8/13	5:30am	Industrial Production m/m	0.0%	0.3%	-1.8% -1.9%
		For June Provided by Eurostat Current Release: PDF Industrial Production y/y: -0.5%, forecast 0.2%, pr. -0.6% (May), 4.0% (Apr) Production in the euro area was unchanged in June vs. May. Energy production increased by 1.0%; non-durables grew by 0.9; durable consumer goods fell by 0.1%; intermediate goods dropped by 0.2%; and capital goods decreased 0.4%.On the annual basis, all the segments except capital goods declined.
8/14	4:00am	ECB Monthly Bulletin
		For August Provided by: European Central Bank Official Release: PDF From the Release: "On the basis of its regular economic and monetary analyses, the Governing Council of the ECB decided at its meeting on 7 August 2008 to leave the key ECB interest rates unchanged. The information that has become available since the previous meeting of the Governing Council has further underpinned the reasoning behind its decision to increase interest rates in July. It has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time and that risks to price stability over the medium term remain on the upside. This assessment is underpinned by continued vigorous money growth, with so far no signs of significant constraints on bank loan supply. In such a context, it remains crucial to avoid broadly based second-round effects in wage and price-setting. The latest economic data point to a weakening of real GDP growth in mid-2008, which in part was expected after the exceptionally strong growth in the fi rst quarter. Against this background and in full accordance with its mandate, the Governing Council emphasises that maintaining price stability in the medium term is the ECB's primary objective and that it is its strong determination to keep medium and long-term infl ation expectations fi rmly anchored in line with price stability. This will preserve purchasing power in the medium term and support sustainable growth and employment. On the basis of the Governing Council's assessment, the current monetary policy stance will contribute to achieving the ECB's objective. The Governing Council will continue to monitor very closely all developments over the period ahead."
8/14	5:00am	Consumer Price Index y/y	4.0%	4.1%	4.1%
		Final Version for July Provided by: EuroStat Official Release: PDF Core CPI y/y: 1.7%, forecast 1.8%, pr. 1.8% (Jun), 1.7% (May) CPI m/m: -0.2%, forecast -0.1%, pr. 0.4% The final version of July's CPI was revised down from its preliminary release to show an annual rate of 4%. On the month prices declined 0.2%. The data suggests that prices may habe peaked and may start coming down from now on. This will only be confirmed as more data comes in. It's the 11th month that prices are above the ECB's 2% target. Transport fuel and food were the major contributors to higher prices, though the end of July and beginning of August saw a steep reduction in oil prices from their high near $147 a barrel.
8/14	5:00am	Consumer Price Index m/m	-0.2%	-0.1%	0.4%
		Final Version for July Provided by: EuroStat See "Consumer Price Index y/y" for commentary.
8/14	5:00am	Gross Domestic Product q/q	-0.2%	-0.2%	0.7%
		Flash Estimate for 2nd Quarter Provided by: EuroStat Official Release: PDF GDP y/y: 1.5%, forecast 1.5% pr. 2.1% (1QF), 2.2% (1QP), 2.2% (4QF) The Euro-zone economy contracted in the 2nd quarter, the flash estimate revealed today. Growth was down 0.2% compared to the 1st quarter, and the annual pace cooled to show a 1.5% rate. High inflation has seriously cut into consumer confidence and spending, at the same time as a global slowdown dampens demand for Euro-zone exports. The trough in growth is expected to continue through the 3rd quarter, and another interest rate increase from the ECB seems like a long shot with such economic conditions.
8/18	5:00am	Trade Balance	-3.0B	0.5B	-1.0B -1.5B
		For June (s.a.) Provided by: EuroStat Official Release: PDF Trade Balance n.s.a.: -0.1B, forecast 1.2B, pr. -€4.6B (May), €2.3B (Apr) Exports: 1.4% Imports: 2.9% The Euro-zone trade balance showed a deficit of 3 billion euros for the June period. That's the widest deficit in nearly 2 years, and surprises forecasts on the downside. Imports rose twice as much as exports, mainly as a result of higher oil and commodities prices. Sales to the US continue to decline, falling 4% in the five months through May from a year earlier (detailed data comes out with a one month lag). China and Russia have picked up the slack, with Germany benefiting the most. With the Euro sliding in recent weeks, it may help the trade numbers going forward, though slowing global demand will have an opposite effect.
8/19	5:00am	ZEW Economic Sentiment	-55.7	-65.0	-63.7
		For August Provided by: ZEW Indicator of Economic Sentiment Official Release: Press Release See "GER ZEW Economic Sentiment" for more commentary. From the Release: "The economic expectations for the euro zone improved in August as well. The indicator increased by 8.0 points and now stands at minus 55.7 points. The indicator for the current economic situation in the euro zone decreased by 18.9 points and now stands at minus 22.2 points."
8/21	4:00am	Manufacturing PMI	47.5	47.0	47.4
		Preliminary Version for Aug Germany: 49.9 pr. 52.6 (Jun), 53.6 (May) France: 45.1, 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 manufacturing, and services, contracted for a 3rd month in the Euro-zone, preliminary data for August showed. The manufacturing PMI registered a 47.5, which is a slight improvement on July's figure and above expectations. German manufacturing fell below the 50 level separating contraction from expansion, while France's figure fell to 45.1 from 49.2 in July. July saw oil prices climb to their high near $147, pushing up gas prices, and can explain some of the softness as companies adjusted accordingly. Even though prices for oil have come down, and the Euro's value has eased - helping exports - the damage had been done. GDP fell 0.2% in the second quarter and the headwinds from the credit crunch, high inflation, and weaker demand abroad will continue to limit both the manufacturing and services sectors.
8/21	4:00am	Services PMI	48.2	48.0	48.3
		Preliminary Version for August See "Manufacturing PMI" for commentary.
8/22	4:00am	Current Account	-8.2B	-2.0B	-5.5B -7.3B
		For June (s.a.) Provided by: European Central Bank Official Release: Press Release Current Account (n.s.a.): -1.0B, pr. -21.4B (May), -9.2B (Apr) From the Release: "The working day and seasonally adjusted current account of the euro area recorded a deficit of EUR 8.2 billion in June 2008 (corresponding to a deficit of EUR 1.0 billion in non-adjusted terms). This reflected deficits in current transfers (EUR 6.5 billion), goods (EUR 2.0 billion) and income (EUR 1.2 billion), which were only partly offset by a surplus in services (EUR 1.5 billion)."
8/22	5:00am	Industrial New Orders m/m	-0.3%	-1.1%	-5.4% -3.5%
		For June - (s.a.) Provided by: EuroStat Previous Release: PDF Industrial New Orders y/y: -7.4%, forecast -6.1%, pr -4.4% (May), 12.3 (Apr), -3.7% (Mar) The industrial new orders index fell, though less than feared in June. May's figures were revised to -5.4%. New orders for textiles grew 2.2%; electronics and electronic equipment increased 1.4%; chemicle and chemicle products manufacturing rose by 1.0%; Machinery and equipment fell 1.1%; Transport equipment decreased by 3.7%. The Eurozone economy has seen new orders slide with increasing speed. The annual rate shows that businesses have been weakening their outlook for demand and thus cutting investments in such thins as machinery and equipment which fell 2.8%. Textile for example shrank 9.6% and transport equipments fell by 29.8%. General business investment has deteriorated, and will pull down GDP. UK investments declined and had this effect on the GDP, and the eurozone situation is very similar.
8/28	4:00am	M3 Money Supply y/y		9.1%	9.5%
		For August (s.a.) Provided by: European Central Bank M3 s.a. (3M - July): forecast 9.0%, pr. 9.5%, 10.4% (May)
8/28	4:00am	Retail PMI			46.0
		For August Provided by: PR Newswire Release: Press Release Germany: pr. 46.4, 44.9 (Jun), 56.6 (May), 44.6 (Apr) France: pr. 51.3, 48.7 (Jun), 59.6 (May), 46.2 (Apr) Italy: pr. 38.2, 36.3 (Jun), 38.8 (May), 31.4 (Apr)
8/28	5:00am	Economic Sentiment Indicator		89.1	89.5
		For August Provided by: European Commission Previous Release: PDF Services: forecast 0, pr. 1, 9 (Jun), 8 (May), 7 (Apr), 9 (Mar) Industrial: forecast -9, pr. -8, -5 (Jun), -2 (May), -2 (Apr), -1 (Mar), Consumer: forecast -20 pr. -20, -17 (Jun), -15 (May), -12 (Apr), -12 (Mar)
8/28	5:00am	Business Climate Indicator			-0.21
		For August Provided by: European Commission Previous Release: PDF
8/28	5:00am	Consumer Confidence		-20	-20
		For August Provided by: European Commission Previous Release: PDF
8/29	4:00am	Consumer Price Index y/y		4.0%	4.0%
		Preliminary Version for August Provided by: EuroStat Previous Release: PDF
8/29	5:00am	Unemployment Rate		7.3%	7.3%
		For July (s.a.) Provided by EuroStat June's Release: PDF

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Central Bank Watch - Latest European Central Bank Decision

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August
7th, 2008

Actual

Forecast

Revised Form

4.25%

N/A

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

The ECB left rates at a seven-year high in order to fight inflation even as signs mount that the economy is slowing considerably. Trichet, in his press conference following the decision, said the Council expected such a retraction to growth in the 2nd quarter after robust growth in the 1st quarter. He reiterated that anchoring price expectations is still its main concern as the bank tried to make clear in the last meeting when it raised rates from 4% to 4.25%. Most of the statement was a reminder of last month's message. He went on to say that the recent weak data coming from the Euro-zone is the downside risks the bank had anticipated materializing. The 2nd and 3rd quarters growth figures already are accounted for as the Euro-zone hits a trough" in GDP growth. Oil and food prices remain "high and volatile" which continue to pressure producer and consumer prices. Part of the introductory statement is reproduced below.

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 increasing upside risks to price stability over the medium term. Annual inflation rates are likely to remain well above levels consistent with price stability, and monetary aggregates continue to grow vigorously, with so far no signs of significant constraints on bank loan supply. The latest economic data point to a weakening of real GDP growth in mid-2008, which in part was expected after the exceptionally strong growth in the first quarter. Against this background, it remains crucial to avoid broadly 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 it is our strong 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".