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United States’ 2nd-Quarter Growth Is Revised Up to 2.5%, From 1.7%

August 29, 2013 by

Gross domestic product, a broad measure of goods and services produced across the economy, grew in the second quarter at an annualized rate of 2.5 percent in April through June of this year, the Commerce Department reported on Thursday. The government initially estimated G.D.P. at 1.7 percent.

The growth rate is still far lower than what the country needs to recover the ground lost during the recent recession anytime soon. The long-term average growth rate for the economy is more than 3 percent, and the economy needs above-trend growth to make up for sharp losses from the downturn.

Even so, the upward revision was welcome news, particularly alongside another report on Thursday showing that jobless claims were falling. The improving economy is also likely to factor into the Federal Reserve’s decision to pull back from its stimulus efforts, which some analysts expect as soon as September.

Expansion in the second quarter — faster than the annualized growth rate in the first quarter of 1.1 percent — was driven by gains in consumer spending, exports, private inventory investment, nonresidential fixed investment and residential fixed investment. Residential fixed investment, which reflects the sharp rebound in housing construction, has been one of the brightest spots in the economy so far this year, growing at an annualized rate of 12.9 percent in the second quarter and 12.5 percent in the first.

The shrinking government continues to drag on the economy. State and local government spending has declined almost every quarter for the last four years, and federal government spending fell during about half of those quarters. The upward revision to gross domestic product last quarter primarily reflected the fact that exports turned out to be higher than initially estimated and imports were actually slightly lower.

“The good news is that the economy accelerated in the second quarter to a degree that was even better than expected,” said James M. Baird, chief investment officer for Plante Moran Financial Advisors. “However, it’s also clear that wary consumers and businesses haven’t fully bought in to an imminent return to more robust growth and will not go ‘all in’ on spending and investment.”

The revisions seemed to further convince economists that the Federal Reserve will begin tapering its large-scale asset purchases at its September meeting. The Fed chairman, Ben S. Bernanke, has said that the central bank would slow these stimulus measures later this year, but did not specify when.

The output revisions “should give Fed officials more confidence that the recovery is gathering steam,” Paul Ashworth, chief United States economist for Capital Economics, wrote in a client note. Still, he said, “it’s no certainty, and August’s nonfarm payroll figures will be watched closely,” referring to the next jobs snapshot, due out on Sept. 6.

Economists noted that the upward revision for second-quarter G.D.P. addressed one of the puzzles in the data this year, about why hiring seemed to be picking up when output growth remained extraordinarily slow. The divergence between the two indicators did not seem sustainable, and some worried that a major slowdown in employment growth might be on the horizon.

Thursday’s report “adds to the likelihood that the apparent disconnect between employment and G.D.P. will be closed with G.D.P. moving up rather than employment down,” said Jim O’Sullivan, chief United States economist at High Frequency Economics. “Some, but not all, of the disconnect was revised away today.”

Private forecasters seem to be expecting third-quarter growth in the 2 percent range, and did not seem to think that the upwardly revised second quarter brightened the growth picture.

“We continue to judge that a significant ramp up in growth is unlikely, particularly given the ongoing effects of fiscal tightening,” said Peter Newland, an economist at Barclays. Congress’s across-the-board automatic spending cuts have been weighing on the economy, and further cuts may come when the Senate and House convene in September. A fight over the debt ceiling also looms.

Article source: http://www.nytimes.com/2013/08/30/business/economy/second-quarter-gdp-revised-sharply-higher.html?partner=rss&emc=rss

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One More Sign for a Turn to Growth in Europe

August 22, 2013 by

A survey of corporate purchasing managers by Markit Economics, a data and analysis firm in London, pointed to a broad — if tentative — recovery in the zone, the 17 European Union countries that use the euro.

Markit’s composite output index — which tracks sales, employment, inventory and prices — rose to 51.7 in August from 50.5 in July. The latest figure was the highest in 26 months. A number over 50 indicates growth.

Although not all the news was good — the survey indicated a contraction in French output during the month — the results were the second recent set of promising signals. Last week, official data showed that Europe broke out of recession in the second quarter of the year, helped by a rebound in household spending in Germany and France.

The data “provide further evidence that the currency union continued to expand in the third quarter, albeit at a pretty modest pace,” Jonathan Loynes, an economist in London with Capital Economics, wrote in a research note. “On past form, the index is now consistent with quarterly growth in euro zone G.D.P. of about 0.2 percent,” equivalent to an annualized gross domestic product rate of about 0.8 percent, he wrote.

The world economy could use a European economic renaissance, as investors have been unnerved by signs of a slowdown in emerging markets and anxiety about the timing and impact of the Federal Reserve’s monetary stimulus policies.

Still, there is little sign that the tepid recovery will be enough to address the main problems weighing on the euro zone: an unemployment rate at record highs and a crisis of confidence in public sector finances.

Germany, with the largest European economy, led the way again, with output expanding at its fastest pace since January and with manufacturing at a 25-month high, according to Markit data.

Carsten Brzeski, an economist in Brussels with ING Bank, said Germany was benefiting from strong domestic demand and improvements across the European economy. “It looks as if new growth hopes for the rest of the euro zone are stimulating German confidence,” he wrote in a note to clients, “which in turn could lead to higher German economic growth and could eventually become growth-supportive for the euro zone.”

Karl-Heinz Streibich, the chief executive of Software AG, based in Darmstadt, Germany, said Germany had benefited from its diverse pool of thousands of midsize manufacturers. “We are not totally dependent on the well-being of 10 or 15 companies,” he said by telephone.

Software AG has even been hiring people at its offices in Spain and Italy, albeit in small numbers, Mr. Streibich said. But the company, which had revenue last year of about 1 billion euros, or $1.3 billion, is gaining sales in those countries at the expense of rivals — not because the overall market is growing, he said.

“We don’t ride a growth wave of G.D.P.,” he said. “It is about taking market share from the competition.”

Data from French purchasing managers pointed to a contraction, with the index at 47.9 in August after 49.1 in July. That suggests that France’s second-quarter growth spurt of 0.5 percent, or about 2.0 percent at an annualized rate, might be a one-time event.

In most European countries, “There’s increasing confidence,” said Feike Sijbesma, chief executive and chairman of DSM, a Dutch specialty chemical company. “That’s good because it could help increase demand.”

DSM reported on Aug. 6 that sales rose 9 percent in the second quarter from a year earlier, to 2.5 billion euros, as profit before interest, taxes, depreciation and amortization rose 19 percent, to 345 million euros.

Mr. Sijbesma said that DSM’s performance was more reflective of its innovations, some of which helped its customers to save money, than of any rebound in Europe. “I’d be very cautious,” he added. “I don’t want to spoil the party, but I feel that in our business we’re doing much better in the rest of the world than in Europe.”

Jack Ewing contributed reporting from Frankfurt.

Article source: http://www.nytimes.com/2013/08/23/business/global/euro-zone-economy-shows-further-signs-of-growth.html?partner=rss&emc=rss

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Old Economies Rise as Growing Markets Begin to Falter

August 14, 2013 by

The gross domestic product of the 17-nation euro zone grew at an annualized rate of about 1.2 percent in the second quarter. It is certainly not clear, based on only three months of data, that Europe’s recession has ended. But it is further evidence that the older engines of growth are revving into gear as the most recent sources of growth have been slowing down.

“The general proposition for much of the last generation has been that emerging markets grow faster. That’s what’s changed,” said Neal Soss, the chief economist at Credit Suisse.

“The acceleration such as it is happening is in the first-world economy rather than the emerging markets.”

The growth of the BRIC countries — Brazil, Russia, India and China — has raised living standards in those nations and in others in Southeast Asia, Latin America and Eastern Europe. Those four nations had an even broader global impact by also providing new markets for American products while its citizens made the electronics and other products wanted by consumers in the United States and other developed economies.

So a decline in their growth rate should be worrisome to the United States. But Jim O’Neill, the Goldman Sachs economist who coined the term BRIC more than a decade ago, thinks one of the new beneficiaries of the shift in the global economy is most likely to be the United States. “I find myself thinking the U.S. is going to be one of the biggest winners,” said Mr. O’Neill.

It could gain from the Chinese government’s stated intention to shift from big government investment projects to a more consumer-driven economy. That could create demand for American products, while making commodities cheaper for American companies. Rising wages in China could also encourage manufacturing in the United States.

There were signs in recent trade statistics that this shift may already be under way. Exports from the United States to China grew in June while imports from China declined. The overall United States trade deficit dropped to its lowest level since 2009. China’s newfound restraint is at the fulcrum of the shift. Its government is trying to temper the economy, the largest among the developing nations. In doing so, it shoulders much of the blame for the slowdown elsewhere in Asia and in Latin America. The price of commodities like iron and copper, which previously buoyed the developing countries producing them, are now sinking as Chinese leaders are reining in the grand developments that needed metals.

Brazil was growing largely because of commodities like iron ore and soybeans, which it was exporting to China. Two years ago, the Brazilian economy grew 7.6 percent. This year, however, economists predict the number will be around 2.3 percent.

“After years of strong growth, many Brazilians grew optimistic, but for many people who improved their lot, there is now a sense that their potential to rise further is limited,” said Samuel Pessoa, a researcher with the Brazilian Institute of Economics at the Fundação Getúlio Vargas, an elite university in Rio de Janeiro. “People are worried.”

There is little prospect that the BRIC economies will ever return to the roaring growth that had come to seem normal.

“Many superficial observers just assumed that the BRIC countries would keep growing at the rate they did in the first decade, which was very unlikely,” said Mr. O’Neill, who recently retired from Goldman.

Mr. O’Neill said that as China moved to a more consumer-based economy, “the winners and losers of the new China are probably going to be quite different than the winners and losers of the old China.”

Dan Horch contributed reporting.

Article source: http://www.nytimes.com/2013/08/15/business/global/old-economies-rise-as-emerging-markets-growth-falters.html?partner=rss&emc=rss

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Old Economies Rise as Emerging Markets’ Growth Falters

August 14, 2013 by

The gross domestic product of the 17-nation euro zone grew at an annualized rate of about 1.2 percent in the second quarter. It is certainly not clear, based on only three months of data, that Europe’s recession has ended. But it is further evidence that the older engines of growth are revving into gear as the most recent sources of growth have been slowing down.

“The general proposition for much of the last generation has been that emerging markets grow faster. That’s what’s changed,” said Neal Soss, the chief economist at Credit Suisse.

“The acceleration such as it is happening is in the first-world economy rather than the emerging markets.”

The growth of the BRIC countries — Brazil, Russia, India and China — has raised living standards in those nations and in others in Southeast Asia, Latin America and Eastern Europe. Those four nations had an even broader global impact by also providing new markets for American products while its citizens made the electronics and other products wanted by consumers in the United States and other developed economies.

So a decline in their growth rate should be worrisome to the United States. But Jim O’Neill, the Goldman Sachs economist who coined the term BRIC more than a decade ago, thinks one of the new beneficiaries of the shift in the global economy is most likely to be the United States. “I find myself thinking the U.S. is going to be one of the biggest winners,” said Mr. O’Neill.

It could gain from the Chinese government’s stated intention to shift from big government investment projects to a more consumer-driven economy. That could create demand for American products, while making commodities cheaper for American companies. Rising wages in China could also encourage manufacturing in the United States.

There were signs in recent trade statistics that this shift may already be under way. Exports from the United States to China grew in June while imports from China declined. The overall United States trade deficit dropped to its lowest level since 2009. China’s newfound restraint is at the fulcrum of the shift. Its government is trying to temper the economy, the largest among the developing nations. In doing so, it shoulders much of the blame for the slowdown elsewhere in Asia and in Latin America. The price of commodities like iron and copper, which previously buoyed the developing countries producing them, are now sinking as Chinese leaders are reining in the grand developments that needed metals.

Brazil was growing largely because of commodities like iron ore and soybeans, which it was exporting to China. Two years ago, the Brazilian economy grew 7.6 percent. This year, however, economists predict the number will be around 2.3 percent.

“After years of strong growth, many Brazilians grew optimistic, but for many people who improved their lot, there is now a sense that their potential to rise further is limited,” said Samuel Pessoa, a researcher with the Brazilian Institute of Economics at the Fundação Getúlio Vargas, an elite university in Rio de Janeiro. “People are worried.”

There is little prospect that the BRIC economies will ever return to the roaring growth that had come to seem normal.

“Many superficial observers just assumed that the BRIC countries would keep growing at the rate they did in the first decade, which was very unlikely,” said Mr. O’Neill, who recently retired from Goldman.

Mr. O’Neill said that as China moved to a more consumer-based economy, “the winners and losers of the new China are probably going to be quite different than the winners and losers of the old China.”

Dan Horch contributed reporting.

Article source: http://www.nytimes.com/2013/08/15/business/global/old-economies-rise-as-emerging-markets-growth-falters.html?partner=rss&emc=rss

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Euro Zone’s Recession Ends, at Least for Now

August 14, 2013 by

The two biggest economies in the 17-nation euro zone each helped pull the region as a whole out of its doldrums, with Germany posting 2.8 percent annualized growth in the second quarter and France 2.0 percent. Over all, gross domestic product in the zone grew 1.2 percent, according to Eurostat, the official statistics office of the European Union. The second quarter’s growth slightly exceeded the 0.8 percent growth forecast by economists.

The euro zone’s growth fell short of the 1.7 percent second-quarter showing by the United States and 2.6 percent in Japan.

But even modest growth is a relief in a region where unemployment has risen to 12.1 percent and there are still fears of a new debt crisis and existential questions about the euro.

The meager growth rate will not make a serious dent in the problems of the 26 million people Eurostat says cannot find work, said Ralph Solveen, an economist at Commerzbank in Frankfurt.

“I wouldn’t look for a significant reduction in unemployment in the next year,” he said. “At best, we can hope for a stabilization of the job market.”

The fact that households in Germany and France helped to drive the rebound “suggests that the recent period of relative calmness in the euro zone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union,” said Jonathan Loynes, an economist in London with Capital Economics.

A surprisingly strong showing came from Portugal, where the economy grew 4.4 percent in the second quarter, the highest rate in the 28-nation European Union. The return to growth after two years of deep recession was hailed by the center-right government in Lisbon as proof that austerity policies, imposed in return for a bailout of 78 billion euros ($104 billion) negotiated in May 2011, were finally bearing fruit.

Besides Portugal, there were signs of life elsewhere in the battered “periphery” of the euro zone. Spain’s economy shrank by 0.4 percent, improving on a 2.0 percent slide in the first quarter.

The economy of Cyprus, still reeling from the collapse of its banks and the troika’s remedy, shrank 5.6 percent at an annualized rate, the worst showing of any union member but a modest improvement from its 6.8 percent first-quarter decline. Even the hapless Greek economy, which has suffered 20 consecutive quarters of decline, got a small glimmer of hope with signs that the pace of contraction is slowing.

Economists say that cleaning up bad loans at Europe’s banks and getting them to lend again would help the economy gain firmer footing. Politicians are not expected to act until after Germany’s elections. The European Central Bank said last month that it would seek to encourage lending to Southern Europe by making it easier for banks to use certain securities as collateral.

Still, Mr. Loynes wrote, the weaker European economies “remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt.”

“The recession may be over,” he added, “but the debt crisis is decidedly not.’”

In the August vacation season, with much of Europe preparing for a long holiday weekend, politicians were generally muted in their reaction to the G.D.P. report. Officials said that there was no reason for complacency, but added that they saw some chance at longer-term growth.

Chancellor Angela Merkel of Germany, who is seeking a third term in Sept. 22 elections, had no immediate comment. But her economics minister, Philipp Rösler, wasted no time in proclaiming that “there is every reason for people in Germany to look optimistically into the future.” Ms. Merkel has been the main proponent of structural reform in the weaker economies of Southern Europe. But neither economists nor politicians used Wednesday’s figures to proclaim a victory for pro- or anti-austerity camps.

David Jolly reported from Paris, and Alison Smale from Berlin. Alissa J. Rubin and Scott Sayare contributed reporting from Paris, and Gaia Pianigiani from Siena, Italy.

This article has been revised to reflect the following correction:

Correction: August 14, 2013

An earlier version of this article misstated the rate of decline in Cyprus’s economy. Its gross domestic product shrank by 1.4 percent in the latest quarter, not by 1.7 percent (which was the rate of decline in the first three months of the year).

Article source: http://www.nytimes.com/2013/08/15/business/global/euro-zone-economy-grew-0-3-in-2nd-quarter-ending-recession.html?partner=rss&emc=rss

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Political Economy: E.U. Market Needs to Be Opened Up More

July 28, 2013 by

The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the Union’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the Union, killing two birds with one stone.

It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the European Union all the way back in 1957? Did the Union not complete the single market in 1992? And was not a directive pledging free trade in services passed in 2006?

Well, yes and no. Free trade is not just about lifting intra-E.U. tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.

That is why the job of freeing up the Union’s internal market is still far from complete. Even the services directive covered only sectors that account for a bit more than 40 percent of gross domestic product. Areas like energy, transport and telecommunications were left out. The legislation was also diluted so that even companies operating in the areas supposedly covered often have to go through lots of hoops to provide services in other countries. What is more, the rules are often not enforced.

Services account for 70 percent of E.U. G.D.P., but only 22 percent to 23 percent of intra-E.U. trade. The Union is also notoriously inefficient in provisions for services. This is a big reason the region is poorer than the United States.

Liberalizing services would encourage competition. That would push prices down, benefiting ordinary consumers, enhancing the competitiveness of businesses and saving money for hard-pressed governments. Innovation, investment and jobs would rise. An ambitious liberalization would increase G.D.P. as much as 2.3 percent, equivalent to €294 billion, or about $390 billion, according to the research organization Open Europe.

There should be two priorities for a new single market push. First, services companies should be given a “passport” to operate anywhere in the Union provided they are properly authorized at home. This idea, advocated by Open Europe, would get rid of thousands of barriers in one fell swoop.

Meanwhile, a passport would mean there would be less need to rely on the European Commission to make sure national governments were properly enforcing detailed rules.

The provision of cross-border online services, vital for the future but currently tangled in a mass of regulation, would also get a fillip.

The second priority should be to extend the services directive to areas it does not cover — mainly energy, transport and telecommunications. These networks are the economy’s arteries and nervous systems. But it is absurd, for example, that a company carrying goods by road from Spain to Belgium is not allowed to pick up freight in France on the way.

Vested interests, especially in traditionally illiberal France and conservative Germany, will not like liberalization. Some French will argue that national rules are needed to protect consumers from poor-quality services from abroad, even though their companies happily provide electricity, public transport and waste management in liberal Britain. Some Germans will say their apprentice system ensures that youngsters are trained to become masters of crafts like plumbing and work with electricity, keeping quality high.

The counterargument is that consumers benefit hugely from choice. Not everybody wants, or can afford, the plumbing equivalent of a BMW. If Germans really provide better-quality services, they should be able to sell them as an upmarket product in other countries. But why should local consumers not be able to use low-cost Polish plumbers, for instance, if they prefer?

Competition between different ways of providing the same service would invigorate the E.U. economy. Of course, consumers would need to be protected. But that could best be achieved by being transparent about where the service provider is based and swift remedies for shoddy service.

If these economic arguments do not bite, a couple of political points could sway the day.

First, peripheral euro countries are being forced to open their markets as a condition of their rescue packages. Germany has been the high priest, preaching the virtue of enhanced competitiveness. How fair then is it to keep its own markets closed? Liberalization would encourage Germans to spend more money on services — something which would help drag the periphery out of recession, not to mention helping East Europeans catch up with their Western cousins.

The second political argument concerns Britain. It has one foot out the door of the Union. But it has long been a champion of the single market and excels at services. An ambitious program to deepen the single market could, therefore, be used as a powerful argument for staying in during a future referendum. Given that Germany does not want Britain to quit, this would be a way of achieving its goal without giving Britain any special treatment.

The original 1992 program was pushed through by a British single-market commissioner, Lord Cockfield, backed by a British prime minister, Margaret Thatcher. David Cameron should attempt to repeat the trick. He should aim to get another vigorous Briton in as single market commissioner when a new commission is chosen next year. And he should secure agreement from fellow leaders to set a deadline — say, the end of 2019 — to complete the single market.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/07/29/business/global/eu-market-needs-to-be-opened-up-more.html?partner=rss&emc=rss

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June Retail Sales Increased, but Not as Much as Expected

July 15, 2013 by Leave a Comment

A separate report on Monday, however, showed factory activity in New York State accelerating in July, bolstering the view of economists that growth was likely to pick up soon.

Many economists now think the nation’s gross domestic product expanded at no more than an annual rate of 1 percent in the second quarter, but employment growth has been solid and Wall Street still expects the Fed will soon trim the $85 billion in Treasury and mortgage securities that the central bank is purchasing each month.

“The disappointing retail sales report underscores the soft end to the first half,” said Millan Mulraine, senior economist at TD Securities. Retail sales increased 0.4 percent in June, the Commerce Department reported, lifted by demand for automobiles and higher gasoline prices. But sales of building materials fell by the most in a year, a potentially worrying signal from the housing market. Economists had forecast a 0.8 percent increase in June.

A second report from the Commerce Department showed businesses were carefully managing their stocks to avoid an unwanted supply of goods in the face of lackluster demand. Business inventories rose 0.1 percent in May after a 0.2 percent gain in April.

But there are hopeful signs for the factory sector. The Federal Reserve Bank of New York’s Empire State general business conditions index rose to 9.46 this month from 7.84 in June. A reading above zero indicates expansion in New York’s factory activity. The survey’s measure of new orders rebounded into positive territory, while two employment gauges also improved.

Article source: http://www.nytimes.com/2013/07/16/business/june-retail-sales-increased-but-not-as-much-as-expected.html?partner=rss&emc=rss

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China’s G.D.P. Growth Slows As Government Changes Gears

July 14, 2013 by Leave a Comment

HONG KONG — China’s new tough-love approach to overhauling its giant economy showed through in weak economic data released on Monday, underlining just how rapidly growth in the once-sizzling economy has cooled.

China’s economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the national statistics office reported. That was in line with economists’ expectations, and extended a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012.

Industrial output data for June, also released Monday, came in weaker than forecast, with an increase of 8.9 percent from a year earlier — down from 9.2 percent in May.

Retail sales, however, were better than expected, rising 13.3 percent in June from a year ago. May’s reading was 12.9 percent.

Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, told reporters in Beijing that the data were within the bounds of official expectations, but he acknowledged headwinds affecting the economy.

“Viewed overall, national economic performance in the first half of the year was generally stable,” Mr. Sheng said during a news conference broadcast live on Chinese television Monday morning, “and the main indicators remain within the reasonable bounds for the annual forecast. But economic conditions are still complex and changeable.”

Senior Chinese officials last week set the tone for a more measured approach to economic expansion by declaring confidence in government growth targets, yet stressing the need for changes to ensure that growth.

On Friday, a meeting of the State Council Standing Committee — or China’s cabinet — that was chaired by Prime Minister Li Keqiang said that “innovation and expansive thinking are needed to expand domestic demand.”

“There needs to be both effective and stable growth and also structural adjustment, ensuring that there is action while maintaining stability,” read an official summary of the meeting, according to state-run media.

In an apparent effort to dispel jitters about the economy, China’s state-run media have also featured commentaries saying that the government’s economic policies remain on track, including the target of 7.5 percent G.D.P. growth for the whole year.

To a large degree, China’s recent slowdown has been engineered by authorities in Beijing, who are trying to steer the Chinese economy from an increasingly outdated growth model toward expansion that is more productive and sustainable, if slower.

While this slowdown has been happening for more than two years, a flood of comments from policy makers in recent months has made it increasingly clear that the new leadership that took the helm in March is serious about tolerating significantly slower growth in return for longer-term gains.

For years, China has relied on cheap credit, heavy manufacturing, infrastructure investment and exports as economic drivers — a combination that produced double-digit annual growth rates for much of the past 30 years.

Increasingly, however, this growth model is running out of momentum. China’s population is aging and its labor force is shrinking, meaning that labor productivity has to be raised to make up for the shortfall. Rising wages and a stronger renminbi have eroded China’s competitiveness and are undermining its status as the blue-collar factory floor of the world. At the same time, demand in key export markets remains slack.

Aware of these pressures, the new leadership in Beijing has said it wants to shift the economy more toward domestic consumption, reduce inefficiencies and environmental degradation that came with headlong growth and permit more competition and market liberalization in formerly state-controlled areas.

Recent pronouncements from policy makers and a days-long cash crunch in the banking system last month have created an impression that Beijing is prepared to tolerate some pain.

“The fact that we have not seen moves toward more stimulus seems to show that they are comfortable with seven-ish growth rather than nine or 10,” said Paul Gruenwald, chief economist for Asia-Pacific at Standard Poor’s, at a media briefing last week. “It suggests that the authorities understand that there is a trade-off between growth and financial stability.”

Article source: http://www.nytimes.com/2013/07/16/business/global/chinas-gdp-growth-slows-to-7-5.html?partner=rss&emc=rss

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Euro Area Recession Is Expected to Deepen

May 3, 2013 by Leave a Comment

BRUSSELS — The economic outlook for the European Union has deteriorated and the recession and unemployment blighting the euro area are expected to worsen, the European Commission warned on Friday.

The commission, the main E.U. policymaking arm, said gross domestic product across the 27-nation European Union would shrink by 0.1 percent this year compared with a forecast in February for a slight uptick in growth. The 17-member euro zone is now expected to contract by 0.4 percent this year, compared with earlier expectations for a decline of 0.3 percent.

The outlook for the jobless in Europe is equally grim. Unemployment is expected to reach 11.1 percent across the European Union and 12.2 percent in the euro zone. Joblessness is expected to remain at those levels for much of 2014, the commission said.

The figures were released as part of the commission’s periodic economic forecasts.

The growth forecasts for 2013 still signal a slowing in the pace of contraction compared with last year, when growth fell by 0.3 percent across the Union and by 0.6 percent in the euro area. But the unemployment picture is distinctly worse compared to 2013, when 10.5 percent were without jobs across the Union and 11.4 percent in the euro area.

Olli Rehn, the E.U. commissioner for economic and monetary affairs, said in a statement Friday that leaders needed to “do whatever it takes to overcome the unemployment crisis in Europe.” That is a reflection of growing concerns among officials in Brussels that the levels of unemployment in some countries like Spain could lead to unrest and even become endemic.

Spain is expected to see employment reach 27 percent this year, compared with 25 percent last year, while the outlook for Portugal was 18.2 percent compared with 15.9 percent last year. Unemployment in Greece, which has been in economic intensive care for three years, is expected to reach 27 percent compared with 24.3 percent last year, the commission said.

Yet Mr. Rehn also warned of the need for complementary measures as nations roll back the kind of painful budgetary belt-tightening he has advocated.

“Fiscal consolidation is continuing, but its pace is slowing down,” he said. “In parallel, structural reforms must be intensified to unlock growth in Europe.”

Mr. Rehn has come under blistering attack from economists who say his austerity policies have crimped countries’ ability to restore growth.

Deficits among European Union and euro-area countries are expected to decline in 2013, the commission said. But the combination of a poor economic outlook and the slowing pace of austerity means that national debt, as a ratio of G.D.P., would rise.

Article source: http://www.nytimes.com/2013/05/04/business/global/04iht-euro04.html?partner=rss&emc=rss

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E.U. Data Shows Reduced Deficits but Higher Debt Burdens

April 22, 2013 by Leave a Comment

PARIS — An austerity push in Europe helped to reduce government budget deficits in 2012 for a fourth straight year, official data showed Monday, but debt burdens grew amid a recession that was expected to last through 2013.

Outlays exceeded revenue by 3.7 percent in the 17-nation euro zone, down from 4.2 percent in 2011, Eurostat, the E.U. statistical agency, reported from Luxembourg. For all 27 nations of the European Union, the government deficit fell to 4 percent from 4.4 percent.

Euro zone debt measured as a percentage of gross domestic product rose to 90.6 percent, from 87.3 percent in 2011. For the entire Union, debt rose to 85.3 percent of G.D.P. from 82.5 percent a year earlier.

Ben May, an economist in London with Capital Economics, noted that the numbers appeared impressive, comparing favorably with those of the United States and Britain, where government deficits last year exceeded 8 percent of G.D.P., and with Japan, where the deficit was more than 10 percent.

“But the fact that most economies’ deficits have fallen by less than expected and that the consolidation has coincided with deeper than anticipated recessions confirms that the costs have been large,” Mr. May wrote. And he noted that Germany, which last year posted a small budget surplus, accounted for about 60 percent of the improvement.

Austerity began in Europe when, after the credit bubble collapsed, speculative attacks began on the sovereign debt of euro members like Greece, Ireland, Portugal and Cyprus. Led by Germany, governments responded with a reaffirmed commitment to hold their deficits to a maximum of 3 percent of G.D.P, and debts to no more than 60 percent.

Fiscal “hawks” argue that deficit spending is merely a means of pushing the cost of politically unpopular action onto future generations. But austerity, whereby government spending is cut and taxes increased, reduces demand in the overall economy and drives up unemployment, at least in the short term.

If it causes recession, austerity may also make it harder to reach debt-reduction goals, since the denominator of the debt-to-G.D.P. ratio shrinks.

The euro zone economy contracted 0.3 percent in 2012, and economists expect another decline this year. While there was a general consensus in Europe about the need for tough budget-balancing measures, especially as Germany, amid election-year politics, was unwilling to consider alternative action, the tide may now have begun to turn given continuing economic weakness and a euro zone unemployment rate of 12 percent.

France’s deficit last year, at 4.8 percent of G.D.P., fell short of President François Hollande’s target of 4.5 percent. Spain posted a budget deficit of 10.6 percent, worse than the 10.2 percent the European Commission had forecast. Both countries face a struggle to meet their financial targets for 2013 amid the economic malaise, economists say.

Greece, the E.U. member most battered by the crisis, posted a deficit of 10 percent of G.D.P., up from 9.5 percent a year earlier. Its debt fell to 157 percent of G.D.P. from 170 percent after a bailout in which bondholders were forced to write off part of the value of their Greek holdings.

Article source: http://www.nytimes.com/2013/04/23/business/global/eu-data-shows-reduced-deficits-but-higher-debt-burdens.html?partner=rss&emc=rss

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