Wednesday, February 15, 2006

Mixed Economic News From the Euro Zone

So far, 6 of 12 Euro-zone members have announced preliminary estimates of fourth quarter GDP growth. According to these numbers, some countries, including Finland, Holland, Spain and Greece saw growth of around 4% at an annual rate from the quarter before. However, the two largest economies performed much worse, with Germany experiencing near zero growth and France having growth of only 0.8% at an annual rate. While these numbers could be revised both up or down somewhat, the overall picture is not likely to change. Among those who haven't published their numbers, we could expect continued strong growth from Ireland and Luxembourg and mediocre numbers (at best) from Italy, Portugal, Austria and Belgium. This means that Eurostat's "flash estimate" of 1.2% annualized growth for the Euro-zone as a whole is likely to hold true more or less as the strong performance from some of the small and medium sized economies is overwhelmed [In the aggregate Euro-zone GDP statistics] by the stagnation in the big three-Germany, France and Italy.

This relative weakness could be transitory and the Euro-zone could perhaps regain the momentum we saw in the third quarter. The number for France was for example temporarily depressed by the riots they experienced that quarter, something which should mean higher first quarter growth. But if it isn't, then the expected rate hikes from the ECB will be limited, something which in turn would mean a weaker outlook for the euro on the currency exchange markets than I previously expected.

UPDATE: I see now that Austria had an annualized growth rate of 2.8% in the fourth quarter, somewhat worse than Finland, Holland, Spain and Greece, but still fairly strong by Western European standards. It is however not strong enough to lift the Euro-zone average above 1.2%.


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