Eurozone: The Promise Of A (Slight) Improvement

Survey data and economic statistics released this week tend to support the ECB’s analysis that after a very sluggish H2 2012, activity could improve slowly over the course of 2013. Although several other factors justified the Governing Council’s decision to maintain key policy rates unchanged, these statistics certainly provided partisans of the status quo with convincing arguments.

The eurozone’s main confidence indicators are showing tangible signs of improvement. After holding to a downward trend for more than 18 months, the economic sentiment index clearly picked up in late 2012, rising 1.3 points in December after +1.4 points in November. Over the past two months, the European Commission’s composite indexes of survey results of consumers, industry, services, retailing and construction rose in most of the eurozone economies, by more than 3 points in Germany, the Netherlands, Portugal and Greece and by more than 2 points in France and Italy.

In Spain, the improvement occurred much earlier, with a gain of more than 3 points in September-October. This upturn confirms the signals from PMI surveys: PMI indexes picked up in November and December in several of the big EMU economies, although activity held in contraction territory everywhere except in Germany.

Even if the weeks ahead confirm that economic prospects have bottomed out and that a recovery is taking shape in 2013, it is important keep in mind the low level to which activity and confidence indicators have fallen (see chart x). As a result, the return to growth is bound to be painfully slow, and in the very short term, another contraction certainly was not avoided in Q4 2012, for the third consecutive quarter. According to our estimates, eurozone GDP contracted 0.3% q/q in Q4, and by 0.4% in full-year 2012.

Industrial production trends are now known through November for most of the eurozone’s major economies. On the whole, the results are mediocre and signal a much sharper decline in industrial activity than in Q3. In France, industrial production is expected to decline by about 1.6% q/q after -0.3% q/q in Q3. Similarly, production is currently expected to drop by 2.8% q/q in Germany (vs. +0.9% q/q in Q3) and by -2.6% q/q in Spain (vs. - 0.4% q/q in Q3).

In the core eurozone countries, notably Germany, this abrupt slowdown has accelerated the readjustment of current account balances.


Until now, the decline in Germany’s trade surplus with the eurozone, that was virtually nil in November (€0.2bn, nsa), has been more than offset by its trade surplus outside the eurozone. But this no longer seems to be the case. In November, Germany’s global trade surplus narrowed to €14.6bn (sa), the lowest level since March 2012.

BY Frédérique CERISIER