Friday, March 25, 2005
Italy, France and Germany in Economic Slowdown; Strong Euro and
High Oil the Cause, Tax Cuts the Cure?
The ANNOTICO Report
Italy, France and Germany, while constituting 1/3 of the
12 country Euro Union, are responsible for 2/3 of the 10 Trillion Economy.
Record Oil prices, the weakness of the American dollar,
and the resultant strong Euro creates less Euro exports, less jobs, and
a stagnant economy, All are thinking of Tax Cuts, but more sensible ones
that go toward the working class, not the billionaires. :(
European Economies: France,
Italy Point to Slowdown
March 24 (Bloomberg) -- France predicted first-half growth
will slow and Italian business confidence unexpectedly fell to the lowest
in almost two years in March, further signs Europe's economy may be faltering
amid record oil prices and a rising euro.
France's gross domestic product will grow 0.6 percent
in the first quarter and 0.3 percent in second, down from the 0.8 percent
in the final three months of last year, the statistics office said today.
Italian confidence fell to the lowest since July 2003 and the country's
economy shrank more than previously estimated in the fourth quarter, separate
reports showed.
``A European recovery remains problematic,'' said Marco
Valli, an economist at Unicredit Banca Mobiliare in Milan. ``The first
quarter will probably continue to be adversely affected by the euro and
oil prices. A convincing recovery is doubtful before the second half of
the year.''
The decline in Italian business confidence and a similar
drop in sentiment in Germany indicate that the two economies, the worst
performers among the Group of Seven nations last year, will continue to
drag down the pace of growth this year. Germany, France and Italy together
account for about two-thirds of the $10 trillion economy of the 12-nation
euro region
The European Commission has yet to revise its October
forecast for GDP growth of 2 percent in the euro region. That compares
with growth of 3 percent in the U.S. and 2.1 percent in Japan. Last year
the euro region grew 2 percent, less than half the pace of the U.S. economy.
Currency Burden
The euro's 6 percent increase against the dollar in the
past six months, making exports more expensive, and the 35 percent gain
in oil prices since January are adding to concern about the lack of consumer
demand in the euro region. The jobless rate in the area has held above
8 percent since March 2002.
The euro declined for a sixth day falling 0.1 percent
to 1.2977 at 2 p.m. in Rome. European bonds rose, with the yield on the
benchmark 10-year German government bond falling 2 basis points to 3.71
percent.
``The strong euro certainly isn't helping European companies,''
said Francesco Trapani, chief executive officer of luxury-goods maker Bulgari
SpA, in an interview. ``We are going to see in 2005 an economic situation
in Asia and the U.S. that is much more brilliant than in Europe.''
Exports fell ``abruptly'' during the first quarter, Isae
said, ``above all because of costs.'' Indexes measuring orders and production
expectations fell to the lowest since November 2001.
Exports Slump
The revised 0.4 percent contraction in Italy's gross
domestic product in the fourth quarter was the biggest in six years, as
exports dropped 4.7 percent, the largest decline in almost two years.
``We are extremely surprised by the downward revision
of GDP,'' said Aurelio Maccario, an economist at Unicredit Banca Mobiliare
SpA in Milan. ``The country is losing competitiveness against European
partners and foreign countries. The outlook is pretty gloomy.''
Ducati Motor Holdings SpA, maker of the high-performance
motorcycles used in the Matrix films, was among Italian exporters that
have suffered from the euro's strength. Ducati said March 10 it swung to
a loss in 2004 as the euro's increase eroded revenue, particularly from
the U.S.
In France, the highest jobless rate in five years is
weighing on the consumer spending needed to drive growth as exports suffer
from the euro's advance.
Job Growth
France will create 41,000 jobs in the first half, barely
enough to absorb the increase in the labor force, Insee said. The 10.1
percent unemployment rate will fall to 9.9 percent.
``Growth is creating very few jobs,'' and ``wages can't
climb much when unemployment is high,'' Marc Touati, chief economist at
Natexis Banques Populaires SA, said in a March 17 interview.
Consumer spending, which accounts for 54 percent of French
GDP, will expand 0.8 percent and 0.3 percent, respectively, in the first
two quarters, Insee forecast today. Spending rose 1.2 percent in the last
three months of last year, helping the French economy expand faster than
the that of the euro region.
Carrefour SA, Europe's largest retailer, plans to cut
prices by 400 million euros this year to lure shoppers discouraged by concerns
about job security. Paris-based Carrefour said March 10 second-half profit
dropped 23 percent.
Tax Cuts
Prime Minister Jean-Pierre Raffarin is introducing new
tax breaks for companies paying bonuses to workers, relaxing access to
funds locked in employee savings plans, and raising civil servants' wages
in a bid to boost spending.
Germany and Italy have also resorted to tax cuts to try
to boost consumer spending. Italian Prime Minister Silvio Berlusconi yesterday
reiterated a pledge to cut an additional 12 billion euros in taxes next
year to try to give consumers more to spend.
The German tax cuts haven't done much to boost business
confidence in Europe's biggest economy. Optimism among executives unexpectedly
fell to an 18-month low in March, Germany's Ifo economic institute said
in Munich yesterday.
With the economies of Germany and Italy barely growing
and the expansion in France slowing, the commission's Oct. 26 prediction
of 2 percent growth in the euro area this year is too optimistic, the European
Forecasting Network, a group of eight economic institutes, said yesterday.
They predict expansion will slow to 1.5 percent. That compares with the
3.6 percent growth forecast for the U.S.
To contact the reporter on this story:
Sheyam Ghieth in Rome at sghieth@bloomberg.net
To contact the editor responsible for this story:
Heather Harris in Berlin
hharris@bloomberg.net
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