Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

29 May 2003

EZA 535 - Euro-Economy




Euro area GDP growth correlation with Germany holds firm as latter heads into technical recession
Since the beginning of Euruopean Monetary Union in 1999 the annual growth gap between Germany and the rest of the euro area has been relatively constant at 0.9pts. This was exactly the figure for 1Q03 as well. Any persistence of structural differences between Germany and other euro area economies is reflected in growth levels rather than in growth trends: where Germany slides the rest of the euro area will follow. And the latest 1Q03 gross domestic product figures show that, France excepted, the euro area has moved from low growth to none. While German GDP is likely to stagnate for the rest of this year, the euro area could show marginal growth ‹ of around 0.5%, clearly below present consensus forecasts ‹ with little chance of decoupling from German weakness. The current euro area situation, with a decline in net exports, reminds us of Germany in 1995 when a soaring DM choked a budding recovery. However, a significant recovery for the euro area requires both a clear 100bp easing by the European Central Bank ‹ which would take about a year to feed through‹ and also a marked pickup in global demand.

SummaryAsset Conclusions: Short euro rates to fall further than currently discounted by futures curve; due to weak growth, long bond yields should hit new lows

Contents
.

Figures
.



© Graham Bishop

Documents associated with this article

EZA535.pdf


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment