Friday, 4 December 2009

ECB announces exit plan amid mixed global economic data

The ECB is winding down its emergency lending programmes. Bloomberg reports on Thursday:

European Central Bank President Jean- Claude Trichet announced plans to scale back emergency lending next year that free policy makers to raise interest rates if needed as the euro region embarks on a “gradual” economic recovery.

Trichet confirmed that this month’s 12-month loans to banks will be the last and said the rate on the loans will be tied to the ECB’s benchmark rather than fixed at 1 percent. Trichet also said the Frankfurt-based central bank will discontinue its six- month loans after March and only guaranteed unlimited funding in its other refinancing operations until April 13.

Economic data on Thursday support the view that the economy's need for support has diminished. From Bloomberg:

Europe’s service and manufacturing industries expanded at the fastest pace in two years in November after a reviving global economy helped the euro region emerge from the worst recession since World War II.

A composite index based on a survey of purchasing managers in both industries in the 16-nation euro area increased to 53.7 from 53 in October, London-based Markit Economics said today in a statement. That was in line with an initial estimate released on Nov. 23 and the highest since November 2007. A reading above 50 indicates expansion...

An index of services rose to 53 from 52.6, Markit said. A gauge of manufacturing increased to 51.2 from 50.7.

Meanwhile, Reuters reports that the eurozone's return to growth in the third quarter has been confirmed.

The European Union's statistics agency confirmed its earlier estimate that the economy of the 16 countries using the euro expanded 0.4 percent quarter-on-quarter in the July-September period, after five quarters of falling output.

Separately, Eurostat said retail sales were unchanged month-on-month and down 1.9 percent year-on-year, below market expectations of a 0.2 percent monthly increase but better than the forecast of a 2.4 percent annual decline.

However, Reuters also reports that the UK service sector's recovery has lost momentum.

The service sector grew more slowly than forecast in November, a purchasing managers' survey showed on Thursday, but economists remained confident the economy would return to growth in the fourth quarter...

The Chartered Institute of Purchasing and Supply/Markit activity index came in at 56.6, the seventh consecutive month above the 50 level that indicates expansion but below October's two-year high of 56.9 and the consensus forecast of 57.0.

The US service sector appears to have done even worse. From Bloomberg:

Service industries in the U.S. unexpectedly contracted in November, contributing to concerns that mounting unemployment will hurt sales.

The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy fell to 48.7 from 50.6 in October, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

However, other data released on Thursday were more encouraging.

... The number of Americans filing first-time claims for unemployment insurance unexpectedly declined by 5,000 to 457,000 in the week ended Nov. 28, the fewest since September 2008, figures from the Labor Department today showed...

A second report from the Labor Department showed worker productivity increased at an 8.1 percent annual rate in the third quarter, the best performance in six years. The improvement helped labor costs fall at a 2.5 percent pace last quarter, capping the biggest 12-month drop in seven years.

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