Friday, 11 November 2011

Italy successfully sells debt but European economic recovery stalls

Markets remained nervous over Europe's debt problems on Thursday despite a relatively successful Italian government debt auction which saw 5 billion euros of one-year bills sold at a yield of 6.087 percent. The STOXX Europe 600 fell 0.4 percent but the S&P 500 managed to recover 0.9 percent.

US stocks were boosted by positive economic data on Thursday. The trade deficit shrank 4 percent in September after exports rose 1.4 percent while imports rose 0.3 percent. Initial claims for unemployment benefits fell by 10,000 to a seven-month low of 390,000 last week.

In contrast, data from Europe had been negative. French industrial production fell 1.7 percent in September while Italian industrial production plunged 4.8 percent.

The European Commission has acknowledged the worsening outlook for Europe in its latest economic forecast.

EU growth will remain at a near standstill during 2012 and return to slow growth in 2013. Unemployment is forecast to remain at the current high levels.

All main indicators point to a stalled recovery with considerable downside risks.

No economic growth is now expected in the current and coming quarters. Consequently, GDP is forecast to grow at a rate of only ½% in the EU and the euro area in 2012. Some acceleration is expected in 2013, when growth is set to reach 1½% in the EU and 1¼% in the euro area. While growth rates will differ across the Union, no group of countries will remain unaffected by the slowdown.

Despite the deterioration of the economic outlook in Europe, the Bank of England, which had expanded its quantitative easing programme last month, took no further action on Thursday at its monetary policy meeting.

Meanwhile, Asia's economy may also be slowing.

China reported on Thursday that its exports rose 15.9 percent in October from a year ago, down from 17.1 percent in September. Imports, though, rose 28.7 percent in October compared to 20.9 percent in September.

Japan, which had been recovering from the earthquake and tsunami in March, reported on Thursday that its consumer confidence index was unchanged in October from the previous month while core private-sector machinery orders fell 8.2 per cent in September.

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