Growth in the Eurozone Gains Traction

Hopes that the euro zone has put the worst of its economic crisis behind it were boosted

yesterday after growth for the final quarter of 2013 came in better than expected, with more signs that the region’s troubled periphery is starting to benefit from recovery at the region’s core.

Growth in the euro zone gained traction, with the bloc expanding by 0.3 per cent in the final quarter, after 0.1 per cent in the previous three months, beating analysts’ forecasts of a 0.2 per cent rise.

Both of the region’s largest economies, France and Germany, expanded by more than analysts had expected, as did the Netherlands, which grew by a brisk 0.7 per cent.

More heartening still were signs the stronger performance of some of the euro zone’s core economies in recent quarters had spread to the region’s crisis-engulfed periphery.

The Italian economy, the euro zone’s third-largest, grew by 0.1 per cent, in line with expectations, recording its first quarterly expansion since the spring 2011. Portugal smashed expectations, expanding by 0.5 per cent against forecasts of a 0.1 per cent rise. Spain grew by 0.3 per cent, according to figures released last month.

Evelyn Herrmann, economist at BNP Paribas, said: “This is the third consecutive quarter of growth in the euro zone, but comes with the additional charm of much broader-based growth spreading beyond the core-countries.

“Effectively, it was the first time since the first quarter of 2011 that all big five euro zone economies posted positive quarterly growth rates.”

– (Copyright The Financial Times Limited 2014)

The rise of the East

Eastern Europe’s economic growth picked up pace last quarter as a recovery strengthened in the euro area, which buys the bulk of the region’s locally made goods, and consumers spent more.

Romania

Romania’s expansion beat forecasts by the biggest margin as gross domestic product jumped 5.2 percent . On average, GDP growth in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia quickened to 2.5 percent, the fastest expansion in 18 months, from 1.8 percent in the third quarter.

The better-than-estimated performance prompted Capital to raise its GDP-growth forecasts for the Czech Republic and Hungary, both to 2.5 percent from 2 percent previously, and for Romania by 1 percentage point to 3 percent.

The Romanian leu is the third-best performer against the euro and the dollar in the last month among 24 developing-nation currencies tracked by Bloomberg. The Czech koruna and the Polish zloty are both in the top 10 for that period.

The pace of growth in the European Union’s second-poorest member was the quickest since 2008 on higher orders for cars produced in the country by Renault SA (RNO) and Ford Motor Co

Poland

Poland’s economy also accelerated for a third quarter, though less quickly than economists estimated, the only east European country among six that reported GDP today to trail forecasts.

The central bank’s relaxed monetary policy may help GDP grow at more than twice last year’s 1.6 percent in 2014, according to Cezary Chrapek, an economist at Citigroup Inc.’s Polish unit.

Czech Republic

The Czech economy expanded at the fastest pace in more than six years in the fourth quarter after the central bank intervened to weaken the koruna, with GDP rising 1.6 percent from the previous three months after advancing 0.2 percent between July and September. The country’s two-week-old cabinet is seeking to increase spending to further help the rebound.

Bulgaria

Bulgaria’s economy expanded 1 percent from the previous year.

Hungary

Hungarian GDP rose 2.7 percent from a year earlier in the fourth quarter.

Inflation falls in India but will it hamper growth

India’s consumer-price growth eased more than analysts estimated in January and factory output fell in December following an increase in interest rates as central bank Governor Raghuram Rajan fights Asia’s fastest inflation.

The consumer-price index rose 8.79 percent from a year earlier, compared with 9.87 percent in December, the Statistics Ministry said in New Delhi yesterday. 

Rajan pledged to fight inflation and preserve the value of the rupee when he boosted borrowing costs last month as the U.S. reduced monetary stimulus. Higher rates have taken a toll on consumer demand, with another report yesterday showing industrial output shrank 0.6 percent in December.

“There is no relief until the inflation rate reaches 8 percent,” said Indranil Pan, a Mumbai-based economist at Kotak Mahindra Bank Ltd. “The RBI will look at inflation on the whole, and this fall does not impact their stated position.”

The rupee, down about 13 percent versus the dollar in the past year, strengthened 0.2 percent to 62.11 per dollar in Mumbai yesterday. The S&P BSE Sensex (SENSEX) index advanced 0.4 percent. The yield on the government bond due November 2023 rose to 8.81 percent from 8.74 percent on Feb. 11. The data were published after the close of trading.

The MSCI Emerging Markets Index has lost about 5 percent this year. India, Brazil, Indonesia,South Africa, and Turkey are “among the economies that appear to have been the most affected” by the sell-off, according to a report presented to the congressional committee.

"Curbing inflation is crucial to attaining faster growth rates", Rajan said. 

Inflation in food, beverages, and tobacco, which account for about half of the consumer-price index’s basket of goods and services, exceeded 12 percent in December. It was 9.9 percent in January, the Statistics Ministry report showed.

A central bank panel in January proposed reducing CPI to 8 percent within one year and 6 percent by 2016, and that the RBI should then adopt a 4 percent target with a band of plus or minus two percentage points. Further tightening isn’t anticipated in the near term if consumer inflation slows to 8 percent by early 2015, the central bank said Jan. 28.

India forecasts its economy will expand 4.9 percent in the 12 months through March 31, faster than the decade-low expansion of 4.5 percent last year, the statistics ministry said last week. If inflation slows, Asia’s third-biggest economy can grow between 5 percent and 6 percent in the fiscal year starting April 1, the RBI predicts.

Prime Minister Manmohan Singh said last month his government could’ve done a better job at controlling inflation after the Congress Party got trounced in state elections. Opinion polls show the main opposition Bharatiya Janata Party winning the most seats in national polls due by May while falling short of a majority.

Standard & Poor’s warned in November that India’s credit rating may be cut to junk unless the election leads to a government capable of reviving growth.

BOE Interest rates are staying low but no longer tagged to Unemployment

Interest rates are unlikely to rise before 2015, the Bank of England signalled on Wednesday, as it warned the economy was still too weak to support an increase.

A bullish growth assessment on Wednesday was caveated by concerns that the recovery was currently unsustainable and unbalanced. The Bank revised up its 2014 growth forecast to 3.4pc, from an estimate of 2.8pc in November. It also raised its forecasts for 2015 and 2016 to 2.7pc and 2.8pc respectively.

However, it said the UK economy was still running at around 1.5pc below its potential, and would need to make up more lost ground before it would consider raising rates from their record low of 0.5pc. The Bank said productivity was much weaker than expected, and surveys pointed to less slack in the economy.

The Bank also severed the link between the unemployment rate and an interest rate hike, switching to a broad range of measures including wage growth and business investment to assess Britain's ability to support a rate rise.

In its Inflation Report, the Bank pledged to:

• Keep rates low until the output gap narrowed further 

• Raise rates slowly even when the economy improves

• Be prepared to change course in line with economic developments

• Maintain QE at £375bn until rates rise

Although Mr Carney refused to be drawn on when the Monetary Policy Committee believed interest rates would rise, markets currently expect the Bank to hike rates in the second quarter of 2015, rising to 1.9pc by the end of 2016.

Inflation over the next two years is expected to fall and remain below 2pc, according to the Bank's latest projections.

UK unemployment has fallen rapidly since last summer. Last August, when the Bank linked a rate rise to the jobless rate, it forecast unemployment would not fall below 7pc until 2016. It now believes the unemployment rate will fall to 6.9pc by March, and 6.3pc at the end of the year.

However, the Bank's latest indicators suggested growth would continue to be driven by household consumption - which powers two-thirds of UK output - although it also expects double-digit business investment growth this year.

Household consumption is expected to rise to 3.25pc 2014, but will only be accompanied by a small increase in real wages. Meanwhile, the household saving ratio is expected to fall to 4pc in 2014 and 3pc in 2015, from around 5pc in 2013. This is below the average of 4.25pc seen in the decade before the financial crisis.

Ireland and UK first joint trade mission !

Ireland and the UK will undertake their first ever joint trade mission at the Singapore Airshow - Asia's largest airshow.

The trade mission is part of a programme of cooperation to strengthen relations over the next decade led by UK prime minister David Cameron and Irish Taoiseach Enda Kenny.

It is being headed up by Ireland's jobs minister Richard Bruton, UK transport minister Stephen Hammond and Northern Ireland enterprise minister Arlene Foster with support from UK Trade & Investment (UKTI),Enterprise Ireland and Invest Northern Ireland.

Bruton said the mission was an important part of a “wider programme of cooperation between Ireland and the UK”.

"The aerospace industry is one of Ireland's most valuable and technically advanced industries. Today, Ireland is recognised as a leading location for aviation, MRO, technology, engineering and aviation finance.

"This first joint mission has attracted an impressive list of companies from Ireland, Northern Ireland and the UK that will demonstrate our considerable combined strengths in the aerospace sector at Asia's largest air show."

Rents rise and not just in Dublin

Rents are on the rise and not just in Dublin, according to Daft.ie’s latest report on the rental sector which shows year-on-year increases in all cities apart from Waterford in the last quarter of 2013.

The increase in the average rent nationwide rose to 7.1 per cent in the final quarter of 2013, compared to a 2.2 per cent rise a year previously, according to the quarterlyDaft.ie Rental Report.

The average advertised rent, which the property website bases on a sample of over 10,000 property lettings nationwide, stands at €865, compared to €790 two years ago.

The increase in rents is mainly being driven by inflation in Dublin where rents rose by over 11 per cent in the past year: they are now almost 18 per cent higher than at their lowest point in mid-2011.

Rents in Dublin are now effectively at the same level as early 2006, when the average Dublin rent stood at €1,250. However, they are still 15 per cent below peak prices witnessed in mid-2007.

Rents in most other cities have also risen in the past year: they are up by over 4 per cent in Cork and Galway while Limerick rents have risen by 3.6 per cent.

The exception is Waterford city, where rents continue to fall at 0.6 per cent year-on-year.