----- Original Message ----- From: info <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] <[EMAIL PROTECTED]> Sent: Friday, March 02, 2001 3:20 PM Subject: [mobilize-globally] Economist outlook on european [e.u.]economy Subject: [RBG-Alliance] economist outlook on european [e.u.]economy Date: Thu, 1 Mar 2001 21:48:58 -0800 (PST) From: "Li'l Joe" <[EMAIL PROTECTED]> To: RBG Alliance <[EMAIL PROTECTED]>, Black-Left <[EMAIL PROTECTED]> Inbox for [EMAIL PROTECTED] Yahoo! - My Yahoo! Options - Sign Out - Help The European economy Odd man out Mar 1st 2001 >From The Economist print edition THE worlds two biggest economies, America and Japan, seem to be sliding dangerously towards recession. Will the euro area follow them? On the surface, the latest news is grim. In January, unemployment in the euro area rose for the first time in almost four years, to 8.8%. New figures this week also showed that Germanys GDP growth fell to an annual rate of only 0.8% in the fourth quarter of 2000, down from over 4% in the first half. But other economies within the euro area are still thriving. GDP in France and the Netherlands grew at annualised rates of between 4% and 5% in the fourth quarter. As a result, Euroland as a whole probably grew at a fairly respectable rate of around 2.5%. This explains why, unlike in America and Japan, the European Central Bank (ECB) has not felt the need to cut interest rates. An American recession would clearly dent growth in the euro area, but by less than in some other parts of the world. For a start, the euro areas exports to America amount to only 2.5% of its GDP, so even a sharp fall in American imports would have a limited impact on Europes overall output. However, direct trade flows understate the influence of the American economy. In recent years European firms have built up large stakes in American companies, and so a growing share of their profits depends on the fortunes of corporate America. Germany is particularly exposed. The sales of American-based affiliates of German companies are five times bigger than Germanys exports to the United States. An American recession would also infect Europe through stockmarkets. If American share prices keep sliding, they will probably drag European stocks down too. The good news is that European consumer confidence is less sensitive to swings in share prices than American consumer confidence: Europes households own fewer shares. Economies in the euro area will also be cushioned this year by tax cuts, worth altogether a net 0.6% of GDP. These cuts were planned long before talk of recession surfaced in America; the timing, you could say, turned out to be fortunate. Last, but not least, another reason for hoping that the economies of the euro area will hold up is that they do not suffer from the same sorts of imbalances that threaten to turn a mild American downturn into a recession. In Europe, household saving rates have remained fairly high, and private-sector borrowing has been relatively modest. Measures of business and consumer confidence signal only a mild slowdown this year. Since last October the average prediction for growth in the euro area in 2001, in The Economists poll of forecasters, has fallen from 3.1% to 2.6%; this compares with estimated growth of 3.4% last year. Over the same period the average forecast for America has plunged from 3.5% to 1.8% (see chart). Deutsche Bank estimates that even if GDP growth in America is zero this year, the euro area would grow by 2% all the same. The blame for the slowdown seen so far in Europe cannot be pinned on the United States. Rather, the main culprit is weaker consumer spending following a squeeze on real incomes. In the year to December, the volume of retail sales fell in Germany, France and Italy. Real wages in the euro area have actually fallen over the past year. Inflation has risen, but wage growth has remained relatively modest, thanks to increasingly flexible labour markets. Growth in the euro area is almost certain to outpace growth in the United States this year. Many Europeans will be pleased about that, but in fact there is little room for complacency. The rise in Januarys unemployment may turn out to be a blip; if not, a weaker jobs market would soon dampen consumer confidence. While growth has remained robust, the ECBs main concerns have been inflation and a weak euro. Headline inflation in the euro area fell in January to 2.4%, but remains above the ECBs ceiling of 2%. Core inflation, which excludes food and energy, rose to 1.6%. Until core inflation stops rising, the ECB is likely to be in no hurry to cut ratesunless, that is, growth suddenly falters. After regaining about 15% against the dollar between last October and early January, the euro has since slipped back. If it resumes its climb, that would probably encourage the ECB to cut rates, in order to prevent a tightening in overall monetary conditions. If America really does go into recession, the euro might well climb strongly against the dollar. That would further squeeze the euro regions exports, making an interest-rate cut more urgent. _______________________________________________ Marxist-Leninist-List mailing list [EMAIL PROTECTED] To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/marxist-leninist-list