Quarterly Bulletin Q3 2013

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56 Developments in the International Quarterly Bulletin 03 / July 13 and Euro Area Economy Table 2: Contributions of Expenditure Components to Quarterly Change in Euro Area GDP 2012 Q2 2012 Q3 2012 Q4 2013 Q1 Consumption -0.3 -0.1 -0.3 0.0 Government -0.1 0.0 0.0 0.0 Investment -0.3 -0.2 -0.3 -0.3 Inventories -0.1 -0.1 -0.1 0.0 Exports 0.7 0.4 -0.4 -0.4 Imports -0.2 -0.1 0.5 0.5 GDP -0.2 -0.1 -0.6 -0.2 Source: Eurostat. improvements since last October. An increase of 1.8 per cent in June was driven by an uptick in all components, except services which remained broadly stable. Industrial confidence saw gains in May and June, regaining ground lost earlier in the year, reflecting mainly a more positive assessment of the current levels of overall order books and product expectations. In parallel, the composite output PMI remains below the neutral 50 mark, indicating that the euro area remains in contraction territory. Data for June show a rise from 47.7 in May to 48.7, indicating the smallest contraction in euro area business activity since March last year. Most euro area countries remain well below the 50 threshold, a notable exception being Germany. There, the composite output PMI rose to a three-month high of 50.4 in June from 50.2 in May, helped by a stronger-than-expected gain in the services sector but an unexpected moderation in manufacturing suggests limited growth for the second quarter. 3 2 1 0 -1 -2 -3 -4 -5 Chart 4: Euro Area GDP Growth % Quarter-on-Quarter Change Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2008 2009 2010 2011 2012 2013 Germany Spain France Italy Source: Thomson Reuters Datastream Euro area unemployment increased steadily month-on-month throughout 2012 and into 2013, standing at 12.2 per cent in May. The unemployment rate increased during 2013 in nearly all countries, with the rate in Germany flat and marginal improvements recorded in Ireland and Malta. Youth unemployment continued to rise across most euro area countries, most notably the southern periphery, while long-term unemployment also remains high. Survey data indicate that employment has fallen consistently throughout 2012 and into 2013 and employment expectations remain negative. 20 10 0 -10 -20 -30 -40 Chart 5: Economic Sentiment Indicator & Selected Components 120 110 100 90 80 70 60 -50 50 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May 2008 2009 2010 2011 2012 2013 Industry Consumers Services ESI (rhs) Source: European Commission.
Developments in the International and Euro Area Economy Quarterly Bulletin 03 / July 13 57 Economic Growth – Outlook Euro area GDP may begin to pick up modestly in the second half of the year, as improvements in the net trade position outweigh weak domestic demand. Euro area GDP is likely to be supported by positive developments in Germany, where the growth recorded in Q1 is expected to be sustained throughout 2013. Domestic demand is expected to continue to exert a significant drag on euro area GDP growth for the rest of 2013. Private investment in particular will continue to contract across the euro area as business expectations and industrial confidence levels remain low. Some improvement is anticipated in 2014 as export demand stimulates machinery and equipment investment and sentiment improves. Consumption is expected to remain muted during 2013 as weak labour markets, combined with low levels of confidence and on-going balance sheet adjustment in several countries, could serve to negatively impact household spending capacity. These factors are expected to wane only gradually, maintaining a drag in some countries into 2014. This might be partly offset by increases in real incomes arising from falling inflation. Government consumption is expected to be fairly flat over 2013, reflecting on-going fiscal consolidation efforts across the euro area, before picking up modestly in 2014. Imports are expected to remain weak in response to dampened domestic demand, although some pick-up is likely in response to increased activity in exports with high import content. The net trade position is expected to be the primary driver of any GDP growth during 2013 and could serve to offset weak domestic demand. Thereafter, while exports are expected to gain momentum during 2014, import demand is also expected to pick up in response to improved domestic demand conditions. The OECD revised down their forecasts for euro area GDP growth for 2013 and 2014 to -0.6 and 1.1 per cent, respectively, with the expectation that external demand will drive GDP growth and the headwinds weighing on domestic demand will abate only gradually (Table 1). These forecasts are in line with the June Eurosystem Broad Macroeconomic Projections Exercise projections for euro area GDP growth in both years. While adverse risks attached to the forecasts have abated somewhat over the past year, they are still judged to be on the downside. Renewed uncertainty within the euro area may undermine the potential for consumption and investment to regain some ground toward the end of 2013 and into 2014. In addition, ongoing balance sheet correction in the private sector and persistently low levels of confidence arising from high unemployment may continue to weigh on any recovery. Inflation – Recent Developments Euro area annual HICP inflation has been trending downwards since August 2012, reaching a three year low of 1.2 per cent in April. While recent lower inflation rates primarily reflect a reduced contribution from energy prices, the April figure was artificially low due to a distortion related to the timing of Easter this year relative to last. Inflation increased to 1.4 per cent in May as these distortions unwound. Core inflation, meanwhile, has remained relatively steady for some time. Any downward price pressures emanating from increased economic slack have largely been offset by increased contributions from both administered prices and indirect taxes in the two components that make up core inflation, namely services and non-energy industrial goods. Nevertheless, a slight downward trend in the core rate is discernible, as HICP excluding food and energy averaged 1.3 per cent in the six months up to May 2013, down from an average of 1.5 per cent in the preceding six-month period. Since peaking in early 2011 at 6.6 per cent, producer price inflation (excluding construction) has generally been on a downward trajectory, falling to -0.2 per cent in May 2013. PMI survey measures of prices, meanwhile, indicate weak price pressures in the manufacturing sector. The manufacturing input price index
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JULY 13 Q3 Central Bank Quarterly B
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Contents Section 1 Forecast Summary
Page 7 and 8: Section 1 Quarterly Bulletin 03 / J
Page 9 and 10: 7 Comment Annual National Accounts
Page 11 and 12: 9 The Domestic Economy Overview n A
Page 13 and 14: The Domestic Economy Quarterly Bull
Page 33 and 34: 31 An Timpeallacht Gheilleagrach Le
Page 35 and 36: 33 Financing Developments in the Ir
Page 37 and 38: Financing Developments in the Irish
Page 55 and 56: 53 Developments in the Internationa
Page 57: Developments in the International a
Page 61 and 62: Developments in the International a
Page 73 and 74: 71 EU-IMF Financial Assistance Prog
Page 75 and 76: EU-IMF Financial Assistance Program
Page 77 and 78: EU-IMF Financial Assistance Program
Page 79 and 80: 77 Developments in EU Financial Ser
Page 81 and 82: Developments in EU Financial Servic
Page 83 and 84: Developments in EU Financial Servic
Page 87 and 88: Analysis of Recent Monetary Operati
Page 107 and 108: Statistical Appendix Quarterly Bull
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Statistical Appendix Quarterly Bull
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Quarterly Bulletin Q3 2013

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