Review. It is now official: In the third quarter, the eurozone emerged from the deepest recession since the Great Depression. With +0.4%, EMUwideGDP posted its first expansion again since the beginning of 2008, although it was slightly below consensus. Germany and Italy led the pack in terms of growth. France disappointed, while the Spanish economy continued to contract.
Preview. Even though the momentum still carried over into the fourth quarter, the (pace of the) recovery is not sustainable. This holds true primarily for the first half of 2010 (cf. chart). Once government stimulus programs have ended and inventories been replenished, the impulses from final domestic demand will be lacking for self-sustaining growth. Given the bleak labor market outlook, private consumption throughout the EMU will not post growth again until the second half of 2010. We do not expect a real recovery until 2011 (pages 4-6).
ECB. That is also the reason why we do not expect an ECB key rate hike in the coming year. In addition, excess liquidity of roughly EUR 100bn should be reduced only gradually and at a measured pace, even though the European Central Bank is verbally preparing investors for the removal of the ultra-expansionary monetary measures. Therefore, we do not expect an increasing EONIA rate until mid-2010, once the first 12M LTRO expires (pages 7-8).
Bank of England. The UK central bank has raised its growth and inflation forecasts slightly, but based solely on a weaker GBP and stronger global growth. The projected inflation path remains, nevertheless, too flat to justify a first rate hike which markets expect in autumn 2010 (page 9).
Further topics:
- Weekly Comment: Blessed are the weak (page 2).
- US: Census as job motor (page 10)?
– Data outlook: US leading indicators continue to point up (page 12).
