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Europe Ahead: Spending revived in Germany while Euro Zone unemployment rises

Fri, Oct 30 2009, 07:16 GMT
by ecPulse.com analysis team

ecPulse.com

Dear reader today is the last day of this economic week, while we have been witnessing, during these past couple of days, that the economic deterioration is easing down, especially since fundamental data has been supporting the easing pace of the global recession.

The first thing on our calendars today is German retail sales, in which expectations show that for the month of September, it is expected to climb to 1.0% from the revised prior reading of -2.4% from -1.5%; while on the year it is also presumed to show that the decline slowed to -0.1% from the previous -0.3 percent.

Retail sales are finally slightly improving around the world, as consumers are taking advantage of discounted merchandise, alongside the latest government efforts to try and stimulate economic growth, which in Germany was worth 85 billion euros.

The German government has also reduced taxes as a way to encourage more spending, which has been pared lately due to the soaring unemployment of 8.1%. So here we see that measures taken by officials, to try and jolt the nation out of recession, have been successful so far as retail sales are speculated to incline, while the nation expanded by 0.3 percent in the second quarter.

From the euro zone, we see that they are scheduled to release their CPI estimate for the year ending in October with projections showing that it is forecasted to increase to -0.1% from the prior -0.3%.

Although prices are expected to ease their decline, we see that the general price levels have been plummeting lately, which is triggering deflation risks in the euro zone, while the ECB has interest rates already reduced down to 1%, which is the lowest on record while they begin using non-standard measures. Although there are severe decline in prices, the central bank however stated that they can deal with it, which is why they continue buying euro-dominated bonds worth 60 billion.

A major factor that is weighing on prices is the fragile job market, because producers are dealing with demolished revenues, which therefore obligates them to cut prices as a way to encourage spending and boost profits. The euro zone is also scheduled to release its unemployment rate for September today, expected to climb to 9.7% from 9.6%, which was the highest in more than 10 years.

The softening of the labor factor is one of the heart problems in the euro zone, because even when the region does prosper accurately and starts expanding again, it will take some time before we see lower unemployment rates as the zone, especially as industries lately have been facing lower net income while others have shut down from the worst economic period since WWII.

As conditions have been improving lately in the euro zone, the main obstacles are delaying the economic recovery, as the zone contracted by 0.2 percent in the second quarter. The longer it takes the banking system to stabilize, the longer it will take for the zone to rise from its knees.

The European stock market spiked as it ended the session yesterday; the DJ Euro Stoxx 50 climbed 46.32 points or 1.67% to 2824.78 points; CAC 40 inclined 50.24 points or 1.37% to 3714.02 points; while DAX rose 91.18 points or 1.66% to 5587.45 points.

Published on  Fri, Oct 30 2009, 07:20 GMT