Despite of the improvement seen recently in the euros zone, especially in Germany and France, prices are still low; suggesting that the economic recession is still weighing on the economy.
Today, CPI final reading in Germany remained unchanged at 0.1% on the month in line with expectations; also on the year, the reading steadied at 0.0% matching forecasts.
In regards to the EU harmonized reading, it inched down to 0.1% compared with both preliminary and estimated readings of 0.2%, while the annual reading declined to -0.1% from preliminary and predicted readings of 0.0%.
The largest economy in the euro zone emerged from the recession in the second quarter by achieving 0.3% growth, pushing down the contraction in the euro area to 0.2% from 2.5% in the first quarter.
The economic conditions started to ameliorate, especially in the third quarter; as indicated by data released. Global demand improved with the recovery signs in large economies, after monetary and fiscal interventions by central banks and governments boosted world economies. Thus, prices in Germany are likely to increase in the upcoming period, with recovery signs appearing clearly in the gigantic economy in Europe.
In addition, oil prices rose in October to the highest level in a year above $81 a barrel, due to incline in demand on improved outlook for global economies, as the dollar weakened.
The green currency's raises concerns in the euro zone; making European commodities less competitive. Besides it is well known that Germany, the biggest exporter in the world in 2008, relies in its growth on manufactured exports. However, Trichet mentioned last week that the euro's advance reflects the strength of the 16-nation economy and the current rate is suitable.
On the other hand, the euro's appreciation against the dollar is keeping the inflation at low rates, despite of interest rate cuts and quantitative easing methods used, which is supposed to raise inflation. Angela Merkel introduced a 85 billion euro stimulus to be spent on infrastructure, in addition to cutting taxes and encouraging purchasing new cars for old ones. By extension, the ECB announced 60 billion euros bonds purchase program after slashing borrowing cost to a meager 1% to revive the economy.
Perhaps the most challenging hurdle in the recovery journey is the rising unemployment rate, which is currently 8.1%; while in the euro zone it is 9.7%, the highest level in more than 10 years.
Many companies shed jobs to cut costs to return to profitability. For instance, Siemens AG announced previously that it has slashed the number of workers from all its affiliates to 408,000 this year from roughly 420,000. Also, there are other companies planning to terminate more employees, which may cause the number to become scarier in the upcoming period. The Bundesbank predicts the rate of unemployed people to rise to 10.5% in 2010.
Eyes in the upcoming period will be focused on GDP for the third quarter, where positive growth figures are expected. IW economic institute projects the German economy will shrink 4.5% in 2009, before growing to 1.5% next year. The euro zone will release its GDP for the third quarter on Friday, with expectations to show expansion. Later on today, the euro zone and Germany will release ZEW survey, while the U.K. will release its trade balance.
