Surprise. Actually two of them. First, the U.S. economy grew at a faster than expected 2.8% year over year pace in the third quarter. That’s up from the 2.5% rate for the second quarter. Second, the European Central Bank cut its benchmark interest rate to 0.25% this morning from 0.5%. That takes the benchmark rate to a new historic low.
The good news from Europe today is that the Italian government of Prime Minister Enrico Letta might be able to win a confidence vote scheduled, now, for Wednesday. The bad news is that the three other European governments—in Portugal, Greece, and Austria—have come down with their own case of wobbles.
This morning the Greek government asked for more time to complete public sector layoffs required by the country’s rescue package. This kind of delay talk is all too likely to revive criticism in Germany that Greece doesn’t really intend to cut spending and live up to its promises.
Merkel almost wins a majority in German elections. From the point of view of the financial markets, this result is about as good as it gets. Markets are assured of continuity—no surprises—with the possibility that Merkel will be pushed slightly toward more growth in Germany’s domestic economy
The EuroZone moved out of recession in the second quarter. At 0.3% for the quarter growth was modest—and it was definitely uneven with a strong performance from France and Germany contributing the bulk of the improvement to the EuroZone average growth rate. But still any growth is good news after 18 months of a double-dip recession.
A report yesterday from the International Monetary Fund challenged that pretend and extend. Greece’s second bailout is 11 billion euros short, the IMF said, and EuroZone governments need to fill at least half the gap by the end of the year. And, in addition, to get Greek debt levels back under control, European governments will have to write off 7.4 billion euros in debt over the next two years.
Recovery in the EuroZone? The German Ifo survey of business confidence rose for a third straight month in July. Or another year of contraction? IMF says no growth until 2014. Can we resolve the contradiction?
Industrial production in February fell by a year over year 2.8% in France. Which actually looks good in comparison to a 3.8% drop in Italy and a 6.5% plunge in Spain. Meanwhile the bailout plan for Cyprus projects that the country will return to growth in 2015.
So far, global financial markets are willing to overlook deepening debt troubles in Greece and Portugal. After all, these are countries on the “periphery” of the EuroZone and not in the “real” EuroZone. Today’s very gloomy report from the Bank of Italy lowering the projected growth rate for the Italian economy argues, however, that the EuroZone core is in trouble too.
Today the International Monetary Fund cut its forecast for global economic growth in 2013 to 3.1% in its semi-annual update of world economic growth. Back in April the forecast called for 3.3% growth. The IMF also cut its forecast for 2014 to 3.8% from 4%. The reduced forecast can be traced to emerging economies, according to the IMF, with slower growth in Brazil, Russia, India, and China.
