SHIPS THAT PASS IN THE NIGHT

Fall in German output raises fears of recession (Tony Major, May 9 2003, Financial Times)

A sharp drop in German industrial output capped a grim week for the eurozone's largest economy on Friday, throwing official growth forecasts into doubt and denting hopes of a recovery.

The 1.1 per cent month-on-month fall in industrial output in March, after a meagre rise of 0.2 per cent in February followed an unexpectedly sharp decline in manufacturing orders for March.

Economists said the data confirmed the chronic weakness of the German economy, which was now at risk of sliding into recession. Growth ground to a halt in the final quarter of 2002 and has shown few signs of picking up this year.

"It looks bad enough at the moment . . . but recent surveys suggest it will get even worse before it gets better," said Ken Wattret of BNP Paribas.[...]

On Thursday, the ECB resisted heavy pressure to cut interest rates, insisting that policy was "conducive" to a gradual strengthening of the economy in the course of this year.

Wim Duisenberg, ECB president, said the bank also wanted time to decide whether the sharp appreciation of the euro would be sustained. He insisted that the exchange rate was not excessive and reflected fundamentals.

Can anyone explain how the euro's strength could possibly be sustained as our economy grows and theirs shrink in the months ahead (never mind the longer term)?

MORE:
France's Budget Deficit Could Strain the EU (David DeRosa, May 9, 2003, Bloomberg)

The European Commission has ordered France to get its budget in order no later than 2004. And what will the commission do if France doesn't comply?

The European Union's magic number for budget deficits is 3.0 percent of gross domestic product, a ceiling agreed on by member nations to protect the euro. It was memorialized in an agreement called the Stability and Growth Pact.

France's "excessive'' deficit was 3.1 percent of GDP in 2002, and the commission is forecasting it could be 3.5 percent in 2004. [...]

The average budget deficit for the EU's 15 countries is 2.2 percent. France isn't the only budget scofflaw. Portugal is running a deficit of 3.2 percent. And then there is Germany, Europe's largest economy, where the budget deficit has risen to 3.6 percent.

The commission will not be cheered by an interview given by Joachim Poss, the deputy parliamentary leader of Chancellor Gerhard Schroeder's Social Democrats.

Poss reported that German Finance Minister Hans Eichel will announce next week that he is abandoning his goal of balancing the budget by 2006: "That goal is no longer achievable and Eichel will revise it next week.'' He went on to say, "Things have changed. We need a bit more time now.''

Among the Group of Seven industrialized countries, Japan runs the highest budget deficit, 7.7 percent. The U.S. deficit is 3.6 percent of GDP. The ``best'' budget performer among the G-7 is Canada with a budget surplus of 1.4 percent of GDP.

Posted by Orrin Judd at May 10, 2003 2:41 PM