NEWS,01.08.2012

Record unemployment in eurozone

Joblessness in the eurozone hit on Tuesday its highest level since the single currency was born, a further sign of economic desperation as hopes erode that the bloc will be saved by its central bank this week.An additional 123 000 people were out of work in the eurozone in June, figures from Eurostat showed, bringing the unemployment rate to a record high 11.2% across the 17 countries that use the single currency.The rate hides wide divergences, with unemployment as low as 4.5% in Austria and as high as 24.8% in Spain, where a shrinking economy makes it ever more difficult to pay off debt.New data showed capital fleeing Spanish banks at a growing rate. Spain has come dangerously close to losing affordable access to financial markets, raising the prospect of a bailout that would swamp the euro zone's hastily erected defences. If Spain goes, Italy, with an economy twice the size, could follow.Eurozone leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none have raised expectations as much as Mario Draghi, head of the European Central Bank.His announcement last Thursday that the ECB would do whatever within its mandate to rescue the currency raised expectations that he will deliver forceful new steps this week to lower Spanish and Italian borrowing costs.But market sentiment has since soured, showing that investors doubt whether he can deliver.Germany, which says it is illegal for the ECB to bankroll government borrowing, squelched talk of any easing of its opposition to letting the eurozone's rescue fund borrow from the ECB so it could buy almost unlimited quantities of government bonds.Italian Prime Minister Mario Monti, who has campaigned for concerted action by the eurozone's rescue funds and the ECB to bring down ruinous borrowing costs for Spain and Italy, struck an optimistic tone."It is a tunnel but ... some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel," he told RAI public radio before talks in Paris with French President Francois Hollande.Monti said decisions taken at an EU summit last month were starting to bear fruit. "We are now seeing the results both in the willingness of European institutions as well as from the governments of individual countries, including Germany," he said.After lunching with Hollande, he said there was no time to lose and they had discussed deadlines, adding: "We cannot afford even a minute of distraction." The ECB's Draghi promise last week to act to preserve the euro raised investors' expectations of a resumption of a long-suspended government bond-buying programme. Investors are waiting to see what the ECB announces at a meeting of its policy-setting Governing Council on Thursday."Today will probably be a quiet last day of the month. Everybody is waiting for Thursday to see if Draghi can deliver," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500m of assets."He'd better pull a big rabbit out of his hat."However, central bank sources cautioned against expecting dramatic action, saying bold moves could be at least five weeks away because other elements must first fall into place.They said Spain would first have to formally request a eurozone assistance programme, which it has so far resisted doing, and eurozone governments would have to agree to use their rescue funds to buy bonds in tandem with the ECB.Safe-haven German government bonds rallied on Tuesday and European shares fell as scepticism over the prospect of bold ECB action set in and Berlin repeated its opposition to a banking licence for the rescue fund. Monti, who will also visit Finland and Spain, said he was confident Spanish Prime Minister Mariano Rajoy would be able to tackle the country's problems.The scale of Rajoy's challenge was highlighted on Tuesday when figures showed that capital flight from Spain accelerated in May, the month when Madrid was forced to nationalise the fourth biggest lender, Bankia, and before eurozone countries agreed to help bail out Spanish banks. Capital outflows in the first five months of this year totalled €163.2bn - equivalent to about 16% of economic output. The same period last year saw a net inflow of €14.6bn.Spanish retail sales fell by 5.2% year-on-year on a calendar-adjusted basis in June, separate data showed, marking a 24th straight month of declines. Near-bankrupt Greece meanwhile reported that it is fast running out of cash as it awaits the next instalment of aid from international lenders. Deputy Finance Minister Christos Staikouras said that in the absence of €3.2bn needed to repay an ECB bond on August 20, Athens would lack the money to pay everyday public expenses ranging from police and other public service wages to pensions and welfare benefits."Cash reserves are almost zero," he told state NET television. "It is risky to say until when (they will last) ... but we are certainly on the brink."Speaking to reporters in London on Monday evening, Hollande voiced support for Monti's campaign to persuade euro zone leaders and institutions to act to reduce Italian and Spanish borrowing costs."European solidarity is of course about laying down discipline, but it's also about allowing countries that made hard choices to be rewarded with lower interest rates," Hollande said during a visit to the Olympic Games. "If countries undertake austerity measures and still have very high interest rates, how can they win the trust of their people?" he said.Monti spoke by telephone over the weekend with German Chancellor Angela Merkel, who is holidaying in northern Italy.Berlin agreed in principle at an EU summit in June that the eurozone rescue funds could buy bonds of countries that risk losing market access, but was angered when Monti said that such support should not entail any stricter economic conditions or international monitoring.There has also been renewed pressure from France, Italy and some central bankers to give the eurozone's future permanent rescue fund a banking licence so it can borrow money from the central bank to fight bond market contagion.The Sueddeutsche Zeitung said supporters of the idea were gaining ground in the eurozone, but the German Finance Ministry reiterated its opposition on Tuesday, sending markets down.A legal opinion commissioned by the ECB in March 2011 concluded that such a move would breach an EU treaty ban on monetary financing of governments. 

Eurozone factory downturn takes root

The eurozone’s manufacturing sector contracted for the 11th straight month in July as output and new orders plummeted, a business survey found on Wednesday. The data, which showed the downturn is deepening its roots in the core, will provide grim reading for policymakers who are battling to contain a debt crisis that has raged across the continent. Markit’s Eurozone Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 44.0, the lowest reading since June 2009 and below a flash reading of 44.1 and June’s 45.1. The output index sank to 43.4, the lowest since May 2009, under June’s 44.7 and an earlier flash 43.6. Markit said it was in line with the official measure of production falling at a quarterly rate of over 1%. “The eurozone manufacturing sector’s woes intensified again in July. Manufacturing therefore looks to be on course to act as a major drag on economic growth in the third quarter, as the eurozone faces a deepening slide back into recession,” said Chris Williamson at Markit. After stagnating in the first quarter, narrowly avoiding a technical recession, a raft of gloomy data pushed economists in a Reuters poll last month to predict a contraction in the second and third quarters. In a bid to spur growth the European Central Bank cut interest rates to a record low of 0.75% in June and is expected to cut them again to 0.5% before the year is out. At its policy meeting on Thursday, it is expected to restart its dormant government bond buying programme with the aim of lowering Spanish and Italian government bond yields, which have reached levels unsustainable in the long-term. Bank President Mario Draghi vowed last week that “the ECB is ready to do whatever it takes to preserve the euro”.Earlier data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at its fastest pace in three years last month and it was a similar story in neighbouring France. Spain, which slid deeper into recession in the second quarter, saw the 15th straight month of contraction, while Italy chalked up a year in contractionary territory. The PMI for Greece, where the debt crisis began, has been below 50 since September 2009. Ireland was the only country to show signs of emerging from the downturn, Markit said, where its PMI was above 50 for the fifth month. Factories across the eurozone cut prices at the fastest pace since early 2010, but the new orders index still fell to 42.8 from the previous month’s 43.5 and has only been lower once in over three years. New export orders were at an eight-month low. “The current weakness of global economic growth suggests that all producers face a challenging environment in export markets as well as at home,” Williamson said. Some of the output was generated by firms running down backlogs for the 14th consecutive month and workforces were cut for the sixth month to reduce costs. Unemployment across the bloc rose to a euro-era high of 11.2% in June, official data showed on Tuesday. 

Average UK home slumps to R2.12

House prices in recession-affected Britain slid in July on an annual basis by the biggest amount in nearly three years, a survey by major home-loans provider Nationwide showed on Wednesday.The average value of a home in Britain stood at £164 389 ($257 743, R2.12m) in July - down 2.6% compared with the same month in 2011, the lender said in a statement.They meanwhile dropped by 0.7% in July compared with one month earlier, it added."UK house prices declined for the fourth time in five months in July, with prices falling by 0.7%. This pushed the annual pace of price growth down to minus 2.6%, from minus 1.5% in June - the weakest outturn since August 2009," said Nationwide chief economist Robert Gardner."The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy. Data released last week revealed that the UK recession intensified in the three months to July."