ECB Lifts Euro-zone Growth Outlook

Arthi Gupta
13 Sep, 2010
New York City

The European indexes soared after the ECB lifted the euro-zone 2010 GDP growth to 1.7%. The Basel Committee unveiled tighter guidelines for bank capital reserves. French current account deficit shrank in July.

[R]4:00 PM Frankfurt – The European indexes soared after the ECB lifted the euro-zone 2010 GDP growth to 1.7%. The Basel Committee unveiled tighter guidelines for bank capital reserves. French current account deficit shrank in July.[/R]

U.S. and Asian markets gained.

Spain home sales rose in July. Swiss producer and import prices better than expected in August. Greek construction output declined in the second quarter.

The National Bureau of Statistics in China said industrial production rose 13.9% from a year ago in August, stronger than the 13.4% rate in the previous month and compared to estimate of 13%.

In Paris CAC 40 Index increased 53.19 or 1.43% to close at 3,779.01 and in Frankfurt DAX Index edged higher 71.77 or 1.15% to close at 6,288.54.

The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, on Sunday agreed to substantially raise the amount of capital that banks must set to aside against potential losses. Internationally active banks must now hold a minimum 7% of assets as common equity - significantly higher than the international standard of 2%.

If common equity levels fall below the minimum levels, regulators could force banks to hold back more of their earnings in reserves and suspend dividend payments and loan portfolios. The rules effective from 2013, when banks are expected to set a minimum of 3.5% of assets aside as common equity.

European Central Bank President Jean-Claude Trichet described the agreement as """"a fundamental strengthening of global capital standards.""""

The European Commission said in its latest interim forecast report released today that the euro area is likely to recover at a faster pace this year than previously estimated. According to the ECB, euro-zone real gross domestic product is forecast to grow 1.7% this year, revised up from 0.9% in May. This upward revision largely reflects a better than expected first-half economic growth.

GDP is projected to expand 0.5% in the euro area in the third quarter and 0.3% in the fourth quarter.

For 2010, economic growth is expected at 1.8% in the EU27 as against the 1% expansion estimated in May. The Commission's inflation forecast for this year is 1.8% in the EU and 1.4% in the euro area.

The European Central Bank estimates euro-zone growth to be in a range of 1.4% and 1.8% this year. Annual HICP inflation is seen between 1.5% and 1.7%. The central bank targets inflation 'below, but close to, 2%' over the medium term.

The EU Economic and Monetary Affairs Commissioner, Olli Rehn remarked """"The European economy is clearly on a path of recovery, more strongly than forecast in the spring, and the rebound of domestic demand bodes well for the job market.""""

The Chief of the International Monetary Fund Dominique Strauss-Kahn said today in his opening remarks at the IMF/International Labor Organization joint conference in Oslo, Norway that recession has left behind a waste land of unemployment leaving the labor market in dire straits.

He further stressed that in the next ten years, more than 440 million new jobs will be needed to absorb new entrants into the labor force, and still more to reverse the unemployment caused by the crisis.

Greece Prime Minister George Papandreou on Sunday ruled out new austerity measures, expressing confidence of achieving the goal as planned by the end of this year. By the end of the year, the budget deficit will be cut by 40%, he added.

Greece with national debt of around €300 billion plans to cut its budget deficit to 8.1% of GDP this year.

In another report, the European Central Bank Executive Board member Lorenzo Bini Smaghi said Greece's euro exit would only help to worsen its debt burden and would lead to a partial default or restructuring.

According to the text of a speech posted on the ECB's Web site on Friday, Bini Smaghi said the very idea of dropping euro is """"absurd,"""" and """"if Greece were to exit the euro, its debt burden would de facto worsen given that it is denominated in euro, and partial default or restructuring would in that case be unavoidable.""""

Production in Greek construction industry declined 18.3% annually during the second quarter compared to the 21.4% annual drop in the first quarter, according to a report released by the Hellenic Statistics Authority today. However, compared to the first quarter, construction output surged 30.2% in the second quarter, rebounding from a 34.6% slump in the first quarter.

Home sales in Spain soared 17.5% from a month ago to over 43,800 in July, the National Statistics Institute said today. On a yearly basis, home sales surged 16.4%. The total number of property transfers increased 5.2% in July from the previous year to just below 168,700.

Switzerland's producer and import prices rose 0.1% in August from July, the Federal Statistics Office reported today. On an annual basis, producer and import prices edged higher 0.5% in August. This increase was mainly due to rising prices for petroleum and metal products compared with the previous year.

France's current account balance recorded a smaller deficit in July than in June, according to official figures released today.

The Bank of France said a current account deficit of €2.2 billion was recorded in July compared to a €2.7 billion euro-deficit in June.

Germany's industry body VDMA raised its estimate for machinery production this year to 6%, on higher than expected orders in recent months.

The lobby said exports increased in the first half of 2010 by a price-adjusted 3.5%. In July, capacity utilization averaged 82.9% compared to 69.2% recorded during the same period of last year.

Gainers & Losers

Banco Santander SA rose 1.52% to $12.78 after the Spanish lender reached a deal to acquire Allied Irish Bank's 70% stake in Poland's Bank Zachodni WBK SA.

Deutsche Bank AG gained 1.72% to €48.52 after the investment bank plans to raise nearly €9.8 billion, the largest capital raising to buy Deutsche Postbank and meet stricter capital rules.

Heidelberger Druckmaschinen AG fell 0.27% to €6.19 after the German producer of solutions for the print media industry received board approval to raise its share capital to reduce debt and improve financing.

Immunodiagnostic Systems Holdings plc advanced 2.56% to 800 pence after the producer of diagnostic testing kits for the clinical and research markets, today said it acquired 100% of the share capital of MGP Diagnostics AS of Mjøndalen, Norway or MGPD for an undisclosed cash consideration.

Muenchener Rueckversicherungs-Gesellschaft AG climbed 1.9% to €105.05 after the reinsurer said it expects stable prices and conditions for property and casualty reinsurance contracts from January 2011 onwards.

Nestle S.A. declined 0.28% to Sfr53.60 after the Swiss food maker agreed to buy dog treats maker Waggin' Train LLC from private equity firm VMG Partners.