Loosing Momentum into the 4th Quarter?
Obviously the bets are still out but we need to look at this in the big picture I think. Consequently, growth in the Eurozone in 2006 is clearly going to beat all records but on a whole growth has been slowing down since the 2nd quarter and now we perhaps have the first signs that growth is going to grow more slowly going out of 2007. Generally, there is no need to spin this as a catastrophic report but clearly the ECB's hawkish stance and an appreciating Euro are beginning to take a dent.
European manufacturing growth unexpectedly slowed in December after interest rates rose and the stronger euro clouded the outlook for exports.
Royal Bank of Scotland Group Plc said today its manufacturing index fell to 56.5, the lowest in nine months, from 56.6 in November. A reading above 50 indicates growth. Economists expected the gauge, compiled by NTC Economics Ltd. from a survey of 3,000 purchasing managers, to rise to 56.8, the median of 25 forecasts in a Bloomberg News survey showed.
Economic growth in the euro region, now 13 nations after Slovenia adopted the common currency yesterday, may slow after recording the fastest pace in six years in 2006. Investors expect the European Central Bank to continue raising interest rates to control inflation, while the euro's appreciation threatens to erode exports and a sales-tax increase in Germany may damp consumer spending.
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The region's economy probably expanded 2.6 percent in 2006, the most since 2000, according to the Organization for Economic Cooperation and Development. The group forecasts expansion of 2.2 percent this year.
``Euro-zone manufacturing is entering the New Year with considerable momentum,'' said Holger Schmieding, chief European economist at Bank of America in London. Although the purchasing managers' index slipped, ``it remains far above the boom/bust line of 50. The stability in the manufacturing PMI bodes well for the growth outlook for early 2007.''
Stronger worldwide demand for European products in 2006 prompted companies such as Continental AG, the world's fourth- largest tire maker, to increase spending and hiring. Such investment may support consumer spending and economic growth in 2007 even as export demand cools.
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A gauge of manufacturing in Germany, Europe's largest economy, jumped to 59.4 from 58.3, today's data showed. Growth accelerated in Italy and Spain and slowed in France.
``It is encouraging to see that domestic demand currently appears to be healthy in most euro-zone countries, given that export orders may well come under increasing pressure over the coming months from a strong euro and moderating global growth,'' said Howard Archer, chief European economist at Global Insight in London.
As you can see, this is hardly cataclysmic but still interesting to see how the general expectations point to the fact that consumer spending will take over as the exports cool off due to an appreciating Euro and a slowing US. We need to rememeber that there are plenty of economic dynamics which might also dent consumption; i.e. a raising ECB and a German VAT tax raise. 2006 has indeed been a good year in the Eurozone but this is no reason in my opinion to be complacent and I believe that we might very well be in a situation where the economic dynamics will push down growth rather far in 2007.