Recession-stricken euro zone the class laggard in G20 audit
US housing starts, business surveys likely to be positive
LISBON, April 15, (RTRS): After a bungled bailout of Cyprus, the recession-stricken euro zone will stand out for the wrong reasons when finance ministers meet in Washington this week to run the rule over the global economy.
China on Monday is likely to report a growth rate of 8 percent for the first quarter, according to economists polled by Reuters.
In the United States, figures on housing starts and a pair of regional Federal Reserve surveys are expected to depict an economy that is far from firing on all cylinders but is at least chugging along.
And Japan is back. Animal spirits and stock prices are rising in response to the Bank of Japan’s aggressive new monetary stance aimed at ending two decades of deflation.
Appetite
What’s more, Prime Minister Shinzo Abe has shown an appetite to inject more competition into the economy by reaching a deal with the United States on Friday to pave the way for Tokyo to join transpacific free trade talks.
By contrast, the European Union’s growth strategy has been a failure and the economy will continue to stagnate unless bold steps are taken, according to a study commissioned by the EU itself.
The 17 countries that use the euro were in recession in 2012 and will probably contract further this year. The sovereign debt crisis has mutated into a crisis of confidence, undermining consumer demand and the willingness of businesses to invest.
In return for bailing out Cyprus, the ECB, the European Commission and the International Monetary Fund (IMF) initially agreed to a levy on all bank deposits, including those insured up to 100,000 euros.
The plan was shot down within days and the entire burden is being shifted on to depositors with more than 100,000 euros. But the damage has been done.
Antnio Horta-Osrio, chief executive of Lloyds, Britain’s biggest retail bank, said the Cyprus fiasco had made it more difficult for banks to regain the confidence of clients that was shattered by the financial crisis. Lloyds itself had to be bailed out and is 39 percent owned by the state.
Finance ministers from the Group of 20 leading economies, who convene on Thursday on the eve of the spring meetings of the IMF and World Bank, will breathe a sigh of relief that financial markets have not taken fright at events in Cyprus.
But Derry Pickford, a macro analyst at investment managers Ashburton in London, said big depositors were bound to get twitchy the next time banking strains intensify.
The United States has hardly been a model of policy-making either on the fiscal front.
Because of a failure to agree a longterm deficit reduction plan, blunt federal spending cuts are being phased in that will amount to about 0.6 percent of GDP over the next six months. The resulting drag on the economy will be considerable, according to Kevin Logan, HSBC’s chief US economist in New York.
Friday’s surprising fall in March retail sales and a weak sentiment survey suggest that consumers are already responding to the cuts, which come on top of an increase in payroll taxes at the start of the year.
On the plus side, business investment and housing are on a firmer footing and should help the economy notch up full- year growth of around 2 percent, said Sam Bullard, an economist with Wells Fargo in Charlotte, North Carolina.
Housing starts, forecast by Reuters to come in at an annual rate of 930,000 in March, are likely to jump by almost a quarter in the whole of 2013, albeit from a low level, he said.
“In our baseline forecast, housing is still a primary support to our call,” Bullard said.
US growth could accelerate next year to around 3 percent, according to IHS Global Insight, an economic consultancy.
With China purring along and economic momentum in Japan likely to build in coming quarters, things are not looking bad for export-dependent Asia, said Rajiv Biswas, the firm’s chief regional economist in Singapore.