Search League Tables

Thursday, 17 May 2012

Forecasting lags

Europe picks up as Commission predicts recession

23 February 2012 | By Ian Campbell

There is a time lag in forecasts, especially those of big institutions like the European Commission. By the time the Commission has compiled, computed, considered and finally downgraded its forecasts to recession – it happened on Thursday – the data has started to point the other way.

The Commission is gloomier than it was last November. Then it forecast euro zone GDP growth of 0.5 percent in 2012. Today it sees contraction of 0.3 percent. But except for the euro periphery, where growth prospects remain bad and the dangers of renewed crisis high, last year’s so-called soft patch looks to be departing.

Germany’s Ifo institute reported that its index of business confidence rose for the fourth consecutive month in February, to its best level since last July. German companies’ assessments of current conditions and prospects for six months ahead are both above their long-term averages. “Positive impulses expected” was the Ifo’s comment on export prospects.

In the UK, there was corroboration of a healthy pick up in trade. The Confederation of British Industry reported that UK manufacturers expect “solid output growth” over the next three months, with export orders showing “a similar upturn” to that in broader production. Half the UK’s exports go to Europe. European demand must be improving.

None of this means that the euro zone crisis is over. The Commission’s forecasts of 2012 GDP declines of between 4.4 percent and 1 percent in Greece, Portugal, Italy and Spain are plausible. The finances of the recession-beset periphery will remain frail, the risks of renewed crisis high. But the latest signs are that the European core is proving able to get on with business and trade even as the periphery ails.

For the global economy and markets the implications are many. If Europe is faring better than feared, the upturn in global oil prices becomes more comprehensible. Global growth and inflation will both tend to be stronger. Policy-makers need to take account of that. Despite forecasting recession, the Commission predicts 2.1 percent inflation in 2012 in the euro area – a bit above the European Central Bank’s target.

Related images

Related Links

Breakingviews is not responsible for the content of external internet sites.

Subjects

Context News

The European Commission forecast that economic output in the 17 nations sharing the euro will contract by 0.3 percent in 2012, reversing its November forecast of 0.5 percent growth in 2012. It forecast that Greek GDP would contract by 4.4 percent in the country’s fifth consecutive year of recession. It forecast a 3.3 percent contraction in Portugal’s economy and declines of 1.3 percent in Italy and 1 percent in Spain. In the core euro zone economies of Germany and France it predicted growth of 0.6 percent and 0.4 percent, respectively. It forecast UK growth at 0.6 percent.

Germany’s Ifo business climate posted its fourth consecutive increase in February. The overall index increased from 108.3 to 109.6, its best since July 2011, and well above a long-term average of 100.7.

The Confederation for British Industry reported a marked improvement in UK manufacturers’ order books in February, with 21 percent of manufacturers saying their orders were “above normal.” Order books rose to a balance of -3 percent, well above the long-run average of -18 percent. Export orders rose to a balance of -2 percent, compared to a long-run average of -21 percent.

IHS Global Insight said it was likely to raise its full-year GDP growth forecast for the UK from 0.5 percent to 0.8 percent.

Most popular

(Launches in a new window)