1) the troika (European Commission(EC), European Central Bank (ECB), and International Monetary Fund (IMF) visit to Greece on Sept. 5 to assess the progress, state, and outlook of Greece’s finances and economy with the report due late September or early October;
2) September policy meeting of ECB;
3) auditors report on the capital needs of Spain’s financial sector due in September;
4) German Constitutional Court rules on the legality of the European Stability Mechanism (ESM);
5) French government unveils its 2013 budget;
6) general election scheduled in the Netherlands;
7) an informal September 15-16 meeting of EZ and EU finance ministers, and;
8) progress report on ECB as a single banking supervisor.
In addition, with Europe’s deepening recession there is a growing likelihood that Portugal will need a second bailout. Portugal’s economy contracted for the seventh consecutive quarter ending Q2-2012 and its outlook is poor. Portugal’s deficit target of 4.5 per cent of GDP for 2012 is in doubt, though authorities are maintaining this forecast – for now. Its recession is reducing tax receipts while spending cuts exacerbates the recession.
Economy
Global growth remains below-trend and uneven due to Europe’s recession and the ongoing subpar economic recovery in the U.S. coupled with China’s growth deceleration. This slowdown will likely extend through the rest of 2012.
Additional policy stimulus will be administered in some economies and in varying degrees. Europe will still weigh on global growth into 2013 but to a lesser degree, with China and emerging economies lifting growth in the medium term. An emerging resurgence in the U.S. will push global growth back to trend in 2014.
Real GDP in the Eurozone declined 0.2 per cent in the second quarter, according to the preliminary report. Tight credit conditions, fiscal drag, high unemployment, and policy uncertainty will keep the economy in recession.
Eurozone industrial production contracted in June and purchasing managers’ index (PMI) for manufacturing suggests the sector will continue to shrink in the near term after declining in July. Germany’s manufacturing PMI declined for the sixth consecutive month through July while its services industry PMI contracted in August. The largest economy in Europe will likely undergo a mild recession.
The Eurozone recession extends through 2012 and likely into 2013. The consensus real GDP growth forecast was downgraded to 0.3 per cent in 2013 while 2012 is put at -0.5 per cent. Growth of 1.0 to 1.5 per cent is expected during 2014, assuming additional policy initiatives to contain the debt crisis and avoid a euro breakup.
China’s recent economic data disappointed markets, with declining exports to Europe and slowing industrial production. Retail spending cooled as well in July. The flash HSBC PMI for August registered yet another decline. China’s growth cycle bottom will more likely occur in the fourth quarter assuming additional policy stimulus is forthcoming and no significant deterioration in Europe. Consensus growth forecasts for China were downgraded to 7.9 per cent for 2012 and to 8.3 per cent in 2013. While downside risks prevail, the soft- rather than hard-landing scenario is the likely outcome.
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