ECONOMIC OUTLOOK:

 

The Euroland Economy:

Members: 12

 

Main Economic Data

Time (t)

Real GDP Growth (GDP) (%)

Unemployment Rate (U) (%)

Inflation Rate

(p) (%)

1998

-

-

-

1999

-

-

-

2000

3.4

-

-

2001Q1+

2.5

-

-

2001Q2

-

8.3 (Jun)

-

2001Q3+

-

-

2.8 (Jul)

2001Q4

-

-

-

Other Economic Data

Earnings Growth (%)

2.6 (2001Q1+)

Industrial Production (%)

1.4 (Jun/2001+)

GDP = Y and Y* = 2-2.5%

p = Consumer Price Index (CPI); p Target = 0-2%

+ Compared with the same month/quarter a year earlier

++ Compared with the previous month/quarter

 

 

l           Sweden holds the presidency of the European Union (EU) for the first half of the year, before handing the job on to Belgium.

l           Many economists agree that the costs of joining the European Monetary Union (EMU) outweigh its benefits. One of the reasons is that the Euroland countries are in different economic conditions. For example, some smaller euro countries, experiencing faster growth and much higher inflation than Germany, were loath to see interest rates fall: a case of the tail wagging the dog, say the ECB’s critics. One interest-rate policy may not be fit to all countries.

l           Given the pressure on inflation and the weakness of the euro (since it was first launched in January 1999), the European Central Bank (ECB) will be unlikely to cut the interest rate before June. However, the ECB surprisingly cut the interest rate by 0.25% in May. In August, the ECB did it again by 0.25% to 4.25%, by 0.5% to 3.75% on 17 Sept and by 0.5% to 3.25% on 8 November.

l           The euro notes and coins will go into circulation in the Euroland on 1 January 2002. The impact of the euro transition will turn out to be a small gain in growth (Gary Duncan, Jul 2001): Deutsche Bank suggests 0.2-0.3% of GDP over several quarters. Until now, only Denmark, Sweden and the UK from the 15 EU countries have been outside the single European currency.

l           The inflation rate is more than 4% in Germany in May 2001 and 3% in the 11 Italian cities.

l           The first rise in French unemployment in 3 years edged up 0.1% to 8.8% in June 2001.

l           The latest European figures show that the Netherlands had the highest inflation rate in the 12-member euro zone and in the 15-member European Union, with an annualised rate in July of 5.2%. Portugal has the second-highest rate at 4.3%, followed by Greece at 4.2%. The Irish rate was down to 4% from 4.3%. France had the lowest rate in the euro zone at 2.2%, while Britain had the lowest rate in the European Union, at 1.4%.

l           Germany, the largest economy in Europe, experienced a growth rate of 0.6% in 2001Q2 compared with the same period last year and is expected to recover at the end of this year.

l           Despite an overall Eurozone budget deficit that is the lowest for three decades, ministers have refused to deliver the sort of fiscal stimulus from which Britain is benefiting.

 

Sources: Asahi.com; BBC; China Daily; CNN.com; The Economist; Evening Standard; Forexnews.com; FTMarketWatch; Guardian Unlimited; Hong Kong SAR Government Information Centre; The Hong Kong Trade Development Council; Insurance News Net UK; Invest Avenue; Irish Times; iWon; Kyodo; Los Angeles Times; Next Magazine; NJ.com (NewsFlash); The New York Times; SiliconValley.com; Star Tribune; The Times; TVB News; The World in 2001; Zawya.com