South Korea leads virus success in Asia as drug trial raises hope

South Korea, once one of the hardest-hit countries in the coronavirus pandemic, reported no new cases on Thursday, boosting hopes of an eventual return to normality as US scientists hailed the results of a major drug trial.

The good medical news caused equities to rally, despite mounting deaths worldwide and abysmal economic figures caused by the COVID-19 crisis.

Data showed the pandemic, which has killed more than 224,000 people, has plunged the United States into its worst economic slump in a decade, and has left Germany expecting its biggest recession since the aftermath of World War II.

But for the first time since the new disease was detected there in mid-February, South Korea reported zero new infections.

The East Asian nation had the world's second-largest coronavirus outbreak for a period after the virus emerged in China late last year.

But with an aggressive test-and-trace strategy and widespread social distancing, it has managed to bring the spread of the pathogen under control.

"This is the strength of South Korea and its people," said President Moon Jae-in as he announced the milestone.

Meanwhile in the first proof of successful treatment, a clinical trial of the drug remdesivir showed that patients recovered about 30 percent faster than those on a placebo.

"The data shows that remdesivir has a clear-cut, significant, positive effect in diminishing the time to recovery," said Anthony Fauci, the top US epidemiologist.

- Hope in Asia -

South Korea's virus death toll is around 250 -- vastly lower than that of Italy, Britain, Spain and France, which have each recorded more than 24,000 fatalities, and the United States, topping the table with a third of global deaths.

Other parts of the region have seen similar success in their fight against the virus.

Infections have dwindled in China after it imposed extremely strict lockdown measures on millions of people earlier this year. Its official toll is around 4,600, although doubt has been cast on the figures' accuracy.

Hong Kong, a city of seven million where there have been just four virus deaths, reported no new cases for the fifth straight day on Thursday.

And New Zealand has declared the battle won against widespread, undetected community transmission.

However the economic costs are beginning to mount, raising fears of an era-defining global crash and increasing pressure worldwide to ease lockdowns despite fears of a second wave of contagion.

- Recession warning -

The US announced that economic output collapsed 4.8 percent in the first quarter -- ending more than a decade of expansion.

On Thursday, France and Spain both said their economies had fared even worse, contracting 5.8 percent and 5.2 percent respectively, while the Eurozone economy as a whole also shrank.

Federal Reserve chairman Jerome Powell warned worse was to come, and economic activity will likely drop "at an unprecedented rate" in the second quarter.

Germany, Europe's largest economy, has succeeded in holding off the devastating death tolls seen elsewhere, but is still bracing for an overwhelming economic hit.

Germany "will experience the worst recession in the history of the federal republic" founded in 1949, Economy Minister Peter Altmaier warned, predicting that GDP would shrink by a record 6.3 percent.

The International Labour Organization said half the global workforce -- around 1.6 billion people -- are in "immediate danger of having their livelihoods destroyed".

One of the worst-hit sectors is the aviation industry, but an unprecedented drop in demand for fossil fuels means global energy emissions are expected to fall a record eight percent this year, the International Energy Agency said.

- Drug trial -

Experts have warned that only a vaccine will allow the full removal of restrictions that this year put half of humanity under some form of lockdown.

But there have been encouraging signs in the search for a treatment.

Fauci likened remdesivir to the first retrovirals that worked, albeit with modest success, against HIV in the 1980s.

The drug failed in trials against the Ebola virus, and a smaller study, released last week by the WHO, found limited effects among patients in the central Chinese city of Wuhan, the disease's original epicentre.

Senior WHO official Michael Ryan declined to weigh in on the latest findings, saying he had not reviewed the complete study.

"We are all hoping -- fervently hoping -- that one or more of the treatments currently under observation and under trial will result in altering clinical outcomes" and reducing deaths, he said.

While the world keeps looking for signs of progress against the pandemic, research is also revealing frightening new details about COVID-19.

Britain and France have both warned of a possible coronavirus-related syndrome emerging in children -- including abdominal pain and inflammation around the heart.

"I am taking this very seriously. We have absolutely no medical explanation at this stage," French Health Minister Olivier Veran said.

Experts have also warned of longer-term psychological tolls on both children and adults after weeks or even months in isolation.

burs-kaf/hg/axn

Agence France-Presse

Exports, spending pull euro zone out of recession in second quarter

BRUSSELS - A rebound in exports and a return to spending by households and governments pulled the euro zone out of recession in the second quarter of this year, data showed on Wednesday, in the first signs of recovery after the bloc's longest slump.

Stronger-than-expected growth from Germany to Portugal helped the euro zone's economyexpand 0.3 percent in the April-to-June period, the European Union's statistics office Eurostat said in its first breakdown of the data.

Exports to the rest of the world rose sharply in the quarter after six months of falling sales, while government spending made its first positive contribution to the economy since late 2009 whenGreece plunged the euro zone into its debt crisis.

The softening of the austerity policies that many economists blame for worsening the euro zone's longest ever recession was also accompanied by the first quarterly rise in household spending since late 2011.

Cuts in public sector spending from education to health aimed to curtail budgets that ballooned during the boom of the euro's early years, but record unemployment has meant Europeans are buying less and forcing companies to cut output and staff.

The euro zone's fragility was evident in the muted shopping of Europeans during July, when retail trade volumes increased just 0.1 percent, Eurostat said in a separate release.

That was not enough to make up for the 0.7 percent fall in June and was below economists' expectations for a 0.4 percent increase in the month.

Economists now expect economic growth to continue in the third quarter of this year following positive business surveys in August, but there are few hopes of a rapid recovery.

"We do not interpret a second consecutive solid gain as the start of a strong upturn," said Christoph Weil, an economist at Commerzbank. "After all, the imbalances in the periphery have yet to be fully corrected and several core countries are increasingly facing problems," he said in a report.

source: interaksyon.com

Germany, France pull euro zone out of recession

BRUSSELS - The German and French economies grew faster than the United States in the second quarter, pulling the euro zone out of its longest recession.

Growth in the 17-country bloc was 0.3 percent from the previous quarter, with its two biggest economies both revealing unexpected strength, data from the European Union's statistics office Eurostat showed on Wednesday. A Reuters poll had forecast 0.2 percent.

Germany grew 0.7 percent, its largest expansion in more than a year thanks largely to domestic private and public consumption.

France's economy expanded 0.5 percent, pulling out of a shallow recession to post its strongest quarterly growth since early 2011. The turnaround was driven by consumer spending and industrial output, although investment dropped again.

That compared with around 0.4 percent growth in the quarter - 1.7 percent annualized - in the United States, considered one of the bright spots of the global recovery.

"For next year, our projections show the (European) recovery should be on a more solid footing, as long as we can continue to avoid new political crises and detrimental market turbulence," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

He added there was no room for complacency.

Improvement was noticeable elsewhere in the bloc. Bailed-out Portugal's GDP leapt 1.1 percent in the quarter due to higher exports and an easing of previous investment contraction.

Austria and Finland also saw improved growth.

But recession continued in The Netherlands, as well among the debt-laden periphery including Spain and Italy.

"The return to modest rates of economic growth in the euro zone as a whole won't address the deep-seated economic and fiscal problems of the peripheral countries," researchers at Capital Economics wrote in a note.

Uneven, bumpy recovery ahead

Recent economic data and sentiment surveys had suggested the German economy was picking up after contracting in late 2012 and a weak start to 2013.

But look south and a different picture emerges.

The International Monetary Fund said earlier this month that Madrid's reform program, fiscal consolidation and crackdown on external imbalances were bearing fruit, but that urgent action was needed to create jobs and stimulate growth.

The scope and form of the austerity drive in the European Union is now changing. Policymakers still say adjustments in excessive deficits and high debt are essential. But they now emphasize that any action taken must not choke growth and must help create jobs.

European Central Bank President Mario Draghi said this month that labor market conditions remained weak, though he expected the bloc's growth to benefit from a gradual recovery in global demand.

"Overall, euro area economic activity should stabilize and recover at a slow pace. The risks surrounding the economic outlook for the euro area continue to be on the downside," Draghi said after the ECB rate meeting on August 1.

Beyond the euro zone

In emerging Europe, the Czech Republic exited recession in the second quarter while the European Union's other bigger eastern economies improved, although there was little sign yet of the outright optimism among consumers needed to drive a stronger upturn.

Headline numbers showed the Czechs as expected firmly back in positive territory with growth of 0.7 percent compared with the first quarter. Hungary grew 0.1 percent and Poland 0.4 percent.

The pickup in emerging Europe is expected largely to have come from improvement in Germany and other larger euro zone countries to which the region's cheap and flexible businesses send much of their exports.

source: interaksyon.com

Deadly train crash derails Spain's bid to win new markets abroad

MADRID—The horrific train crash in Spain that killed 78 people comes at the worst time for the recession-hit nation's railway sector, which is pushing to win new markets for its high-speed trains.

Spain is in the running for a contract worth $16.4 billion (12.7 billion euros) for a high-speed rail network in Brazil linking the cities of Rio de Janeiro, Sao Paulo and Campinas which will be awarded in September.

The country, which two years ago won a contract to build and operate a high-speed rail link in Saudi Arabia, is also eyeing new markets in the United States, Russia, Kazakhstan and the United Arab Emirates.

"Technologically Spain is a pioneer in high-speed rail," Alejandro Lago, a logistics professor at the Iese business school in Barcelona, told AFP.

Since the 1960s, the country has had trains made by its Talgo train maker that could circulate at speeds of up to 200 kilometres (125 miles) an hour, he added.

Spain has invested heavily in road and rail links over the past decade and it now has the second-largest high-speed train network in the world, spanning 3,100 kilometres. Only China's is larger.

The train derailed about four kilometres (2.5 miles) from the station in northwestern Santiago de Compostela Wednesday, on the eve of a famed religious festival held annually in the city, where St. James, one of Jesus' apostles, is believed to be buried.

A dramatic 10-second video from a railway security camera, seen around the world, shows the train rocketing around a curve, slamming into a concrete wall at the side of the track as the engine overturns.

Daily newspaper El Pais reported that one of the two drivers on board said he was doing 190 kilometres per hour (118 mph) as he took the bend, where the speed limit is just 80 kph.

The investigation is trying to find out why the train was going so fast and why security devices to keep speed within permitted limits did not slow the train.

Spanish state railway company Renfe said the train -- a model able to adapt between high-speed and normal tracks -- had no technical problems and had just passed an inspection on the morning of the accident.

The crash -- Spain's deadliest rail disaster in decades -- is a huge blow for the country's bid for the deal in Brazil.

Brazil's bidding process for the country's lucrative infrastructure project specifies that firms in the run cannot have had an accident that caused deaths in their high-speed rail network in the last five years, El Pais reported.

That would appear to disqualify Renfe, according to the newspaper.

The rule -- which applies only if an accident is due to "operational causes" -- has already disqualified China's Communications Company Limited from the running due to an accident in June 2011 that killed 33 people.

The private and public Spanish companies that make up the consortium in the running for the contract have been reluctant to speak publicly about the impact of the accident on their bid.

But several unnamed sources close to the consortium, which includes Renfe and Spanish rail network administrator Adif, told Spanish business daily El Economista that they felt the contract was "lost".

This would be a major setback for Spain, which has been hoping to bank on its recent deal with Saudi Arabia to obtain similar projects.

"It's important because we're talking about high-speed rail and we want to show that we are world leaders in this area," Spanish secretary of state for transport, Rafael Catala, said in an interview with AFP earlier this month.

In 2011, a Spanish consortium won a 6.7-billion-euro contract to build and operate a 450-kilometre (280-mile) high-speed rail link in the desert between the holy cities of Mecca and Medina.

Spain's first big foreign rail contract was signed with Turkey. A Spanish consortium built the high-speed rail link between Ankara and Istanbul which was inaugurated in 2009.

"During an economic downturn, the railway sector tries to compensate with activity abroad, with exports," said Pedro Fortea, the head of Spanish railway company association Mafex, which helps promote 73 firms abroad.

"Spain has experience which is transferable to other countries," he added.

source: interaksyon.com

Eurozone sinks further into recession

BRUSSELS  - The 17-nation eurozone sank further into recession in the last three months of 2012 as the debt crisis continued to exact a heavy price, official data showed Wednesday.

The eurozone economy shrank 0.6 percent in the fourth quarter of 2012 compared with the third quarter when it contracted 0.1 percent, the Eurostat data agency said, confirming initial estimates given in February.

For the full 27-member European Union, the economy was 0.5 percent smaller in the fourth quarter after a marginal gain of 0.1 percent in the third, Eurostat said.

A recession is counted as two consecutive quarterly economic contractions.

Compared with fourth quarter 2011, the eurozone economy was down 0.9 percent and the EU 27 off 0.6 percent.

Among the major economies, European powerhouse Germany shrank 0.6 percent in the fourth quarter after a gain of 0.2 percent in the third and France slipped 0.3 percent after growth of 0.1 percent.

Non-euro Britain lost 0.3 percent after sharp growth of 1.0 percent in the third quarter, boosted by the London Olympics.

Among the fourth quarter best performers were Estonia, which grew 0.9 percent and Lithuania, up 0.7 percent, while bailed-out Portugal was the weakest, with its economy shrinking 1.8 percent.

Eurostat said that for 2012 as a whole, the eurozone economy contracted 0.6 percent and the EU 0.3 percent.

Data so far for 2013 suggests the European economy is stabilising after a very bad 2012 but the outlook remains weak and uncertain.

Howard Archer of IHS Global Insight said the eurozone recession may have deepened in the fourth quarter but it should mark the bottom of the slump.

"The good news is that the fourth quarter of 2012 almost certainly marked the low point for eurozone economic activity as a significant easing of eurozone sovereign debt tensions underpinned by the European Central Bank's policy actions" has boosted confidence and the markets, Archer said in a statement.

"The bad news is that real economic activity is yet to show major improvement in many countries and it looks highly likely that growth will remain a major struggle for the eurozone for some time to come."

source: interaksyon.com

Euro zone economy falls deeper into recession

BERLIN/PARIS - The euro zone slipped deeper into recession in the last three months of 2012 after its largest economies, Germany and France, shrank markedly at the end of the year.

It marked the currency bloc's first full year in which no quarter produced growth, extending back to 1995.

Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, the EU's statistics office Eurostat said on Thursday, following a 0.1 percent drop in output in the third quarter.

The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4 percent drop in a Reuters poll of 61 economists.

For the year as a whole, gross domestic product (GDP) fell by 0.5 percent.

Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.

The big economies set the tone.

Germany contracted by 0.6 percent on the quarter, official data showed, marking its worst performance since the global financial crisis was raging in 2009.

France's 0.3 percent fall was also slightly worse than expectations.

Worryingly for Berlin, it was export performance - the motor of its economy - that did most of the damage although economists expect it to bounce back quickly.

"In the final quarter of 2012 exports of goods declined significantly more than imports of goods," the German Statistics Office said in a statement.

The euro hit a session low against the dollar after the weaker than forecast German reading and dropped again after the release of full euro zone figures.

Back revisions to the French figures showed its output fell by 0.1 percent in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.

While the European Central Bank's pledge to do whatever it takes to save the euro has taken the heat out of the bloc's debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.

French Prime Minister Jean-Marc Ayrault acknowledged for the first time on Wednesday that weak growth was putting his government's deficit goal for 2013 out of reach.

Economists say the euro zone may also shrink in the first quarter of 2013 although more resilient Germany is expected to rebound.

"The chances that the (German) economy will return to growth at the beginning of this year are very good. The early indicators are all pointing upwards," said Andrea Rees, chief German economist at UniCredit.

"The question is how strong the first quarter will be. We expect growth of 0.3 percent but it could be more."

Dutch GDP dropped 0.2 percent over the quarter, keeping it in recession, while the Austrian economy shrank at the same rate.

Weak periphery

For the more embattled members of the currency bloc, matters are of course worse.

Italy suffered its sixth successive quarterly fall in GDP - this time by a sharp 0.9 percent - putting it into a longer slump than it suffered in 2008/2009.

Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.

With an election due on February 24/25, all sides in a three-way race between Monti's centrist bloc, Pier Luigi Bersani's center-left coalition and Silvio Berlusconi's center-right are pledging to cut taxes to try to kickstart economic growth.

Spain, the euro zone's fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a 0.7 percent contraction in the fourth quarter.

Madrid is also pressing on with harsh austerity measures to cut its debt but may be given more time to meet its deficit targets by the European Commission if its economy worsens further.

There are signs that countries like Spain are starting to benefit from harsh internal devaluations - marked by wage falls and job losses aimed at making companies leaner and more productive.

The ECB predicts the euro zone will pick up later in the year although its currency, if it keeps strengthening, could quickly snuff out any of those hard-won competitive advantages for its high debt members.

More recent data for January have already suggested some upturn in the first months of 2013, in the bloc's stronger members at least, and if improvement comes it is likely to be seen in Germany first.

"The debt crisis has ebbed significantly and the global economy has turned up," said Joerg Kraemer at Commerzbank. "Therefore all the important early indicators for Germany are pointing upwards. I expect noticeable economic growth again in the first quarter."

source: interaksyon.com

Spain recession deepens as austerity weighs

MADRID - Spain's economy shrank further in the second quarter of the year and a slump in domestic spending accelerated, signaling a protracted recession as the country presses on with efforts to slash its public deficit.

Gross domestic product fell by 0.4 percent in the second quarter of the year, according to final data that confirmed a preliminary reading. But on an annual basis it dropped by 1.3 percent, worse than initial estimates of 1.0 percent.

Spain's economy fell back into recession in the first quarter of the year, when output fell 0.3 percent, and government estimates show GDP will probably fall for this year and next year as it pushes through further measures aimed at slashing a bloated deficit.

The data came a day after Spain said its economy performed less well than expected in both of the last two years.

On Tuesday, the National Statistics Institute, INE, also revised down 2011 fourth quarter GDP to -0.5 percent from -0.3 percent.

Close to record high borrowing costs and an economy showing little sign of picking up any time soon is nudging Spain closer to calling for a European bailout, which analysts say is only a matter of time.

"With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted towards a more protracted recession," said Martin van Vliet, economist at ING.

He expected Spain to make a formal request for additional external financing in mid-September or October. Spain has already negotiated up to 100 billion euros in aid for its ailing banks.

Tuesday's data showed exports provided a degree of support for the economy, growing by 3.3 percent year-on-year in the second quarter. That compared with a fall of 3.9 percent in national demand, after a revised fall of 3.2 percent in the first quarter.

Spain's government is hoping that exports will put the economy on the road to recovery. But a slowdown in the wider euro zone, where most of the country's goods are shipped, could test that theory.

The country desperately needs to stimulate growth to help it meet the public deficit targets agreed with the European Union.

source: interaksyon.com

Recession sure, but eurozone analysts see green shoots too

BRUSSELS - Is the eurozone locked into a prolonged recession set to run right through 2013? Or do the latest economic data actually indicate that the crisis-hit currency area is turning a corner?
With at least an outside chance that the region's jobless could cross the threshold of 18 million when up-to-date unemployment figures are issued next week, it might seem like an odd time for analysts to pose that question.
Like the eurozone's political leaders, they are to an extent divided -- but keenly-watched growth statistics or indicators are increasingly being interpreted as evidence that austerity pain is starting to deliver long-term gain.
Late-August has seen the European Union announce that eurozone growth slipped back into reverse over the second quarter of 2012, with a 0.2-percent contraction -- but that the currency area also logged a record trade surplus (14.9 billion euros, or $18.4 billion) and bumper cash earnings from exports (12.7 billion euros) in the latest figures for June.
Subsequent commercial surveys of private business activity also gave mixed signals, with a seventh monthly decline in a row in August marked by the rate of contraction gathering pace in Germany -- while easing in France.
Rob Dobson of research firm Markit said the latest snapshot from its regular Purchasing Managers Index (PMI) implied that the eurozone was facing a 0.5-0.6 percent drop in eurozone gross domestic product (GDP) for the third quarter.
That would meet the widely accepted definition of recession, two successive quarters of economic contraction, and Dobson warned that "it would take a substantial bounce in September to change this outlook."
He said Germany's "export engine has slammed into reverse gear," despite what Julian Callow of Barclays called a "significant depreciation" in the euro's effective exchange rate, an annualised eight percent when measured against a trade-weighted index.
Slowing Chinese imports holds the key on that front despite sharply improved export performance over the past year for weaker Mediterranean economies, and Julien Manceaux of ING Bank said the PMI data "confirms that the decline in eurozone GDP in the second quarter is likely to be the first leg of a technical recession."
More and more of these number-crunchers, though, say a way through the crisis maze is opening up.
Christian Schulz of Germany's Berenberg Bank says the data pattern confirms that "by tackling internal imbalances through structural reforms and front-loaded austerity, the 17 (eurozone) countries are becoming more competitive on the global stage.
"Exports are the ultimate yardstick," he said, and while "the weaker euro and lower commodity prices" boosted performance, he stressed "additional reasons for the success: austerity, unemployment and deleveraging have reduced demand for imports in many crisis countries."
Schulz argued that better growth figures in the United States and Japan stemmed from their relying, like Britain, "on their central banks to stimulate the economy and postpone painful adjustments."
Colleague Holger Schmieding has gone further, stating that under the sort of "tough love" advocated by the European Central Bank, "we may be witnessing the birth pains of a stronger, more coherent and more dynamic economic and political entity in Europe."
Marie Diron of Ernst & Young Eurozone Forecast said that the PMI data "supports our view that, while probably shrinking further, the eurozone economy is not falling off a cliff."
She highlighted better results in the manufacturing sector.
Ratings giant Moody's, which led the downgrading of ever-bigger eurozone countries since Greek public debt discrepancies first surfaced in late 2009, says there has seen "significant progress" around eurozone governments.
"However, the correction is at best only half-way complete," its economists cautioned, urging unwavering discipline in the "unwinding" of "accumulated vulnerabilities" it blamed not on governments, but on "private sector overspending, which was itself financed by core countries' capital flows."
If Greece does leave the eurozone some time next year, as tipped by the likes of IHS Global Insight and Capital Economics, that too will be seen by these harder-line observers as the eurozone getting leaner and fitter for the challenges ahead.
Even in non-euro Britain, influential commentators are pressuring the Conservative-led UK government in London to follow Germany's lead.
Finance minister "George Osborne is studying what Germany got right," a key Daily Telegraph columnist wrote on Friday, highlighting "'mini-jobs' contracts that allow a worker to earn 400 euros a month tax-free on the condition that they can be sacked at any moment."
The newspaper predicted short-term pain if Osborne voluntarily takes the same medicine prescribed to the eurozone periphery -- but also general election victory in 2015.

source: interaksyon.com

Eurozone headed back towards recession

BRUSSELS - The eurozone veered back towards recession with the latest growth figures out on Tuesday showing its economy shrinking by 0.2 percent and analysts warning of falling economic output right through 2013.

Germany steered clear of the worst of the debt crisis to post better-than-expected growth of 0.3 percent in the period from April to June, and France held on for zero growth, but the experts saw precious little good news going forward.

"The big picture is that the economic growth required to bring the region's debt crisis to an end is still nowhere in sight," said London-based Jonathan Loynes of Capital Economics.

"The slowdown has spread from the periphery into the core," said Tom Rogers, an analyst with Ernst & Young in London, one of many analysts to highlight a growing "north-south divide."

"Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year," Rogers added.

Italy's economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated -- a 6.2 percent contraction after a 6.5 percent contraction in the first quarter of 2012.

These were to be expected, but, said Howard Archer of IHS Global Insight, it was "notable and worrying that GDP also contracted in Belgium and Finland," by 0.6 percent and 1.0 percent respectively.

Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said these countries "are being dragged down by the problems of Greece, Spain, Italy and Portugal."

He said IHS forecasts thereafter "are based on the assumption that Greece leaves the eurozone around mid-2013.

"We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013," Archer added, tipping a 0.2 percent contraction for next year too.

A recession is commonly defined as two consecutive quarters of contracting activity. The eurozone posted flat growth in the first quarter of this year.

The flash estimates from the EU also show how badly Europe now lags behind its main economic and trade partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.

"Only once the Eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe," said Christian Schulz of Berenberg in a note issued in London.

He highlighted France as a case apart between Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.

"In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness ... France has to bring down its excessive public deficit eventually," he underlined.

Schulz noted France is continuing to lose competitiveness to southern eurozone countries going through difficult adjustments, with imports outpacing exports and taking the trade deficit to record highs.

French Finance Minister Pierre Moscovici, whose Socialist government has to cut its budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, called the result "very weak" but held to the government's forecast for 0.3 percent growth in 2012.

Germany's economy grew fractionally faster than the 0.2 percent forecast by analysts, but slower than the 0.5 percent seen in the first quarter.

"Positive impulses came from both consumer spending and from net foreign trade," national statistics office Destatis said.

Not all experts were gloomy for Germany's prospects, Newedge Strategy analyst Annalisa Piazza stating that "the German economy remains relatively resilient and the expected effects of the eurozone debt crisis remained limited."

source: interaksyon.com

Bank of France Points to Recession in Third-Quarter

PARIS (Reuters) - France's economy is likely to slip into recession in the third quarter, the Bank of France said on Wednesday, forecasting a contraction of 0.1 percent for the second quarter running which adds to signs Europe's economic prospects are still worsening.

The estimate, which followed the Bank's forecast last month for a similar contraction in the second quarter, suggests France's 2 trillion euro economy may struggle to meet the government's forecast for 0.3 percent growth this year.

Struggling with a debt crisis and resulting budget austerity which has devastated its southern half, Europe also faces signs of stagnation and outright recession in its biggest economies.

Britain's central bank is expected to all but back off a prediction of growth for this year in a report later on Wednesday, while the latest batch of data from Germany shows both imports and exports falling.

Figures on Wednesday also showed France's trade gap widened to 5.99 billion euros in June, defying analysts' expectations for an improvement as exports of cars and transport materials slumped.

"In July, industrial activity posted a slight contraction due mainly to lower levels of activity in the automotive and textile sectors," the Bank of France said in its monthly survey. "The outlook for the coming months suggests a slight slowdown in economic activity ... GDP is expected to decline by 0.1 percent in the third quarter."

France is due to publish official preliminary data on second quarter economic growth next Tuesday.

President Francois Hollande's Socialist government has predicted the economy, which posted zero growth in the first quarter, would return to expansion in the second half of the year.

In its monthly business survey, the Bank of France said that sentiment in both the industrial and service sectors weakened to a reading of 90 in July, from 91 in June.

Purchasing managers indexes (PMIs), which gauge business activity and have a good record of tracking economic growth, showed order books at euro zone companies shriveled last month as the downturn in Germany and France became more entrenched.

source: nytimes.com

Recession, Libor, Facebook pummel Europe’s banks

ZURICH/LONDON — As if things weren't bad enough, one of Europe's banks took another knock on the chin on Tuesday from its role in Facebook's botched stock market flotation.

Banks are showing the scars from a series of blows: a euro zone crisis that politicians can't resolve, a transatlantic probe into interest rate-rigging, economic stagnation or recession, and regulators tightening the screw.

Although still profitable, earnings are down sharply from pre-crisis days and investors worry that these skinny results will become the norm as the industry goes through profound structural change.

"It's pretty bleak out there. It's going to be very difficult through the summer," said Chris Wheeler, analyst at Mediobanca in London, citing a series of one-off hits and charges adding to the euro zone gloom.

"The question is whether we are entering a new paradigm, not only in investment banking but in wealth management and other products areas that are going to see lower returns. We are not going to return to pre-crisis levels even in wealth management, the question is how much lower will it be," he said.

In the space of an hour on Tuesday, four of Europe's top banks laid bare the troubled times and the impact on their bottom lines.

Sergio Ermotti, chief executive of Swiss bank UBS which shocked investors with a sharp drop in profit, summed up the mood: "A return of confidence can only happen when clients believe there is a clear and lasting resolution to today's economic and political challenges, and this will take time," he said.

UBS took a 349 million Swiss franc ($356 million) loss on its role on advising and underwriting US social networking site Facebook's flotation in May.

The bank said it would take action against US stock exchange Nasdaq for what it called "gross mishandling" of the initial public offering (IPO).

Its second-quarter profit more than halved to 425 million Swiss francs as its investment bank made a loss after trading activity crashed, in addition to the Facebook hit.

Rival Deutsche Bank, suffered a similar drop in trading at its investment bank where profit plunged 63 percent, underscoring the challenge facing its new leaders as they prepare a strategy overhaul.

Analysts said Deutsche Bank's new bosses have startling problems to address at the investment bank – costs represented 87 percent of income, and return on equity was just 5 percent, well below its cost of capital.

BBVA, Spain's second-biggest bank, said first-half profit slumped by a third as it set aside cash to cover losses on its toxic real estate loans, which all the country's banks have been told to do as recession deepens.

BBVA will have to set aside more in the future and the impact of its sickly home market may be a drag for years.

In Austria, Erste Bank cut its 2012 profit outlook for the second time in three months in the face of deteriorating economies across Europe.

By 1030 GMT, UBS shares were down 4.9 percent, Erste shed 3 percent and Deutsche Bank was down 1 percent. BBVA was flat. The European bank index dipped 1 percent, and is down 18 percent since mid-March.

More pain

Investors worry there is more pain ahead, particularly in the fallout from the rate-rigging scandal and in Britain from mis-selling insurance and complex interest rate hedging products.

"This is the longest tunnel I have ever been in and there's no sign of light at the end of it," said an investor who is a top 10 shareholder in Royal Bank of Scotland and holds some other bank shares.

Britain's Barclays was fined $453 million last month by US and UK regulators for rigging interest rates, and more banks are expected to be dragged in.

More than a dozen, including UBS and Deutsche Bank, are being probed by investigators looking at whether Libor and Euribor benchmark rates were manipulated.

UBS said on Tuesday it had appropriate provisions for all litigation. Deutsche Bank did not say whether it had set aside funds for potential costs.

Corporate treasurers, pension funds, charities and other investors are seeking advice on whether to pull their money out of banks, nervous that earnings will be eroded for some time by fines.

"There appears to be a common denominator: the absence of appropriate cultural and ethical values to guide bank management and governance," said George Dallas, director of corporate governance at F&C Investments.

One bright spot is that banks have remained in the black, in contrast to the darkest days of the 2008/09 global financial crisis. Deutsche Bank may need to raise capital, some analysts reckon, but there appears unlikely to be an immediate industry-wide dash for cash.

But even banks that are performing relatively well are struggling to regain investors' trust. HSBC, Europe's biggest lender, on Monday took a $2 billion hit to cover fines due to lax anti-money laundering in its US and Mexican operations and to compensate British customers for mis-selling. That took the shine off a decent underlying performance, analysts said. — Reuters

source: gmanetwork.com

Greece to Present Debt Inspectors 'Alarming' Data

ATHENS, Greece (AP) — A spokesman for Greece's new government says it will present "alarming" data on its recession and unemployment to international debt inspectors this week, in a bid to renegotiate the terms of its bailout agreements.

Spokesman Simos Kedikoglou said in a television interview Tuesday that the data would demonstrate that the current austerity program was counterproductive. He did not elaborate.

Debt inspectors from the European Commission, the European Central Bank and the International Monetary Fund are due in Athens Wednesday.

Greece is relying on rescue loans from its partners in the eurozone and the IMF to avoid bankruptcy. It is in a fifth year of recession, with unemployment topping 22 percent, roughly double the eurozone average.

source: nytimes.com

Investors Bet Consumer Stocks to Follow Danone Down

PARIS (Reuters) - Investors are betting European consumer-related stocks will fall further after a profit warning from food group Danone signaled a bigger-than-feared slide in spending in recession-plagued southern Europe.

Shares of companies such as Carrefour, Heineken and Pernod Ricard, which have a significant exposure to the euro zone, are in the crosshairs of short sellers, who expect a wave of profit warnings before the second-quarter earnings season.

Last Tuesday, Danone - a stalwart of the French CAC 40 index and a defensive safe haven for investors since Europe's debt crisis started in late 2009 - unexpectedly cut its profit margin forecast.

Danone blamed a drop in consumer spending in Spain, where nearly one in four are unemployed, which prompted the maker of Actimel and Activia yoghurts and Evian water to cut prices.

Following the warning, a number of short sellers - who profit from falling stock prices by borrowing shares, selling them, then buying them back more cheaply - are positioning themselves to make a buck out of the deteriorating trend in the consumer-related sectors.

"Profit warnings usually come in a bunch, so with Danone's warning, there's blood in the water," said Derek Lawless, head of ETX Capital France.

According to Markit, which provides securities lending data, short interest in Pernod has risen over the past week, with 4.2 percent of the company's shares out on loan, up from an average of about 2.5 percent over the past few months.

Short interest in Heineken remains relatively low, at 1.1 percent of the company's shares out on loan, but data shows it has also risen over the past week.

U.S. WARNINGS

Exposure to the ailing Spanish economy is becoming the Achilles' heel of food and beverage giants. The Organisation for Economic Co-operation and Development forecasts a 1.5 percent drop in Spain's economic output in 2012, much worse than the 0.1 percent contraction expected for the euro zone overall.

"Europe is stuck in an austerity trap, and it has a knock-on effect on consumer spending. There's no confidence in the economy, so people are not spending," ETX Capital's Lawless said.

Danone's warning, which sent its stock plunging 10 percent to a near-five month low, was echoed a day later by a similar warning from U.S. giant Procter & Gamble Co.

The world's top household-products maker cut its growth forecasts for a second time in two months as it struggles with slowing demand in Western Europe, the United States and China. Its stock has since lost nearly 5 percent.

Other U.S. bellwethers, including PepsiCo Inc, FedEx Corp and Philip Morris, also lowered earnings expectations recently, citing concerns about Europe.

SCOPE FOR DISAPPOINTMENT

Traders said pricey valuation levels in the consumer staples sector, which has been seen as resilient to Europe's economic downturn, also makes the case for short-selling strategies.

"The second quarter is a nightmare for all the consumer companies active in Europe. Trading is decelerating both in Spain and Italy but also in France, while Germany is not immune," a Paris-based trader said.

"I believe that the entire sector needs to be rebased both in terms of earnings forecast and in terms of multiples. That brings a lot of short opportunities, and Carrefour, Pernod and Heineken are obviously good candidates."

Europe's food and beverage sector index, which includes Nestle, Unilever, Danone and Heineken, currently trades at an average 14 times expected earnings, well above a price-to-earnings (P/E) ratio of 9.6 for Europe's broad STOXX 600 index, according to Thomson Reuters Datastream.

With data showing a deterioration in the euro zone's earnings momentum - analysts' upgrades minus downgrades over the past three months as a percentage of total estimates - there is scope for further disappointment on the earnings front, particularly from Spain, where the momentum is a steep -12.5 percent, according to Datastream.

Thomson Reuters StarMine data, which compares the forecasts of the top analysts with the broad consensus, predicts Carrefour will miss consensus profit forecast for fiscal 2012 by 2.9 percent, while Pernod is seen missing the consensus forecasts for 2012 by 0.3 percent, and Danone by 1.8 percent.

source: nytimes.com

Italian economy shrinks 0.8% in first quarter

MILAN - Italy's economy shrank by 0.8 percent in the first quarter, the official data agency Istat said on Monday confirming an earlier estimate that showed the country's recession deepening.

Istat also revised down to 1.4 percent the contraction on a 12-month comparison compared to an earlier estimate of 1.3 percent.

Italy's economy has been shrinking since the third quarter of 2011.

The main reasons for the first-quarter contraction were a 0.6-percent fall in consumption from the previous quarter and a 3.6-percent drop in investment.

Imports also fell 3.6 percent and exports went down 0.6 percent, Istat said.

The economy has been hit by a series of draconian austerity plans and a rise in unemployment to over 10 percent.

Istat has forecast the economy will continue to shrink in the second quarter before recovering in the second half of the year.

The government is forecasting an overall contraction of 1.2 percent this year but the International Monetary Fund predicts it will shrink 1.9 percent.

source: interaksyon.com