Eurozone Recovery Under Way?
August 2, 2003
The growing belief that a cautious eurozone recovery is under way was reinforced this week by the Organization for Economic Co-Operation and Development (OECD).
"Activity is likely to remain subdued in 2003, but could accelerate to….some 2 percent in 2004", the organization said in a survey.
A possible larger than forecast fall in oil prices and a faster easing of global uncertainty could both help boost consumer confidence and help domestic demand pick up, it said.
The organization's positive optimistic assessment coincided with a positive turn in business sentiment in Germany, the European Union's largest economy, where the Ifo business confidence index recorded this week a crucial third successive monthly rise.
The Ifo institute, based in Munich, which compiles the index, raised its 2004 growth forecast for Germany to 1.7 percent from a previous prediction of 1.5 percent, citing business' optimism in the beneficial impact of the government's planned tax and health reforms.
Still risks
However, the OECD warned that risks to economic growth still remained. Recovery would face "headwinds" for some time, the organization said. These include uncertainties about the U.S. upswing and a further appreciation of the euro.
The mixed signals sent by the OECD coincided with positive, yet cautious signals in a survey by the European Commission, also released this month.
While consumer confidence rose in July, industrial confidence deteriorated slightly, the Commission said.
In addition, the eurozone purchasing managers' index, released on Friday, proved cautiously optimistic.
Manufacturers in the eurozone picked up new business in recent weeks, according to the survey.
The Reuters/NTC purchasing managers' index for the eurozone rose for the first time in five months in July, up to 48 points compared with 46.6 points in June. A score of 50 distinguishes expansion from contraction.
However, as output and new orders rose in several countries, it still continued to fall in others. In addition, manufacturers reported continued job losses in July as cost-cutting measures continued. The size of the workforce was hardest hit in the Netherlands and Germany.