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Bulletin of E.U. and US Inflation and Macroeconomic Analysis nº 202, BIMA

De
56 pages
BIAM BULLETIN OF EU AND US INFLATION AND MACROECONOMIC ANALYSIS www.uc3m.es/boletin Instituto Flores de Lemus Nº 202 July 2011 Second Phase Our expectations of the Spanish unemployment rate Economic situation Page 1 improves slightly going down to 20.8% for the fourth quarter of 2012, 0.1pp lower than previously While the leading developed economies expected. again showed signs of sluggishness in July, the public debt crisis deepened in ECONOMICALLY ACTIVE POPULATION SURVEY the euro area. Although there were year-on-year rates - four quarterly several events in the last two weeks that initially appeared to be of key 2009 2010 2011 2012 importance for solving this crisis Employed -6,1 -1,3 -0,5 0,2 –the financial sector stress tests and the agreement on the second rescue Agriculture -2,6 2,8 -1,5 -3,3 program for Greece–, this month there Industry -11,9 -2,2 -0,8 0,1 is a widespread feeling that the Construction -17,3 -12,8 -12,7 -7,6 opportunity has been missed. The market’s high volatility and the doubts Services -3,3 0,2 1,1 1,3 concerning the future growth of the Active -0,4 0,6 0,2 0,3 peripheral euro area economies are warding off institutional investors, Unemployment rate 18,8 20,3 20,8 20,8 leaving the market at the mercy of Source: INE & BIAM (UC3M) others whose decisions are less based Date: August 1, 2011 on such economies’ fundamental factors.
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BIAM
BULLETIN OF EU AND US INFLATION
AND MACROECONOMIC ANALYSIS
www.uc3m.es/boletin
Instituto Flores de Lemus Nº 202 July 2011 Second Phase
Our expectations of the Spanish unemployment rate Economic situation
Page 1 improves slightly going down to 20.8% for the
fourth quarter of 2012, 0.1pp lower than previously
While the leading developed economies
expected. again showed signs of sluggishness in
July, the public debt crisis deepened in
ECONOMICALLY ACTIVE POPULATION SURVEY the euro area. Although there were
year-on-year rates - four quarterly several events in the last two weeks
that initially appeared to be of key 2009 2010 2011 2012
importance for solving this crisis
Employed -6,1 -1,3 -0,5 0,2 –the financial sector stress tests and the
agreement on the second rescue Agriculture -2,6 2,8 -1,5 -3,3
program for Greece–, this month there
Industry -11,9 -2,2 -0,8 0,1 is a widespread feeling that the
Construction -17,3 -12,8 -12,7 -7,6 opportunity has been missed. The
market’s high volatility and the doubts Services -3,3 0,2 1,1 1,3
concerning the future growth of the
Active -0,4 0,6 0,2 0,3 peripheral euro area economies are
warding off institutional investors, Unemployment rate 18,8 20,3 20,8 20,8
leaving the market at the mercy of
Source: INE & BIAM (UC3M) others whose decisions are less based
Date: August 1, 2011 on such economies’ fundamental
factors.


New forecasts for the Spanish The likelihood of new rate hikes before the end of the
year decreases in a context of inflation moderation labor market
and economic slowdown. Page 32

According to the Active Population
Survey (EPA), in the second quarter of INFLATION AND GROWTH
this year there was an increase in IN THE EURO AREA
employment and a small reduction in year-o n-year rates
6 the unemployment rate. When
corrected for seasonality, however, the
4
increase in employment is significantly
smaller and the unemployment rate 2
remains unaltered. According to these
results, our forecasts for the Spanish 0
labor market marginally worsened in the
-2 case of the employment creation and
GDP HICP improved slightly in the case of the
-4 unemployment rate. The deterioration
in our job creation forecasts refers to
-6
the second half of 2011, when there will
still be a net job destruction. The labor
market adjustment will be completed in
2012, with the possibility of a modest
Source: Eurostat & BIAM (UC3M) job creation throughout the year.
Date: July 28, 2011

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BULLETIN OF E.U. AN US INFLATION AND MACROECONOMIC
ANALYSIS

Director: Antoni Espasa
Coordination: Santiago Sánchez Guiu
Macroeconomic Analyst: Michele Boldrin
Labor Market Analyst: Jose Ignacio Pérez Infante y Cesar Rodriguez
Analysis of Financial Markets Consultant: Esther Ruiz
Inflation Analysis and Forecasts:
Europe and Spain: Santiago Sánchez Guiu and César Castro
United States: Ángel Sánchez
Macroeconomic Analysis and Forecasts:
Spain: Nicolás Carrasco
Euro Area: Nicolás Carrasco and Santiago Sánchez Guiu
Norway: Gunnar Bardsen y Ragnar Nymoen
Industrial Production Analysis:
Spain: Carles Bretó
Euro Area: Santiago Sánchez Guiu
USA: Santiago Sánchez Guiu
Composition: Elena Arispe and Eva María Torijano
: Advisory Board
Paulina Beato, Guillermo de la Dehesa, José Luis Feito, Miguel Ángel Fernández de Pinedo,
Alberto Lafuente, José Luís Larrea, José Luis Madariaga, Carlos Mas, Teodoro Millán, Emilio Ontiveros,
Amadeo Petitbò, Federico Prades, Narcís Serra, Tomás de la Quadra-Salcedo, Javier Santiso, Xavier Vives,
and Juan Urrutia (Chairman).


BULLETIN OF EU & US INFLATION AND MACROECONOMIC ANALYSIS is an independent academic publication, monthly published
by the Macroeconomic Forecast and Analysis Laboratory, Universidad Carlos III de Madrid.
All rights reserved. Reproduction in part or whole is prohibited without prior permission of the
Macroeconomic Forecast and Analysis Laboratory.
ISSN 1888-9298
Macroeconomic Forecast and Analysis Laboratory, Instituto Flores de Lemus
Universidad Carlos III de Madrid
C/ Madrid, 126 E-28903 Getafe (Madrid) Tel +34 91 624 98 89 Fax +34 91 624 93 05
www. uc3m.es/boletin E-mail: laborat@est-econ.uc3m.es
CONTENTS*


I. ECONOMIC OUTLOOK p.1

II. THE ECONOMY IN THE EURO AREA p.4
II.1. Macroeconomic Forecasts p.6
Gross Domestic Product p.8
Industrial Production Index p.10
II.2. Inflation p.12
II.3. Monetary Policy p.18

III. UNITED STATES
III.1. Industrial Production Index p.19
III.2. Inflation p.20
III.3. Property Sector p.24

IV. THE SPANISH ECONOMY p.26
IV.1. Macroeconomic Forecasts p.28
Gross Domestic Product p.30
Industrial Production Index p.32
IV.2. Inflation p.34

V. FORECASTS FOR DIFFERENT INSTITUTIONS p.40

VI. ANNEX I: CHANGE IN FORECASTS AND DATA REVISIONNS p.41

VII. ANNEX II: SUMMARY OF FORECASTS FOR DIFFERENT AREAS p.48






*The cut-off date for the statistics included in this Bulletin was August 3, 2011.



I. ECONOMIC OUTLOOK
While the leading developed economies again point less than in the previous three months.
showed signs of sluggishness in July, the public Average GDP growth in 2011 and 2012 could be
debt crisis deepened in the euro area. Although around 2.0% (±0.7) and 1.6% (±1.0),
there were several events in the last two weeks respectively. On the demand side, this
that initially appeared to be of key importance for sluggishness is largely due to the foreign sector.
solving this crisis, this month there is a Highly affected by the euro remaining for so long
widespread feeling that an opportunity has been at more than 1.4 dollars, European exports could
missed. The market’s high volatility and doubts significantly reduce their growth rate in the
concerning the future growth of the peripheral second quarter. Domestic demand could also
euro area economies are warding off institutional reduce its contribution slightly, due to less than
investors, leaving the market at the mercy of expected growth in investment.
others whose decisions are less based on such
economies’ fundamental factors. On the other hand, according to our euro area
inflation forecasts, the mean variation in the HICP
The CDS of Spanish and Italian sovereign debt in 2011 and 2012 will be 2.7% (±0.24) and 1.6%
are higher than ever. The situation in the euro (±0.94), respectively. On a monthly basis, we do
area is starting to be a cause for concern, as not expect inflation to fall beneath 2% until next
neither of the two countries appears to be March. However, if the reduction in inflation
capable of or willing to present subsequent fiscal anticipated by the advanced figure for July – 2
adjustment programmes in the short term to tenths of a point less than our current forecasts –
calm the markets. In this context, the short and is confirmed, the next revision of our inflation
medium-term solution would appear to depend expectations could bring this significantly
on Frankfurt and Brussels. On the one hand, after forward, thus reducing the likelihood of new rate
18 weeks of ECB inactivity in its securities market increases before the end of the year.
programme, SMP, its reactivation could be useful
for preventing additional increases in these Once the inflation reduction process has started,
countries’ rates of return. The low rate at which it could be a good idea to avoid such increases in
thSpain sold its 3-year bonds last Thursday (4 this context as otherwise the possibility of a
August) could be a signal that the ECB is depreciation of the euro, which would be useful
reactivating its SMP. On the other, a firm for warding off a European double dip, would be
agreement concerning a plan to increase fiscal considerably reduced.
and economic union could help to convince the
markets of the rigour of fiscal discipline As for the public debt crisis in the euro area, on
stthroughout the euro area. 21 July the area’s government leaders reached
an agreement about a second rescue operation
On the macroeconomic plane, all the leading for Greece. Several aspects enable us to make a
indicators (graph I.1) show how the euro area brief assessment.
economy could be losing the traction required to
start to create net employment. The In the first place, even if this agreement was
unemployment rate remained at 9.9% in July for appropriate for putting a definitive end to the
the fourth consecutive month. Our latest euro crisis, the latest declarations by Germany and the
area GDP growth forecasts predict 0.3% quarter- IMF, questioning whether the plan will be applied
on-quarter growth in the second quarter, half a
Graph I.2 Graph I.1
GROSS DOMESTIC PRODUCT IN THE EURO AREA A DVA NCED IN DICATORS IN TH E EU RO A REA
AN D C ON TRIBUTIONS OF F OREIG N 140 2
AND NATIONAL DEMAND
120 year-on-year growth1
4
100
0
2
80
-1
060
-2
40 -2
Foreign demand
-320 National demand-4
GDP0 -4
-62008 2009 2010 2011
ESI (left) ifo (eje izq.)
Bus Clim (eje drch.) €coin (eje d rch.)
Source: EUROSTAT & BIAM (UC3M) Source: Datastream & BIAM(UC3M)
Date: July 27, 2011 Date: July 29, 2011

Page 1
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Economic Outlook

Graph I.3 governance. There are, however, numerous
proposals for progressing in this direction.
RETAIL SALES Professor Guido Tabellini, for instance, recently
year-on-year rates, moving average, 12 months proposed a supra-national institution with the 3
power to control the fiscality of the member 2
States. On the other hand, Professors Ramon
1
Marimon and Thomas F. Cooley suggested using
0
the US formula that gives priority, by means of a
-1
binding agreement between the member States,
-2
to repayment of debt and servicing sovereign
-3
debt over any other domestic expenditure. This
-4
would guarantee compliance with obligations
-5
regarding international creditors, prevent one
-6
country’s problem from spreading to another and 2005 2006 2007 2008 2009 2010 2011
to the financial system, and it would force
countries to establish their own “stability Source: Eurostat & BIAM (UC3M)
Date: August 3, 2011 programmes” without losing sovereignty over
their fiscal policy.

as agreed, appear to have eroded confidence in With regards to Spain, the government appears
the plan. Since then, the risk premiums of to be making every effort to reduce its deficit
Spanish and Italian debt have risen again to even more than it has promised; the main
higher than ever before. objective of the strategy is to counteract any
possible deviation in the public accounts of the
Secondly, most experts agree that, as Greek autonomous regions and local agencies. Public
contracting by the different administrations is public debt is more than 150% of its GDP, the
also evidence of the efforts being made by the solution should not involve more indebtedness,
but less. A 37 billion euro cut does not seem State to counteract regional and local excesses.
enough to guarantee the sustainability of Greek The regions and local agencies have increased
debt, which totals around 350 billion. However, their staff since the beginning of the year (by
we agree with the ECB’s idea that forcing the 44,000 the former and 20,000 the latter), while
massive default that Greece would need to fully the State has done just the opposite, reducing its
guarantee the sustainability of its debt could be staff by 10,000 employees. The financial markets
counterproductive in a system which depends so appear to be focusing on the regions and Moody’s
much on market confidence. The solution for reduction of the rating awarded to 5 regions last
improving the sustainability of Greek debt week appears to have encouraged rising CDS and
(improving the payback conditions for the first Spanish risk premiums.
rescue operation and a moderate cut in the debt
in the private sector’s hands) has been positively In this context, our Spanish GDP growth forecasts
show total stagnation of the Spanish economy in received by IFL.
the second quarter versus the first. The Spanish
The increased flexibility of the EFSF, so that it
can buy public and private debt on the primary Graph I.4
and secondary market, would also be useful for
protecting Italy and Spain against infection. This YEAR-ON-YEAR RATE OF EURO AREA INFLATION
AN D C ON TRIBUTIONS OF MA IN COMPON ENTSmechanism, however, will not be effective for a
5
few months, because of the formalities to be
4undergone in each of the member States.
3Therefore, given the urgent need to immediately
2contain such infection, reactivation of the ECB
1public debt purchase programme could be of key
importance. 0
-1
One of the most criticised aspects of the -2
2006 2007 2008 2009 2010 2011 2012agreement is the fact that there is no
determination to progress towards a stronger Energy Unprocessed food
Core Total inflationeconomic and fiscal union. Its detractors allege
that this measure would limit the sovereignty
Source: Eurostat & BIAM (UC3M) required by the States for their normal
Date: July 28, 2011

Page 2 Economic Outlook

Graph I.5 Graph I.6
GROSS DOMESTIC PRODUCT IN SPAIN AND INFLATION IN SPAIN
CONTRIBUTIONS OF FOREIGN AND NATIONAL 6 year-on-ye ar rates
DEMAND TO GDP GROWTH 5
year-o n-year growth
46
34
2
2
1
0
0
-2 -1
-4 -2
-3-6
-8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Confidence intervals at: 80% 60% 40% 20%
National Demand* Foreign Demand* GDP Inflation mean (1996-2009): 2.8%
Source: INE & BIAM(UC3M) Source: INE & BIAM(UC3M)
Date: June 30, 2011 Date: July 28, 2011
economy could grow at a year-on-year rate of
Table I.1
0.5%. On the demand side, public consumption
ECONOMICALLY ACTIVE POPULATION SURVEYwill fall by 7 tenths of a pp. Although exports
TOTAL
could grow by less than 1% per quarter, foreign
quarter-on-quarter rates
demand will make a positive contribution thanks
Unemployment
Employed Active Unemployedto a likely reduction in imports (-0.3%). On the rate
supply side, the leading indicators show some 2008 -0,5 3,0 41,3 11,3
contraction of the Spanish industrial sector, which 2009 -6,8 0,8 60,2 18,0
will therefore be unable to repeat its exceptional 2010 -2,3 0,2 11,6 20,1
2011 -0,8 0,1 4,1 20,9growth in the first quarter.
2012 0,0 0,2 0,8 21,0
2008 I -0,4 0,8 12,8 9,6According to our forecasts, average Spanish GDP
II 0,1 1,0 9,5 10,4growth will be 0.7% (±0.6) and 1.3% (±1.0) in
III -0,4 0,6 9,1 11,32011 and 2012, respectively. This is clearly not
IV -2,4 0,5 23,4 13,9
enough to stop the labour market from declining.
2009 I -3,9 0,2 25,0 17,4
Indeed, after the second quarter EPA was
II -0,8 -0,1 3,2 17,9thpublished on 29 July, our labour market III -0,4 -0,4 -0,3 17,9
forecasts remained unaltered, with only a very IV -1,2 -0,1 4,9 18,8
moderate improvement in the unemployment 2010 I -1,4 0,1 6,6 20,0
rate. While the rate falls to 20.8% in the last II 0,5 0,5 0,7 20,1
III 0,4 0,0 -1,5 19,8quarters of 2011 and 2012, our forecasts
IV -0,7 -0,1 2,7 20,3continue to show destruction of employment by 8
2011 I -1,4 -0,2 4,5 21,3tenths of a point in 2011 and total stagnation for
II 0,8 0,3 -1,6 20,92012, one tenth of a point less than our previous
III 0,7 0,0 -2,3 20,4forecast.
IV -0,5 0,0 2,0 20,8

2012 I -1,1 -0,2 3,4 21,6
In conclusion, the European public debt crisis is
II 1,0 0,3 -2,1 21,0
not favoured by the sluggishness of the leading III 0,8 0,1 -2,6 20,5
developed economies. Considerably dependent IV -0,4 0,0 1,8 20,8
on their foreign demand, the peripheral euro area
Source: INE & BIAM(UC3M) economies not only have to show the markets Date: August 1, 2011
that they are determined to make all the
necessary adjustments, but they also have to
make every effort to improve their productivity
and competitiveness in order to ensure
sustainable economic growth that will again earn
the confidence of institutional investors.

Page 3
Annual
average
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2011
2012II. THE ECONOMY IN THE EURO AREA


GROSS DOMESTIC PRODUCT IN THE EURO AREA
year-on-year growth
6
The expected euro area GDP growth remains unchanged
4
this month: 2% (± 0.7) for 2011 and 1.6% (± 1.0)
2
for 2012.
0
-2Our inflation forecasts for 2012 remain stable, but Previous report
-4 Actualincrease a tenth of a point for 2011 to 2.7% (± 0.24).
-6
Third consecutive reduction of our expectations on
the industrial growth in 2011, to 5.5% (± 1.8).



GROSS DOMESTIC PRODUCT AN D
ECONOMIC SENTIMENT INDICATOR
IN THE EU RO AREA
MAIN VARIABLES AND INDICATORS IN THE EURO AREA
4 115Average annual rates
2 105Forecast s
2007 2008 2009 2010
0 952011 2012
2 1.6 1 -2 85GDP mp. 2.9 0.2 -4.1 1.7
(±0.7) (±1)
-4 75
Demand
1.6 0.3 -1.2 0.8 1.1 1.2 -6 65 Private final consumption
2.22.3 2.50.7 0.6 0.6 Public final consumption
5.5 -1.8 -14.9 2.2 4.7 2.7 Gross capital formation GDP (Annual rates, left) ESI (Right)
2.6 0.2 -3.0 1.0 1.7 1.4Contribution domestic demand

6.2 0.7 -13.1 11.1 7.1 6.7 Exports of goods and services
5.7 0.6 -11.8 9.4 6.5 6.1 Imports of goods and services
0.3 0.0 -0.6 0.8 0.3 0.3Contribution foreign demand
Supply GVA
3.0 0.5 -4.2 1.7 1.9 1.6Total
1.21.4 2.80.0 0.7 -0.7 Agriculture
3.2 -2.7 -13.1 6.0 3.9 2.5 TOTAL INFLATION Industry
5
2.4 -1.9 -6.1 -4.1 -0.1 -1.1 Construction
3.7 1.3 -5.2 2.3 2.1 1.7 Trade services 4
4.0 1.5 -1.6 0.9 2.1 2.4 Financial services
31.61.8 1.30.8 0.7 0.8 Public services
2Prices (HICP )
2
2.7 1.6
2.13.3 0.31.6
(±0.24) (±0.94)Total 1
Previous report1.6 1.6
2.02.4 1.31.0
(±0.15) (±0.58) 0Core Actual
2.86.1 1.10.9 3.1 2.8 Processed food
-1
1.00.8 0.60.5 0.8 1.0 Non-energy industrial goods
2.52.6 2.01.4 1.8 1.7 Services
2.8 7.3 -4.5 4.7 7.8 1.8Residual
3.03.5 0.21.3 2.3 1.5 Non.processed food
Energy 2.6 10.3 -8.1 7.4 11.8 1.9
3
Labour market
Unemployment rate 7.5 7.5 9.4 10.1 9.8 9.5
4
Industrial production index (excluding construction)
5.5 4.2
Total 3.9 -1.6 -14.8 7.5
(±1.8) (±2.4) TOTAL INDUSTRIAL PRODUCTION INDEX
10Consumer goods 2.4 -1.9 -4.9 3.3 2.6 1.9
Durables 1.3 -5.2 -17.3 2.6 3.6 0.8 5
Non-durables 2.6 -1.3 -2.9 3.4 2.5 2.1
0
Equipment 6.8 0.1 -20.8 9.4 9.5 8.3
Intermediate 4.0 -3.4 -19.0 10.1 7.6 4.2 -5
Energy -0.7 0.2 -5.4 3.8 -3.7 -0.9
-10
Previous report
-15The figures in the shaded area are forecasts.
Actual
(1) Data adjusted for seasonality and working days effect. -20
Source: EUROSTAT & BIAM (UC3M)
-25Date: (1) (2) July 28, 2011June 27, 2011
(3) June 22, 2011 (4) July 25, 2011


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2009 2009 2009
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2010 2010
2011
2011 2011
2011 2012
2012 2012
2012Euro Area


GROSS D OM ESTIC PROD UCT
IN THE EURO AREA
INFLATION FOR 2011 4
Average annual rates of growth
2
Related Greater
0Euro area Equal
Less
3,3 -2
3,9 Luxembourg -4
4,0 Cyprus
2,8 Malta -61,5 5,0
80% 60% 40% 20% GDP
2,6

1,3
2,24,2
2,4 ECONOMIC SENTIMENT INDICATOR 3,5
IN THE EURO AREA
4,1
130
3,5
1202,2
1,8 110
100
2,9
90
3,13,3 3,4 80
70
60
80% 60% 40% 20% ESI

INFLATION IN THE EURO AREA CORE INFLATION IN THE EURO AREA
year-on-year rates year-o n-year rates3,0
4,0
2,5
3,0
2,0
2,0
1,5
1,0
1,0
0,0
0,5
-1,0
0,0
Co nfidence intervals at: 80% 60% 40% 20%
Co nf idence intervals at: 80% 60% 40% 20%Inflation mean (1996-2010) : 1,90%
Inflation mean (1996-2010) : 1.69%


BOX DIAGRAM OF INFLATION H ARM ONIZED INDEX OF CON SUMER PRICES
IN THE COU NTRIES OF THE EURO AREA year-o n-year rates
Annual average rate
6
Euro area5
5
United Kingdom
3 4
31
2
-1
1
-3
02005 2006 2007 2008 2009 2010 2011
-1
Median Euro area Germany Fr ance Italy
Spain Belgium Netherlands Portugal Austria
Finland Ireland Luxembourg Greece Slovenia


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2012Euro Area. Macroeconomic Forecasts

II.1. MACROECONOMIC FORECASTS.
In July, the euro area economy continued to be The euro area Economic Sentiment Indicator
conditioned by the financial instability derived (ESI) edited by the European Commission fell by
from the Greek crisis, which has also affected the four tenths of a point to 105.1 in June, the lowest
debt markets of Spain and Italy. In the last part since October 2010. It fell again in July by 2.2
of the month, this was compounded by lower points, affecting all the leading economies such
growth expectations for the US and uncertainty as Germany (-1.8 points), France (-0.5) and Italy
derived from the increase in its debt ceiling. This (-4.5).
instability continued to affect euro area
confidence and activity indicators. Indeed, the The volume of retail sales in the area in May was
most significant macroeconomic information 1.1% less than the previous month, when it grew
pertaining to the euro area that was published in by 0.7%. Relative to a year earlier, there was a
July, largely referring to May and June, tells us 1.9% reduction, in contrast with the growth
that economic activity is weakening overall; this registered the previous month (0.8%). The retail
is particularly manifest in the peripheral trade is therefore showing signs of weakness in
countries, with the French and German the last few months, so private consumption is
economies remaining largely untouched by this not behind euro area growth, which largely
situation. depends on exports. There is a risk of this
reduction in growth affecting the labour market
Although the area’s economic activity is and this, together with rising inflation and fiscal
weakening, economic recovery continues at a adjustments, could delay recovery of private
slower pace. On the supply side, industrial consumption.
production as estimated by the IPI decelerated in
May and the sector’s expectations, according to All the above information shows that euro area
its confidence index, fell in June and July; on the GDP growth will be slower in the second quarter,
demand side, retail sales decreased in May. On as mentioned last month, after a heavy rise in the
the other hand, the economic sentiment indicator first quarter (0.8%). Therefore, the euro area
and PMI of manufactured goods and services GDP growth forecasts for this and next year
both fell in June and July. The unemployment which were published in June continue to be
rate stabilised at a high level in May (9.9%) and valid. These forecasts for the euro area anticipate
little employment was created in the first quarter. average annual GDP growth, in real terms, of 2%
for this year and 1.6% for the next.
Industrial production continued to be weak in the
area in general. The Industrial Production Index
(IPI) for May showed a month-on-month increase
of only 0.1%, versus 0.2% in April. The greatest
month-on-month growth was found in energy
(0.9%) and capital goods (0.6%), with reductions
found in all other groups, especially durable and
non-durable consumer goods. Relative to a year
earlier, there was an annual increase of 4% in
May, 1.3 pp less than in the previous month.
According to the industrial confidence index,
industrial expectations have become weaker in
the last few months, with reductions in June and
July.

After revising our IPI growth forecasts with this
information, it has worsened slightly for 2011 and
improved for 2012. We now expect 5.5% average
annual IPI growth this year, three tenths of a
point less than our previous forecast, and 4.2%
(six tenths of a point more) for next year. The
reduction in average annual IPI growth this year
is largely due to capital goods and energy, while
the improvement for 2012 is due to consumer
and intermediate goods.


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