The Euro-zone economy is a single market consisting of 17 European Union nations, which total a population of 328 million people. The Euro-zone countries, in order of populations, are Germany (82m), France (64m), Italy (60m), Spain (47m), Netherlands (16m), Greece (11m), Belgium (10.7m), Portugal (10.6m), Austria (8m), Slovakia (5.4m), Finland (5.3m), Ireland (4.5m), Slovenia (2m), Estonia (1.3m), Cyprus (.8m), Luxembourg (.5m), Malta (0.4m). The Euro-zone shares a common currency, the Euro, and the countries within it have given up the controls of their own monetary policy to the European Central Bank. While there are guidelines and rules set in place, each country still maintains control of its fiscal policy.
The total GDP of the Euro-zone amounts to 8.4 trillion euro. The main are countries in the Euro-zone are all advanced economies and therefore are geared towards the services sector. Service amount to 71.8% of the economy, the industrial sector adds another 26.5%, while agriculture comes in at under 2%. The Euro-zone exports goods and services to the tune of about 41.1% of its GDP, while it imports around 39.9%.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rates – ECB Refi Rate
The ECB’s mandate is solely to maintain price stability. The ECB was raising rates heading into 2007, but then stalled its rate hiking campaign at 4%, until an ill fated rate hike just prior to the financial crash of 2008. The ECB reacted swiftly by dropping rates to a historic low of 1%. From May 2009 until April 2011 rates stayed at that 1%. The ECB seeing inflation climbing above its 2% target, is the first out of the big 4 central banks (Fed, BoE, BoJ) to tighten rates.
Inflation – CPI y/y
Inflation, after dipping into negative territory during the aftermath of the crash in the fall of 2008, moved back above the ECB’s 2% target in December of 2010. Higher commodity prices has fed through to headline inflation and by March CPI was running at 2.6%. The ECB had already talked tough rhetoric on inflation and they backed it up with a 25 basis point increase of rates to 1.25%. The EUR has strengthened quite strongly over the 1st quarter as a result of the anticipation for that rate hike.
Growth – GDP q/q
Euro-zone GDP has recovered from the recession, but remains uneven as core countries like Germany and France are growing at a modest pace, while the countries on the Euro-zone periphery that are facing financial crises like Greece, Ireland and Portugal, have seen their economies contracting. Germany has been the workhorse behind recent Euro-zone GDP data.
Labor – Unemployment Rate
The labor market in the Euro-zone had topped off at around 10%, but has not seen much of a sustained move from that level. Certain countries like Germany are seeing much better unemployment rates (6.5%) than countries in the periphery like Spain (20%). Those countries undergoing austerity measures have seen sharply higher unemployment rates and that dynamic will be here to stay throughout 2011.
