Eurozone Recovery Could Take Place in Q3 2013

According to the PMIs’ surveys published this morning, Eurozone business activity resumed modest growth in July for the first time since the start of 2012.


More from Reuters:


Euro zone private industry unexpectedly bounced back to growth this month as factories increased output for the first time in well over a year, business surveys suggested on Wednesday.
Markit’s flash Eurozone Composite PMI, based on surveys of thousands of companies across the region and a reliable indicator of growth, jumped to an 18-month high of 50.4 in July from 48.7 in June.
That smashed even the most optimistic forecast in a Reuters poll and is the first month the PMI has been above the 50 mark that divides growth and contraction since January 2012.
“It’s a very encouraging picture, it’s pretty broad-based. Germany is leading the pack followed by France but even the periphery … is seeing a return to growth in manufacturing,” said Chris Williamson, chief economist at data collator Markit.
Williamson said the latest PMI results tentatively pointed to 0.1 percent gross domestic product growth in the 17-nation bloc in the current quarter, in line with a Reuters poll taken earlier this month.


These figures were unveiled while the main central banks of the euro area (Bundesbank, Bank of France and Bank of Spain) upgraded their forecasts concerning Q2 2013. Indeed, on July 22, Bundesbank reported that German economy grew at a stronger pace in Q2 (after 0.1% in Q1) with more moderate growth seen in Q3:


The assessment that the German economy expanded strongly in the second quarter after a weather-related weak start to 2013 is being confirmed by current indicators. Important contributions to growth in the second quarter should come from industry and construction.

On July 23, Bank of Spain estimated that the Spanish economy likely contracted 0.1% in the second quarter from the first.


Spain’s central bank said Tuesday the euro zone’s fourth-largest economy likely contracted 0.1% in the second quarter from the first, the latest sign that Spain may be close to emerging from a recession started in late 2011.

In the first official estimate of quarterly economic performance, the Bank of Spain said gross domestic product likely contracted 1.8% from the second quarter of 2012. In the first quarter this year, the economy had contracted 0.5% on the quarter and 2% on the year.


Finally, on July 8, Bank of France upgraded its forecast for Q2 GDP to 0.2%:


France’s economy is expected to have grown 0.2% in the second quarter, the Bank of France said Monday, as it revised upward its prediction from last month.
In its previous estimate, the French central bank expected French gross domestic product to grow 0.1% from the previous quarter.


As a consequence, by taking into account the weight of each economy in the euro area (Germany: 27%; France: 21% and Spain: 12%), we could simulate Eurozone GDP with more precision:


Growth Forecasts
Scenario Pessimistic Central Optimistic
Germany 0.3% 0.4% 0.5%
France 0.1% 0.2% 0.3%
Spain -0.2% -0.1% 0.0%
Others -0.2% -0.1% 0.0%




Growth Contributions
Scenario Pessimistic Central Optimistic
Germany 0.081% 0.108% 0.135%
France 0.021% 0.042% 0.063%
Spain -0.024% -0.012% 0.000%
Others -0.080% -0.040% 0.000%
Total -0.002% 0.098% 0.198%
Total (rounded) 0.0% 0.1% 0.2%

In the central scenario, based on the main central banks’ expectations and on the assumption of a less deeper recession in other countries, Eurozone growth could now reach 0.1% in Q2 2013. Therefore, if the momentum stays positive in August and September, Eurozone could technically exit recession in Q3 2013 (two positive quarters), which will be faster than expected.