Anaemic growth at best

November 5, 2014

Lithuanian 1 euro coins are pictured in the Lithuanian Mint in Vilnius

Service sector PMI surveys for euro zone member states offer the last piece in the economic data jigsaw for the European Central Bank to ponder before its policy decision on Thursday.

The flash reading for the currency bloc as a whole, released last month, showed euro zone businesses performed better than expected but did so by slashing prices again, and optimism about the future fell to its lowest level in over a year.

Markit said then that the PMIs pointed to a 0.2 percent expansion of GDP in the third quarter, with risks to the downside. A Reuters poll also predicted 0.2 percent growth. GDP figures for the bloc are due next week.

In its autumn estimates released on Tuesday, the European Commission said the euro zone’s economy would expand 0.8 percent this year, 1.1 percent next year and by 1.7 percent in 2016 – a level the executive said six months ago would be achieved next year. The delay in the upturn was largely due to drag on the economy from France and Italy.

Despite all that, no action is expected from the ECB this time and discussion about whether to introduce some sort of fiscal boost are largely foundering on German objections.

Greece is aiming to quit its bailout as cleanly as possible in order to boost the fortunes of its ruling coalition which could face early elections next year and trails left-wing, anti-bailout Syriza in the polls.

Greek Central Bank Governor Yannis Stournaras, who was finance minister until recently, has told a Greek newspaper that Athens can use the remaining 11.5 billion euros in its bank rescue fund as a precautionary credit line when it exits its EU/IMF bailout. With 10-year borrowing costs back up at eight percent, euro zone officials are advising Greece not to attempt an exit from its programme without some sort of backstop.

How will Catalonia respond to a decision by Spain’s Constitutional Court to suspend a watered-down vote on independence scheduled for Sunday? Madrid asked the court to block the “consultation of citizens” called by Catalonia’s regional government on grounds it was a way to get around the court’s September suspension of a non-binding referendum on secession.

According to Reuters polling, Poland’s central bank is likely to cut interest rates by 25 basis points to an all-time low 1.75 percent today, before bringing an end to a short burst of monetary stimulus aimed at shoring up central and eastern Europe’s largest economy. Hungary’s central bank will release new economic growth forecasts.

After rebel elections in eastern Ukraine chose separatist leaders, Ukraine’s president warned of the threat of a new offensive by Moscow-backed rebels and  said newly-formed army units would be sent to defend a string of eastern cities.

Moscow has so far stopped short of officially recognizing the newly sworn-in leaders, a move which could trigger another round of sanctions from the United States and European Union, but it has said Kiev should now negotiate with them directly. The separatist leaders accused Kiev of undermining peace moves by suspending a law that gave the eastern regions they control a special status.

After a deal was struck whereby Moscow will resume supplies of gas to its neighbour over the winter in return for payments funded in part by Kiev’s Western creditors, Gazprom has said it has received a first tranche of debt repayment from Ukraine’s Naftogaz.

Russia’s top natural gas producer has said it would restart gas supplies to Ukraine as soon as it paid the first tranche.
Presidents Mahama of Ghana, Jonathan of Nigeria and Sall of Senegal visit Burkina Faso as part of regional efforts to press interim military rulers to hand back power quickly to civilian rule.

President Blaise Compaore stepped down on Friday following two days of mass protests in the West African nation over his bid to extend his 27-year rule by amending the constitution.

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