French growth leapfrogs Germany’s in Q1

May 13, 2015

The French Pole Emploi stand is seen during the 20th Forum de l'Alternance in Paris

It’s euro zone GDP day. German and French data are already out with Europe’s largest economy growing by 0.3 percent, below both the 0.5 percent forecast and the 0.7 percent achieved in the last three months of 2014.

Belying its laggard reputation, the French economy expanded by 0.6 percent, its highest growth rate in two years.

Euro zone countries appear to have benefited from cheap energy and food prices, a weak euro and European Central Bank money printing so far this year. But with the price of oil way higher than it was in January and government bond yields starting to back up despite the ECB’s buying, there are potential clouds on the horizon.

The number for the euro zone as a whole is due at 0900 GMT and forecast to show solid growth of 0.5 percent, a rate it didn’t manage in any quarter of 2014.

Spain reported 0.9 percent first quarter growth two weeks ago, marking its fastest rate of expansion since 2007. That is unlikely to be bettered by many, or any, of its peers.

Given recent bond market turmoil, auctions are back in the spotlight in a way they haven’t really been since the euro zone crisis was raging in 2012.

Today, Germany will sell up to three billion euros of 10-year Bunds, Italy will offer up to 7 billion euros of three-, seven- and 15-year bonds. And Greece auctions 875 million euros of 3-month treasury paper to roll over a maturing issue, its second of two auctions this month.

With the euro zone and Athens still far apart on a cash-for-reforms deal, Greece’s financial position is parlous.

It managed to pay a 750 million euros bill to the International Monetary Fund on Monday but had to tap an emergency IMF holding account to do so. There had been doubts whether the government would pay the IMF or opt to save cash to pay salaries and pensions later this month.

The government wants the European Central Bank to give it leeway to sell more short-term debt to Greek banks to stay afloat in the short-term. It doesn’t look like the Eurogroup’s lukewarm progress report gives any prospect of the ECB cutting Athens more slack.

At his second cabinet meeting in three days, Greek premier Alexis Tsipras told ministers he was sticking to his “red lines” and that it was time for lenders to meet Greece halfway, according to a government official. Greece is still expecting a deal by the end of the month.

Having left UK interest rates at 0.5 percent on Monday, where they have resided for the past six years, the Bank of England releases its quarterly inflation report today.

All else being equal, rates could head higher marginally more slowly under a Conservative government, which is pledging to cut the budget deficit more rapidly than Labour would have. But the Bank is unlikely to be drawn into that debate.

Governor Mark Carney may expand on a recent observation by the Bank that financial markets expected only an “exceptionally slow” pace of interest rate rises. The Bank may also raise its forecast for inflation in two years’ time. Most economists do not expect the BoE to raise interest rates until early 2016.

The European Commission is set to adopt a new migration plan, following a grimly rising death toll in the Mediterranean.

Italy, Germany and Austria back a quota system but some countries, not least Britain, are concerned about the extra burden the plan to redistribute migrants more evenly across the bloc might impose.

The European Bank for Reconstruction and Development holds its annual meeting in Georgia. It has already said it will “backload” its spending in Ukraine this year and probably would not resume lending to Russia any time soon. German Chancellor Angela Merkel will hold talks with Ukrainian President Petro Poroshenko.

President Obama starts a two-day summit with leaders of the Gulf Cooperation Council. Obama’s aim is to them of continued U.S. military and political support amid fears of a resurgent Iran should a nuclear deal be sealed this summer and sanctions on Tehran lifted. Saudi King Salman’s abrupt decision to skip the talks shows how Gulf rulers are less than happy.

Saudi-led air strikes hit the rebel-held Yemeni capital Sanaa hours before a five-day humanitarian truce took effect and Washington cautioned against “provocative actions” after Iran dispatched a cargo ship to Yemen.

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