9/4/20: Ifo Eurozone Forecast Q1-Q3 2020: Covid19 Impacts

Germany's ifo Institute joint forecasts for Eurozone growth are out today. Bleak reading. The forecasts below assume that Covid-19 restrictions will be gradually lifted over the summer 2020.

Seasonally and working-day adjusted GDP growth:

From ifo forecast: "The economy in the euro area is expected to slide into a deep recession in the first half of 2020:

• GDP growth is forecast to be -2% in Q1 and -10% in Q2, followed by a recovery in Q3 with +8%. 
• Due to the lack of comparable events in the last decades and the unpredictable course of the pandemic, these estimates are subject to substantial uncertainty."
• "Gross fixed capital formation is also certain to decline, with -2% in Q1 and -10% in Q2, due to supply disruptions, planning uncertainty and a preference for liquidity."
• "Foreign demand is likely to contribute negatively to growth, as a result of the euro area’s exposure to recessive international trade and a struggling global economy."

Inflation environment:

Headwinds and risks: 

• "A more unfavorable course of the pandemic would require longer and possibly stricter containment measures...
• "Despite massive liquidity provision by governments and central banks, a prolonged downturn would then lead to liquidity strains in the economy. 
• Increased debt levels associated with low income flows and asset devaluations are likely to lead to solvency issues for thinly capitalized corporations and private households.
• An ensuing rise in loan defaults could in turn lead to problems in the banking sector." 
• "A resurgence of the European debt crisis on a large scale thus constitutes a non-negligible risk to the forecast."

8/4/20: Ifo Institute Germany Forecast for 2020

A surprisingly 'positive' forecast for Germany from ifo Institute this morning:

While GDP contraction for 2020 looks sharp at -4.2 percent y/y, unemployment figures appear rather robust and employment levels seem to be only weakly impacted. Forecast for current account implies subdued global demand shocks. The swing in the fiscal position is roughly 6.5 percent of GDP, reflecting emergency supports measures. This is significant, and underpins shallower expected effects on employment and unemployment, as well as no deflationary dynamics in labour costs.

My view: Germany entered the pandemic crisis with already weak economy. 2019 growth at 0.6 percent was shockingly weak, with the economy skirting recession. Massive strength in the current account was reflective of weak domestic demand and the economy dependent on growth momentum globally. This momentum is now severely disrupted, and I do not expect robust global recovery outside domestic demand. In other words, my view is that worldwide exports are unlikely to rebound robustly in H2 2020, putting severe pressure on net exporting economies, like Germany and Italy.

So, whilst 4+ percent drop in full year GDP might be fine, I would expect closer to 5-5.5 percent decline (reflective of weaker prices), and much more pronounced impact on unemployment and employment levels.

18/2/16: Europe's Problem is Not Germany...

CES-Ifo just released their survey results for the regular poll of some 220 German economists. And if you think that professionals are at any odds with Schäuble on monetary policy of the ECB, think again.

Which, of course, is absolutely correct. For German economy, ECB's policy is too loose. For French economy, about right. For Italy and Spain - probably somewhat too restrictive, although who on Earth can tell with any degree of confidence what 'about right' policy for these two can even look like...

Still, the key point remains: Euro is still a malfunctioning currency that cannot reconcile differences between various economies. In other words, Europe's problem is not Germany. It is not France, nor Spain, nor Italy. Europe's problem is not even Euro. Instead, Europe's problem is Europe.

14/2/16: Ifo WorldEconomic Climate Index: 1Q 2016

Global growth leading indicators are screaming it, Baltic Dry Index is screaming it, PMIs are screaming it, BRICS are living it, and now Ifo surveys are showing it: global economy is heading into a storm.

The latest warning is from the Ifo World Economic Climate Index.

Per Ifo release: “The Ifo Index for the world economy dropped from 89.6 points to 87.8 points this quarter, drifting further from its long-term average (96.1 points). While assessments of the current economic situation brightened marginally, expectations were less positive than last quarter. The sharp decline in oil prices seems to be having no overall positive economic impact. Growth in the world economy continues to lack impetus.”

In numbers, thus:

• Headline World Economic Climate Index is now averaging 88.7 over the two quarters through 1Q 2016, which is statistically below 97.7 average for the 2 quarters through 3Q 2015 and 93.2 average for 4 quarters through 1Q 2016. Current 2 quarters average is way lower than 8 quarters average of 98.4. Historical average is 94.9, but when one considers only periods of robust economic growth, the index average is 98.9. Again, current 2 quarters average is significantly below that.
• Present Situation sub-index 2 quarters average is at 87.0, which is woefully lower than 2 quarters average through 3Q 2015 at 91.6 and is well below 96.0 average for the historical series covering periods of robust economic expansions.
• Expectations for the next 6 months sub-index is at 90.4 on the 2 quarters average basis, down from 103.5 2 quarters average through 3Q 2015 and below historical (expansion periods only) average of 101.5.


Geographically, per Ifo release: “The economic climate deteriorated in all regions, except in Oceania, Asia and Latin America. In Oceania the climate index stabilised at a low level, and in Asia and Latin America it edged upwards. The indicator is now below its long-term average in all regions, with the exception of Europe. The climate in the CIS states and the Middle East clouded over, especially due to poorer economic expectations. In Europe WES experts are slightly less positive about future economic developments than in October 2015. In North America and Africa, by contrast, the slightly less favourable economic situation led to a deterioration in the economic climate.”

You can see my analysis of the European index data here: http://trueeconomics.blogspot.com/2016/02/5216-ifo-economic-climate-index-for.html.



5/2/16: Ifo Economic Climate Index for Euro area: 1Q 2016

Ifo Economic Climate Index in the Euro Area has posted another contraction at the start of 1Q 2016 marking the third consecutive quarter of declines and reaching the lowest level since 1Q 2015. IFO Economic Climate Index (the headline index for the series) for the Euro area fell to 118.9 in 1Q 2016 from 122.0 in 4Q 2015. Activity signalled by the index, however, remains above the historical average at 107.5 an well above downturns-consistent average of 84.8.

The chart below shows index trends:

As highlighted in the chart above, EU Commission own sentiment index for economic activity is also pointing to weakening growth conditions in 1Q 2015. The EU Commission Sentiment Index was un a divergence to the Ifo index since the start of 2015.

Two core components of the Index also moderated in 1Q 2016. Present Situation sub-index fell from 153.8 for 4Q 2015 to 151.0 in 1Q 2016, marking the first quarter of contraction after four consecutive quarters of increases. The sub-index remains firmly ahead of the historical average of 127.5.

Perhaps the most worrying is the decline in Expectations for the next 6 months sub-index which fell from 103.3 in 4Q 2015 to 100.0 in 1Q 2016. This marks third consecutive quarter of declines in expectations and the index level currently is closer to the historical average of 95.8.

Overall, the gap between expectations forward and present conditions assessment has declined. Gap index (my own calculation) is now at 66.2 for 1Q 2016 against 67.2 in 4Q 2015. This suggests that weaker expectations are now starting to feed through to weaker present assessments.

A chart below illustrates the trends for sub-indices:

Per Ifo release: “Assessments of the current economic situation were most negative in Greece and Finland, but the current economic situation also remains strained in France, Italy and Cyprus. The situation was only slightly better in Spain, Portugal and Austria; but assessments for Austria were far less negative than last quarter. The sharpest recovery was seen in Ireland, where survey participants assessed the current economic situation as very good. In Germany the economic situation is considered to be good, although assessments were somewhat less favourable than last quarter.

The six-month economic outlook remains positive nearly everywhere. Economic expectations brightened in Austria, France, the Netherlands, Estonia and Latvia. In the other countries the outlook either remains unchanged, or is somewhat less positive. WES experts were only slight pessimistic about Greece, Portugal and Spain.”

3/12/15: Ifo's Sinn on Draghi's Monetary Acrobatics

Ifo hans Werner Sinn on ECB decision:

Predictable, and entertaining as ever... My view is expressed here and a more in-depth view of the monetary activism effectiveness will be coming soon in my Cayman Financial Review column. Hint: not much of evidence it has been working anywhere... 

11/11/15: New Cost Estimates of European Refugees Crisis: Ifo

Back in September, German think tank, CESIfo estimated the cost of European refugees crisis to be at around EUR10 billion (Germany costs alone). Yesterday (with update today), the Institute released updated estimates:

Crucially, per above release, the Ifo pours some serious cold water on the commonly repeated in the media claims that refugees can provide a substantial boost to the German economy due to their alleged employability.

22/9/15: Germany's IFO: "Refugees to Cost Ten Billion Euros"

Here is the full release from the Ifo Institute (emphasis in bold and comments in italics are mine):

"Ifo Institute Expects Refugees to Cost Ten Billion Euros

Munich, 22 September – If a total of 800,000 asylum-seekers do indeed come to Germany this year, as forecast by the German Federal Ministry of the Interior, it would cost the state around ten billion euros. This figure does not take into consideration family members joining the refugees or any educational measures; and is therefore a conservative estimate.  [here is a useful, albeit dated, link on family reunification framework in Germany showing significant potential impact. More current data is covered here. In addition, while educational expenditures can be significant, part of the costs will be carried through apprenticeships and training schemes that are covered by employers and that involve productive work, contributing to value added in the German economy.]

The qualification structure of immigrants from the crisis-afflicted states of Syria, Iraq, Nigeria and Afghanistan is probably poor. According to data from the World Bank, the illiteracy rate even among the 14-24 year old age group is 4 percent, 18 percent, 34 percent and 53 percent in these countries respectively. Even in the most developed of these countries (Syria) only 6 percent of the population has a university degree, which is not equivalent to a German diploma in many cases. Although refugees tend to be male and younger than the demographic average age, one thing is still clear: they are poorly prepared for the German labour market. In addition to language courses, Germany will also need to invest in training, which will generate extra costs. [We do not know exact quality of education and skills attained by the refugees, but applying average population parameters in this case can be fraught with some problems. For example, refugees coming through trafficking channels are required to pay up-front fees that are substantial in size, relative to average incomes. This means that there can be a strong selection bias in terms of refugees who reach Europe, compared to the average population in the country of origin - biases that tend to select more educated / better skilled and more financially enabled migrants. If so, their literacy rates and educational attainment status can be well above averages. In addition, undergoing a refugee journey implies very significant hardship, that is most likely known (at least partially) prior to the journey start. This can imply that refugees arriving into Europe may have stronger aptitude to succeed in integrating into new host society than those who remain behind. These biases are relatively well known in the literature on migrants flows in large scale migrations in the past.]
 
Many refugees will remain in Germany in the long-term and bring their relatives into the country. Migratory pressure from North Africa and the Middle East will remain high purely due to the demographical situation in these countries.  [This is correct, and the pressures are rising, not abating. The problem here is signalling: by openly accepting 800,000 refugees, German leaders have sent a very loud signal to the potential future refugees. Reality, however, is that such a signal will probably have only a marginal effect on refugees flows over time, since the main drivers (first order factors) pushing larger quantities of refugees into Europe - demographics, political and geopolitical instability, institutional deterioration, regional wars and conflicts, as well as issues such as climate change - remain acute.]

To avoid the refugee crisis becoming a long-term financial burden for German taxpayers, refugees have to get paid employment as fast as possible, so that they can meet their own living costs. There are fears, however, that many of them will not be able to find a job with a minimum wage of 8.50 euros in place because their productivity is just too low. It would be therefore be a good idea to lower the minimum wage across the board to prevent unemployment from rising.  [This is a matter for a separate analysis. While refugees initial productivity is likely to be lower, training and apprenticeship schemes should provide fast uplift in productivity for those who are well-enabled for such training. The key to limiting the cost of integrating refugees hinges crucially on several dimensions of German policy, namely: access to training, incentives to undertake training, quality of matching individuals to training opportunities, etc. Other considerations (for example pre-acceptance assessment of attitudes and aptitudes to integration) can help, but at this stage are not feasible except on a margin (for example prioritising processing of refugees who pass pre-acceptance assessments). Minimum wage coverage should not apply to apprenticeships and training schemes in general, in my view, and instead these activities should be covered by a separate minimum wage set below the normal employment-related minimum wage.]

Raising Hartz IV standard rates in the present situation is a very bad idea, as this would reduce incentives for refugees to look for work and generate an additional fiscal burden.
 
Model simulations by the Ifo Institute show that even in the case of a suspension of minimum wage legislation and Hartz IV rates remaining stable, the supposed immediate integration of immigrants into the German labour market does not stand to benefit the German economy. Although there are some labour market advantages, they are outweighed by higher unemployment rates and net transfers to immigrants.
 
Article: “Immigration: What Does the Domestic Population Stand to Gain?”  in: ifo Schnelldienst 18/ 2015; p. 3-12; a preview of the article is available at: http://www.cesifo-group.de/DocDL/sd-2015-18-battisti-etal-einwanderung.pdf "

Overall, a bold and interesting statement from Ifo (who are known for being bold), and a topic worth discussing.

14/7/15: Ifo Sinn: Euro Agreement Doesn’t Really Help Greece

Ifo's Hans Werner Sinn on Monday Eurogroup and Euro Council agreements:

You can sense his frustration.

I can add that much of what is said above makes sense, although I do not think temporary Grexit is feasible. A normal, EU-facilitated Grexit with no timing terms attached is.

7/6/15: Greece Needs a Structured Euro Exit: Sinn

As the saying goes... can't have a Greece drama without Target 2 drama... Hans Werner Sinn on Greek referendum results:

In simple terms: make Grexit. As this stage int the game, I agree - facilitated (using European financial and investment supports) exit by Greece from the euro area is the optimal resolution path to the crisis.

The arguments about new costs are irrelevant: Greek debts are currently unrepayable and will not be made good by any structural reforms. In fact, the debts are holding back the effectiveness of such reforms and will likely wipe out all and any benefits of devaluation that can be gained from conversion into drachma. Whether Greece remains in the euro area or exits, either path will require a write-down of more than 30% of Greek Government debt (my estimate - at least EUR125 billion, in line with recent IMF estimate, although my estimation is higher, since the IMF assessment was prepared prior to the Greek economy deteriorating further and the country fiscal position weakening beyond April 2015 assessments) and some additional assistance (in form of investment funds from the EU) to the tune of EUR20-30 billion over 3 years.

The write-downs should be carried out via ECB and monetised as a part of the ECB QE (wiping out the losses) so the only new call on EU funds will be investment funding. Drachma return will have to be used to carry out immediate fiscal adjustment (so there will be plenty of pain and reforms on that front).

Chart below (source: Open Europe) shows the breakdown of Greek debt by holding:

Ex-IMF official sector holdings are at 68%. IMF should, by all possible metrics, take a bath too, but it won't, so the 9% of the total liabilities held by the IMF is not at play. Banks can take a haircut, but that will require recaps (Greek banks) and/or is utterly immaterial in quantum of debt held (1% for Foreign Banks). Other bonds above are predominantly short-term stuff that can be haircut. No matter how you spin the numbers - Eurozone holdings will have to be cut by more than a half.

23/6/2015: Hans Werner Sinn: Just Grexit!

Hans Werner Sinn (Ifo) to Greece: "Will ya, just default, for the love of..."

19/4/15: Greece In or Out: Ifo ain't caring much

Ifo Institute calculated euro system-wide losses from Greek default under two scenarios: Greece remains in the Euro and Greece exits the Euro.

In basic terms, there is no difference between the two.

And alongside that, called for the annual settlement of euro system liabilities and higher cost of funding within the central banks system. Which would trigger Greek default literally overnight and probably make Grexit total inevitability. In effect, thus, Ifo - a very influential German think tank - is calling for shutting the lid on Greece, comprehensively, and crystalising losses across the Eurozone and Eurosystem.

22/2/15: Ifo on Eurogroup Conclusions

Ifo's Hans-Werner Sinn on Eurogroup deal for Greece:

I failed to spot where the Eurogroup allows for any 'additional cash' for Greece. 

The core point that Greece "has to become cheaper to regain competitiveness. This can only happen if Greece exits the Eurozone and devalues the drachma." On this, Sinn is probably correct. Unless, of course, there is a large scale writedown of Greek debts accompanied by a massive round of reforms. Both of these conditions will be required and not one of them is on the cards.

6/11/2014: Ifo Survey of Business Climate & Expectations: Euro Area

CES Ifo published their Economic Sentiment Indicators for Euro Area for Q4 2014, showing marked slowdown in the economy on the basis of both current conditions and market expectations 6 months forward.

Here are the details.

Economic Climate Indicator overall has fallen from 118.9 in Q3 2014 to 102.3 in Q4 2014.  This is the lowest reading since Q3 2013 when the index stood at exactly the same level of 102.3.

Present Situation sub-index fell from 128.7 in Q3 2014 to 106.3 in Q4 2014, marking the lowest reading since Q4 2013 when it stood at exactly the same level as in Q4 2014.

Six months forward Expectations sub-index fell from 113.1 in Q3 2014 to 100.0 in Q4 2014, the lowest reading since Q3 2013.

The gap between expectations and present conditions worsened to 94.1 (a reading below 100 means that there is expected deterioration in underlying conditions over the next 6 months compared to current conditions).

The index overall has underestimated the downward momentum in previous quarter.

Chart to illustrate:

As shown above, the European Commission survey of Business Sentiment posted a slight improvement at the end of October, reflected in the Q4 figure to-date. However, we do not have actual projections for full Q4 2014 yet.

25/8/2014: Ifo Surveys of Business Climate & Expectations: Germany & Euro Area

Earlier today, Ifo Institute published its survey of business sentiment in Germany. Here is the latest analysis of their data alongside the previously released euro area sentiment.

Euro area economic climate survey returned index reading of 118.9 at the start of Q3 2014, down sharply on Q2 2014 reading of 123.0 and the lowest reading in 3 quarters. Present situation reading remained unchanged at 128.7 which is identical to Q4 2011 reading and the highest reading since Q1 2012. However, expectations 6 months out index slipped to 113.1 from 119.7 3 months ago and is now at its lowest level for 4 quarters running.

With all of this, the expectations gap relative to current conditions reading - the metric that signals the expected contraction if below 100 and expansion if above 100 - has fallen to 87.9 from 93.0, marking the third consecutive quarter of decline and the third consecutive quarter of staying below 100.

That said, the error direction - the difference between previous expectation for current period and current conditions - remains negative at -9.0 points, for the fourth consecutive quarter running.

The above trends were also reflected in the EU Commission business sentiment surveys. Based on July data, Q3 sentiment is on the declining side, with July reading of 105.8 for EU27, down from Q2 2014 end of quarter reading of 106.4. For the euro area the index remains basically unchanged at 102.2 in July compared to 102.1 in June 2014.

Chart to illustrate

For Germany, Ifo Business Climate Survey for August 2014 came in with rather negative results. Index for industry and trade fell in August to 106.3 points from 108.0 in July. German companies are also more sceptical than in the previous month. As Ifo release states: "The German economy continues to lose steam". Current reading is at the lowest level since mid-2013 and the last time index increased was back in April 2014 with a significant rise last clocked in March 2014.

Chart to illustrate

15/6/2014: Ifo on Russia: 'Make Trade to Avoid War'...

A very interesting set of points on EU/U.S. policy on Russia from the Ifo's President, Hans-Werner Sinn (Ifo Viewpoint Nr. 155, "Why We Should Give Putin a Chance" link here)

Some quotes, my comments in italics:

“The annexation of Crimea was definitely a violation of international law. …A redrawing of borders decided upon by only one party cannot be accepted in Europe. However, it must be borne in mind that the present crisis was triggered by the West. The overtures made by NATO to Georgia, Moldova and Ukraine in recent years effectively threatened to encircle Russia's Black Sea Fleet in the only ice-free port at its disposal.”

“If U.S. President Barack Obama believes that Russia is just a regional power that will have to put up with this, he is wrong…” [Even if Russia were a regional power, the region in which it co-exists with other powers is immense and directly borders three superpowers – U.S. via Pacific, EU and China. Security considerations, in Russia’s case directly link to the fact that it is literally surrounded by the Nato or Nato-related (via E.U. membership) powers on three sides. It would be exceptionally naïve, or more likely careless and callous, to assume that Nato and aligned states are not a threat to Russian security, no matter how benign the alliance is and no matter how many cooperative councils Nato has with Russia].

“…some hardliners in Washington, Brussels and Moscow obviously have their own agenda. NATO can chafe at the bit once again, and the powers-that-be in the Kremlin are not the only ones to have noticed that international conflicts are an effective way of distracting attention away from domestic problems. It is good that the German federal government is trying to exercise a moderating influence, while exercising care not to endanger the solidarity of the West's alliance.” [A logical conclusion. On both sides. Including the obvious one: Russia, but also the less discussed one: the U.S. where domestic problems for the Administration – relating to a set of policies that have effectively rendered the current Administration ineffective and necessitated ‘toughening’ by the White House of the foreign policies stance to counter rising strengths of the U.S. Republican Party. Ukraine is being de facto caught between three pressure points: (1) Russia’s growing insecurity and concerns about the geopolitical position of the country in its own neighbourhood; (2) White House’s growing weakness in domestic affairs; and (3) EU’s complete loss of raison d’etre during the Global Financial Crisis. Add to this internal collapse of the Ukrainian political and business elites and we have the current situation.]

“… we need to proceed carefully: No reasonable party can be in favour of the economic destabilization of Russia and a trade war.” [However, beyond being undesirable, such destabilisation is actually contrary to the solution needed in order to normalise the region:] “How can the cost of any further annexations be raised for Russia and the chances of finding a peaceful solution be strengthened, without doing any damage to Russia, Ukraine or the EU? The answer lies in the offer of a free trade agreement with Russia and the Ukraine as part of a new international agreement on Ukraine's future.”

[Such an agreement is neither new, nor alien idea. In fact it was proposed by President Putin himself:] “In 2010, Russian President Vladimir Putin proposed a free trade area stretching to Vladivostok from Lisbon. What happened? The EU worked on a free-trade agreement with Georgia, Moldova, Ukraine and Armenia instead. This only increased Moscow's nervousness, because it implicitly posed the threat of customs barriers for Russia.” [Again, European position of raising barriers against external partners in order to secure gains from trade to the members of the Union or the Associate Members is the problem. Russia witnessed this in the cases of 2004 EU Accession].

[Free trade is a win-win for all parties concerned.] “Free trade with a country specialized in commodities, such as Russia, that complements the West's specialization in manufacturing, promises major trade gains that would be much greater than the benefits of trade between similar economies alone. EU politicians are currently negotiating a free-trade deal with the U.S., which would bring benefits to the countries involved. But the inclusion of Russia in a free-trade agreement could turn out to be a real gold mine for all parties.”

“In the event of political stabilization, offering Russia free trade with the West would preserve peace, bring economic advantages to Europe and effectively push forward the policy of “change through rapprochement” first implemented successfully by Willy Brandt with East Germany.”

7/5/2014: Eurostat backs out of Greek data mess

Here's Ifo Institute press release on Eurostat and data manipulation for Greece:

I have covered the issue here: http://trueeconomics.blogspot.ie/2014/04/2542014-stretch-of-numbers-here-bond.html

7/4/2014: EU's latests dis-inspiring growth forecasts...

So German Ifo upgraded euro area growth forecasts for 2014 and the numbers are... well... dis-inspiring?

"The Eurozone recovery is expected to pick up in the first quarter of 2014 with a GDP growth rate of +0.4% (after +0.2%  and +0.1% respectively in the previous two quarters)." Blistering it ain't.

But wait, things are not exactly 'improving' thereafter: "Growth is forecasted to decelerate slightly in the following two quarters."

Actually, 2014 full year forecast is for 1.0%. I know, don't go running out with flowers and champagne on this one. It is lousy. And it is even more depressing when you pair it with a forecast of 0.8% for inflation.

I mean, good news: official recession is over. Bad news: the recovery is going to feel like stagnation this year. Bad news >> Good news. Doubting? See this table summarising growth forecasts by main components:

• Consumption is expected to rise by 0.5% - so euro area consumers (aka households) are lifeless for another year. Lifeless because Europe will remain jobless: "owing to fiscal austerity measures in some member States combined with a continuing labor market slack and slow growth in real disposable income."
• Investment is expected to rise 2.1%, which is good news as most of this is expected to come from capacity investment (equipment and tech, rather than building more shed, homes and hangars to accommodate for imports from China). You wanna have a laugh? Per Ifo: "Private investment will continue to grow over the forecasting horizon due to the increase in activity and the need for new production capacity after the sharp adjustment phase determined by the financial crisis." Let me translate this for you: things got so ugly during the crisis that old capital stock was left to deteriorate without proper maintenance and replacement. Now we are going to start replacing that which was made obsolete in the crisis. And we will call that growth. Or rather the 'Kiev Model of Growth': Torch --> Rebuild...
• Industrial production is expected to 'jump' 1.5% y/y which, when paired with consumption growth at 0.5% suggests that once again 2014 will see European workers toiling hard to provide luxury goods they can't afford themselves for the world's better-off, increasingly found outside of the euro area.

Ugly? You bet. Even before the crisis euro area wasn't known for healthy growth figures, but now, watch this recovery plotted in the following two charts:

If one ever needed an image of the culture of low aspirations, go no further - the above show that whilst growth is basically non-extant, a mere sight of anything with a '+' sign on it triggers celebrations in Brussels…

Oh, a little kicker: Ifo projections for growth and inflation are based on following two assumptions: "oil price stabilizes at USD 107 per barrel and that the euro/dollar exchange rate fluctuates around 1.38". Now, should, say Ukraine-Russia crisis spill over to deeper sanctions against Moscow, I doubt oil price will be sitting at USD107pb marker for long. And should Sig. Draghi diasppoint with (widely expected by the markets) QE measures, Euro/USD will jump out of that 1.38 range like a rabbit out of the proverbial hole chased by a hound. In either case, kiss the 'growth' story good bye...

There are more downside risks to this forecast than upside hopium in Mr. Rehn's cup of tea...

11/2/2014: Greek Bailout 3.0 or a Fix 1.4: Ifo Assessment

In light of Bloomberg report on new package of supports for Greece being planned (http://www.bloomberg.com/news/2014-02-05/eu-said-to-weigh-extending-greek-loans-to-50-years.html), German institute Ifo issued a neat summary note.

The core supports being discussed in the EU are: extending term of the loans to 50 years, and lowering the interest cost of loans by 50bps.

Here's a summary via Ifo:

• As of December 2013 "Greece had received 213.4 billion euros from two bailout packages."
• First package was May 2010 Greek Loan Facility (GLF) comprising a loan of ca 73 billion euros, disbursed in December 2011. "Of this sum 52.9 billion euros was loaned in the form of bilateral credit between Greece and the other countries of the Eurozone (excluding Slovakia, Estonia and Latvia), while a further 20.3 billion euros was provided by the International Monetary Fund (IMF)."
• Second package was extended in February 2012 in the form of credit from the European Financial Stability Facility (EFSF). "By December 2013 133.6 billion euros of this second package had been paid out. Moreover, the IMF also increased its financial assistance to Greece by 6.6 billion euros during this period."

In addition, Greece already restructured 52.9 billion euro of the GLF. Original loans were issued for 5 years term at an interest rate equivalent to the 3-month Euribor plus an interest rate margin of 3 percentage points for the first three years and 4 percentage points for the remaining years.

• "The term of all loans was subsequently extended to 7.5 years in June 2011 and the interest rate margin was reduced by 1 percentage point." 
• Subsequently, in February 2012 "the term was extended to 15 years and the margin was reduced to 1.5 percentage points for all further interest payments". 
• In November 2012 the GLF lenders "doubled the term of the loans to 30 years and reduced the interest rate margin to 0.5 percentage points. 

So in effect, Greece had: 2 Bailouts and 3 adjustments to-date.

By Ifo estimates, the above revisions reduced real debt under the GLF by 12 billion euros.
"The envisaged further relaxation of credit conditions for the 52.9 billion euros of the Greek Loan Facility - with an extension of the term to 50 years and a reduction of the margin to 0 percentage points would entail further losses of around 9 billion euros for European creditors." 

7/10/2013: Ifo publishes updated forecast for Euro area growth: Q3 2013-Q1 2014

CESIfo issued an update to its Q3-Q4 2013 forecasts for the euro area today.

Per release:

"After six consecutive quarters of decline, GDP in the Eurozone increased by 0.3% in Q2 2013. Economic activity is projected to expand further over the forecast horizon (+0.1% in Q3, +0.3% in Q4 2013 and +0.4% in Q1 2014) mainly on the back of the expected pick-up in external demand as well as fiscal policy gradually becoming less contractionary."

"However, the recovery is likely to be very modest, as fiscal austerity measures and structural reforms currently undertaken by member states will continue to hamper the expansion of domestic demand."

Specifically:
-- "The unfavourable labour market conditions will keep on weighing on the development of real disposable income and private consumption will therefore recover only slowly."
-- "Aggregate investment is forecast to expand, albeit still at a rather low rate over the forecast horizon. This profile will be mainly driven by the increasing needs to replace depreciated capital as well as the robust foreign-demand growth."
-- "Under the assumptions that the oil price stabilizes at USD 111 per barrel and that the euro/dollar exchange rate fluctuates around 1.35, inflation is expected to remain well below 2% (1.5% in Q4 2013 and 1.4% in Q1 2014)."
-- "The major downside risks to this scenario arise from possible renewed escalations of the debt crisis and from a stronger than expected deceleration in some emerging markets."

Note: my work on positive euro area growth signals based on CESIfo data will be featuring in monthly economics slide deck on Business Insider - stay tuned. Meanwhile, two previous post covering advanced pre-conditions for the above forecasts:
http://trueeconomics.blogspot.ie/2013/10/4102013-eurocoin-cautious-return-of.html (note eurocoin-consisted forecast for Q3 2013 set by me at 0.1% which is in line with CESIfo forecast above).

Also, note my Sunday Times article from September 29, 2013 covering Ifo data on euro area economic conditions.

Stay tuned for the Sunday Times article posting here and for BusinessInsider slide link.