INSIGHT: Concerns mount in stagnant Europe

15 May 2012 16:02  [Source: ICIS news]

By Nigel Davis

The European Central Bank in FrankfurtLONDON (ICIS)--Europe’s financial markets reacted positively early on Tuesday to news that Germany’s economy grew by 0.5% in the first quarter, much more strongly than expected. France too avoided recession.

But the European Commission’s “flash” estimates of economic activity point to stagnation across the eurozone and the EU: no economic growth compared to a contraction of 0.3% in the fourth quarter of 2011.

The economies of the Czech Republic, Spain, Italy, Cyprus, the Netherlands, Portugal, Romania and the UK were in recession having posted two consecutive quarter of negative GDP growth. The Greek economy contracted by 6.2% year-on-year in the first quarter of 2012, having shrunk by 7.5% on the same basis in the previous quarter.

By comparison, data from Eurostat show the US economy expanding by 0.5% in the quarter compared with 0.7% in the fourth quarter of 2011. The year-on-year gain in the first quarter was 2.1%.

The austerity measures implemented by EU governments continue to constrain growth. The path Europe takes now – with the new president of France, Francois Hollande expected to challenge German chancellor Angela Merkel’s tough stance on fiscal austerity – is unclear.

The Greek debt crisis looms not just over the eurozone and the EU but has global implications. Greek's go to the polls again in June, the country's political parties unable to form a government following the most recent elections. This week, Greece’s possible exit from European monetary union is being discussed more openly.

As chemical markets have shown, 2012 thus far has been a struggle for EU industry. Chemicals production was down sharply year-on-year in March in Germany, by 5.0%, and elsewhere in the region. Sequentially, output growth away from the slump at the end of 2011 had stalled.

The American Chemistry Council’s (ACC’s) global Chemical Production Regional Index (CPRI) was flat in March after three consecutive monthly gains. Chemicals production was up in the US, Brazil, China, South Korea and Africa and Middle East region, but down steeply year-on-year in most European countries.

Cefic earlier this month was talking of weaker economic and industrial sentiment in the EU in March. Confidence in industry in the EU worsened markedly and managers’ assessment of orders was less positive. Confidence in the construction sector was also weaker.

“EU chemicals production was negatively affected in the first quarter by continued deterioration in the EU business climate and weak macro-economic activity,” Cefic’s chief economist, Moncef Hadhri said. “The sector’s downward growth trend is partly the result of financial turbulence stemming from the European debt crisis and the intensifying fiscal consolidation efforts in most EU member states.”

The statistics show that EU chemicals production in February was 5.3% below the peak in 2007.

EU petrochemicals production Feb 2012

($1 = €0.78)

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By: Nigel Davis
+44 20 8652 3214



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