Euro zone business growth up as new orders pour in

Euro zone business activity accelerated in March at its fastest pace for nearly a year as customers took advantage of ongoing price discounting to place new orders at a rate not seen since mid-2011.

The upbeat survey will provide welcome news for the European Central Bank just weeks after it embarked on a trillion-euro asset-purchase programme to try and spur growth and inflation.

Markit’s final March Composite Purchasing Managers’ Index, seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3.

A reading above 50 implies growth.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3% for the first quarter.

However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months,” said Chris Williamson, Markit’s chief economist.

Markit’s growth projection is slightly less than the 0.4% predicted in a Reuters poll taken last month.

A sub-index measuring new orders leapt to 54.1 from 52.5, its highest since May 2011.

That suggests a healthier outlook although the survey also showed companies have now been cutting prices for three years, although not as sharply in March.

Euro zone consumer prices fell again in March, as expected, but the decline was the smallest this year.

That price-cutting helped drive service industry activity up at its fastest pace in eight months. The March service sector PMI rose to 54.2 from 53.7, just below the flash 54.3 estimate.

With the recovery gathering steam and confidence growing because of the ECB’s QE programme, service companies were at their most optimistic since May 2011.

The business expectations sub-index came in at 64.8 compared with February’s 64.1.

“With the ECB’s policy of quantitative easing also set to provide a boost to the nascent recovery in coming months, the economic outlook is therefore brightening as we expect to see more upward revisions to growth forecasts for the year,” Williamson said.

3 European Stocks Gaining from Euro Collapse – Analyst Blog

The euro’s nosedive is boosting Eurozone stocks to record levels. Meanwhile, the region’s economy is witnessing the strongest momentum experienced since the economic crisis. Stocks are also surging higher, particularly exporters as the common currency continues to plunge.

Euro’s Continual Slide

On Tuesday, the Euro plunged to its lowest level in almost 12 years. The Euro witnessed another decline of nearly 1.4% against the U.S. dollar to drop to $ 1.07. The euro declined further to trade below $ 1.06 on Wednesday, reaching its lowest level since 2003.

Continuous decline in euro raised the possibility that the two currencies are moving toward parity in the not-too-distant future. Concerns that an interest rate hike was in the offing combined with European Central Bank’s (ECB) monetary easing program led to the plunge.

ECB Stimulus

The ECB quantitative easing program that got underway on Monday also weighed on the euro. The program has pushed Eurozone bond yields to their lowest levels ever. Short-term German government bond yields are in negative territory.

The ECB announced a 1 trillion euro ($ 1.1 trillion) bond-buying program, which started on Mar 9. As announced in January, ECB will buy government bonds worth 60 billion euros a month through a quantitative easing program. The QE program will continue til Sep 2016.

ECB President Mario Draghi said this time that ECB would purchase these bonds even if they have a negative yield. However, the negative yield should not cross -0.2%, as they need to be within the level of ECB’s deposit rate.

Fed Rate Hike Fears

Meanwhile, U.S. markets are anticipating that the Fed will consider a rate hike in second half of this year as strong jobs data on domestic front suggested that labor market is improving at an impressive rate.

The recent upbeat jobs data has raised expectations that the Federal Reserve may hike interest rates as early as June, rather than in the third quarter of 2015, as previously estimated. This is especially true as the latest upbeat unemployment rate has hit the upper bound of the 5.2–5.5% range which the Fed believes signals full employment. Also, average hourly wages of $ 24.78 rose modestly by 3 cents in February though wage growth still remains an area of concern.

Analysts are also expecting that the Fed will start the rate hike process by dropping the ‘patient’ phrase in the upcoming Federal Open Market Committee (FOMC) meeting that is scheduled to happen on Mar 18. The Fed maintained its stance to remain ‘patient’ on rate hike for long time and is expected to change its stance soon.

European Markets Gain

Stocks in Europe surged to a six-week high on Wednesday. Exporters received a significant boost from a falling euro. The Stoxx Europe 600 Index surged 1.5% as automakers emerged as the highest gainers. Germany’s DAX 30 increased 2.7% and France’s CAC 40 increased 2.4% the most among the benchmarks of the 18 markets of West-Europe.

In comparison, the FTSE 100 increased by just 0.3%. Only Greece’s Athex Composite Index lost 2.5%, even as further talks about the fine print of economic reforms commenced in Brussels.

Export-Led Growth

The decline in the euro is particularly beneficial for the region’s economy. This is because nearly 25% of the region’s GDP can be attributed to exports. This is double of how much exports contribute to US’ GDP and even exceeds the proportion of China’s GDP attributable to exports.

Now, earnings are expected to improve, helping markets to move higher. In this scenario, automakers and chemicals companies are the more obvious choices. However, pharmaceuticals and luxury goods stocks are among those set to make steady gains.

There has been a significant decline in what is referred to as the trade-weighted euro. This is the value of the common currency as measured against a basket of currencies with which the region has the highest proportion of trade. This metric has declined 9.2% since January.

A 10% decline on a yearly basis in the trade weighted euro will boost GDP by 0.7%. This is nearly 35% of the decline in oil prices. To date, the euro has declined nearly 13% since last year.

Our Choices

Below we present three stocks which are likely to gain from these trends, each of which also has a favorable Zacks Rank.

NXP Semiconductors NV NXPI is a semiconductor company, based in Eindhoven, the Netherlands. The company designs and manufactures high performance mixed signal semiconductor solutions to meet the requirements of systems and sub-systems in its target markets.

NXP Semiconductors holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 43.2%.The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 18.45.

Actavis plc ACT is a specialty pharmaceutical company engaged in the development, manufacturing, marketing, sale and distribution of generic, branded generic, brand, biosimilar and over-the-counter (OTC) pharmaceutical products.

Actavis holds a Zacks Rank #2 (Buy) and has expected earnings growth of 26.3%. It has a P/E (F1) of 16.28x.

Cimpress N.V. CMPR is an online supplier of high-quality graphic design services and customized printed products to small businesses and consumers. The company provides services to more than 8 million small businesses and consumers per year.

Apart from a Zacks Rank #2 (Buy), Cimpress has expected earnings growth of 54%. It has a P/E (F1) of 24.48x.

The euro’s slide is expected to continue in the days ahead. European companies are expected to gain significantly in this environment. This is why these stocks would make good additions to your portfolio.

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Weak euro boosts region's business growth

For the first time since April 2014, economic activity across each of the euro zone economies expanded, Markit said in a note accompanying the data.

“By nation, output growth was again led by Ireland and Spain. The rate of expansion in economic activity also accelerated to a four-month high in Germany, while Italy saw output rise for the second month running (albeit at a slower pace),” the group said.

Another key development from the February surveys was that France’s business activity started to expand. The region’s second-largest economy saw the strongest growth of both output and new business since August 2011.

Markit’s Chief Economist, Chris Williamson, said there were, “clear signs of the euro zone economy reviving in February, with stronger inflows of new business and rising business confidence suggesting growth should continue to pick up in March.”

“The increasingly positive survey data put the region’s GDP on course to grow by 0.3 percent in the first quarter,” he added.

The index’s findings come after data released earlier this week showed that deflation eased in the euro zone in February, as the 19-country region awaits the European Central Bank’s (ECB) quantitative easing (QE) program. Unemployment also fell, data revealed this week, to 11.2 percent in January.

Howard Archer, chief U.K. and European economist a IHS Global Insight, said the evidence suggested that very low oil prices, a markedly weaker euro and the ECB’s stimulative measures, “are increasingly feeding through to lift economic activity.”

“While the euro zone still has significant underlying problems, we believe it should be able to achieve GDP growth of 1.6 percent this year, which would be up from 0.9 percent in 2014,” he said in a note Wednesday.

Euro area needs more bank lending

These are the political and economic problems the ECB is dealing with.

France, for example, just got a three-page letter from the EU Commission with a detailed description of demand- and employment-stifling structural reforms it has to implement – as a condition of getting access to the €300 billion investment package the highly-paid Brussels commissioners have yet to figure out how to finance.

The key part of these reforms are more flexible labor markets, a euphemism for easier hiring and firing and all sorts of part-time and fixed-term employment contracts. At the moment, 84.2 percent of all French labor hires are based on loathed CDD fixed-term contracts (contrats à durée determinée).

The rub is that without a permanent job contract you can’t even rent an apartment in Paris, or, apparently, anywhere else in France.

Read More Job losses and weak demand dent euro zone economy

This example makes it easy to understand the social outrage at radical labor market reforms. The present French government, with record-low approval ratings (somewhere between 15 and 20 percent), and squeezed from left and right, is likely to ignore the demand for further labor market reforms while insisting on its share of any future EU manna.

Italy is another example of a country that is getting nowhere with its reform agenda. Mired in a continuing recession, with a jobless rate of 12.6 percent, 43 percent of unemployed youth, and government’s approval ratings falling 13 points so far this month, Italy is experiencing daily protests against the proposed changes in labor protection laws. The three main labor unions – more than 8 million strong — have scheduled a nationwide strike for December 12.

¡Si se puede! (“Yes, we can!”)

With a growth rate of 1.2 percent in the first nine months of this year, Spain looks like a booming euro area country, despite its 24 percent unemployment rate, more than 50 percent of its jobless youth and 30 percent of its working poor earning less than €1,216.00 per month.

With a budget deficit of about 6 percent of the gross domestic product (GDP) expected to be overshot by the end of this year (after a deficit of 7.1 percent of GDP in 2013), Spain is very far from the euro area budget deficit limit of 3 percent of GDP. In spite of that, a number of fiscal stimulus measures have been put forward as the governing center-right party gets ready for elections in late 2015. It is currently running neck-and-neck with a recently launched radical left Podemos (“We Can”) party polling at about 28 percent. Podemos is led by a pony-tailed political science professor whose members are chanting President Obama’s slogan “yes, we can!”

Germany’s weak economy will probably end up with a balanced budget next year, but its center-right and center-left governing coalition will also face growing political challenges. In a historic deal, the three left parties – the far-left party Die Linke, Social Democrats (who are now part of the governing coalition) and the Greens – have agreed last week to form a “red-red-green” government in the federal state of Thuringia.

Press Release: The Conference Board Leading Economic Index(R) (LEI) for the Euro Area Was Unchanged in September


The Conference Board Leading Economic Index(R) (LEI) for the Euro Area Was Unchanged in September

PR Newswire

BRUSSELS, Oct. 27, 2014

BRUSSELS, Oct. 27, 2014 /PRNewswire/ — The Conference Board Leading Economic Index(R) (LEI) for the Euro Area remained unchanged at 111.7 (2004=100) in September, following a 0.6 percent decrease in August and a 0.3 percent increase in July.

“The Leading Economic Index for the Euro Area was flat in September after a sharp decline in August,” said Bert Colijn, Senior Economist at The Conference Board. “However, the majority of the LEI components have still not returned to positive territory, and the six-month growth rate dipped below zero for the first time since November 2012. The business and consumer confidence indicators have stopped declining further, so there is a chance that the recent deterioration in industrial production and manufacturing turnover will end in the near future. Even so, overall GDP growth is unlikely to strengthen much in the coming months. Meanwhile, it remains to be seen if last week’s ECB stimulus hike will boost investors’ confidence in financial markets.”

The Conference Board Coincident Economic Index(R) (CEI) for the Euro Area, which measures current economic activity, was unchanged in September, according to preliminary estimates. The index now stands at 101.7* (2004 = 100). The CEI was unchanged in August and increased 0.1 percent in July.

About The Conference Board Leading Economic Index(R) (LEI) for the Euro Area

The Conference Board Leading Economic Index(R) for the Euro Area was launched in January 2009. Plotted back to 1987, this index has successfully signaled turning points in the business cycle of the bloc of countries that now constitute the Euro Area, defined by the common currency zone.

The Conference Board currently produces leading economic indexes for twelve other individual countries, including Australia, Brazil, China, France, Germany, India, Japan, Korea, Mexico, Spain, the U.K. and the U.S.

The seven components of The Conference Board Leading Economic Index(R) for the Euro Area include:

Economic Sentiment Index (source: European Commission DG-ECFIN)

Index of Residential Building Permits Granted (source: Eurostat)

EURO STOXX(R) Index (source: STOXX Limited)

Money Supply (M2) (source: European Central Bank)

Interest Rate Spread (source: European Central Bank)

Eurozone Manufacturing Purchasing Managers’ Index (source: Markit Economics)

Eurozone Service Sector Future Business Activity Expectations Index (source: Markit Economics)

To view The Conference Board calendar for 2014 indicator releases: http://www.conference-board.org/data/

* Series in The Conference Board LEI for the Euro Area that are based on The Conference Board estimates are real money supply and residential building permits. All series in The Conference Board CEI for the Euro Area are based on The Conference Board estimates (employment, industrial production, retail trade, and manufacturing turnover).

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.

Follow The Conference Board

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                   Summary Table of Composite Indexes                                          2014                6-month                             ------------------------------                                 Jul        Aug       Sep    Mar to Sep  Leading Economic Index (LEI)                           112.4 p   111.7 p  111.7 p      Percent Change               0.3 p    -0.6 p    0.0 p      -0.3 p      Diffusion                     50.0      42.9     42.9        42.9  Coincident Economic Index (CEI)                           101.7 p   101.7 p  101.7 p      Percent Change               0.1 p     0.0 p    0.0 p       0.3 p      Diffusion                     75.0      50.0     75.0        50.0  n.a. Not available       p  Preliminary      r Revised Indexes equal 100 in 2004 Source: The Conference      All Rights Reserved  Board  

NOTE:

To view the webpage, which includes a pdf of the press release and technical notes: http://www.conference-board.org/ data/bcicountry.cfm?cid=10

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/the-conference-board- leading-economic-index-lei-for-the-euro-area-was-unchanged-in-september-251722577.html

SOURCE The Conference Board

/Web site: http://www.conference-board.org

    (END) Dow Jones Newswires   10-27-140415ET   Copyright (c) 2014 Dow Jones & Company, Inc. 




FOREX-Dollar rises after strong U.S. GDP report; euro sags

* U.S. Q2 GDP revised up to 4.2 percent

* Escalation of Ukraine tensions pushes up yen, Swiss franc

* Euro hits 21-month low against Swiss franc (Adds dollar gains, quotes, U.S. data; changes byline and dateline, previous LONDON)

By Michael Connor

NEW YORK, Aug 28 (Reuters) – The dollar got a lift from better-than-expected U.S. growth data on Thursday as the euro fell amid reawakened investors’ worries about a serious escalation in tensions between Ukraine and Russia.

The dollar index jumped just after the U.S. government reported the American economy grew at an upwardly revised 4.2 percent during the second quarter and was last up 0.15 percent at 82.553.

The basket of six major currencies valued against the dollar has this week repeatedly set new 2014 highs amid a greenback rally that began in early July.

“The basic story is still in place of a solid rebound (in the economy) in the second quarter after a depressed first quarter,” said Doug Handler, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “These numbers will not change the Fed’s outlook.”

The Commerce Department had initially estimated that U.S. gross domestic product expanded at a 4.0 percent annual rate in April, May and June. The 4.2 percent rate reflected upward revisions to business spending and exports and was the fastest pace since the third quarter of 2013.

A separate, Labor Department report showed the number of Americans filing new applications for jobless benefits slipped 1,000 to a seasonally adjusted 298,000 last week. It marked a second week of consecutive declines and underscored brightening labor market fundamentals.

Safe-haven currencies, the yen and the Swiss franc , rose in global currency markets. The dollar was last down about 0.2 percent against both currencies.

The euro hit a 21-month low against the Swiss franc of 1.2052 francs per euro on trading platform EBS after news from Ukraine and was last off 0.12 percent at 1.2054 francs.

Against the yen, the single currency fell to a two-week low of 136.41 yen per euro and was last at 136.51, down for the day by 0.4 percent. The euro was trading at $ 1.3169, down about 0.2 percent.

Selling of the euro, which traded at nearly $ 1.40 in May, has been driven over the last week by stepped-up speculation that European policymakers will quicken monetary loosening as a way to boost economic growth.

But on Thursday euro selling accelerated after Ukraine accused Russia of moving troops across its border. Ukrainian President Petro Poroshenko convened his security and defense council to decide how to respond.

“If the situation deteriorates … the obvious loser is the euro,” said Adam Cole, global head of currency strategy at RBC Capital Markets. Germany, the euro zone’s largest economy, is one of Russia’s biggest trading partners.

(Reporting By Michael Connor in New York; Editing by Jonathan Oatis)

5 Things To Know Ahead of the Euro-Zone GDP Report

The second quarter report on euro-zone gross domestic product should make for grim reading. GDP is expected to have expanded just 0.1% from the previous quarter, according to a survey of economists, or around 0.4% in annualized terms. That’s half the first quarter’s weak gain and far below what is needed to significantly reduce unemployment or alleviate debt burdens.

Here are five things to watch in Thursday’s report.

Could Euro Weakness Hurt the US Economy?

Over the last several days I’ve noticed there has been quite a bit of US dollar strength. I’ve noticed it not just in the majors, but also in the exotics. With the Q2 GDP report right around the corner I wondered if that strength was telling us something. So I looked at what the Dollar Index did ahead of the last several reports and what those reports looked like.

 
I understand this is a very small sample set but rather than spend time going further down the rabbit whole I basically came to the conclusion that we’re not going to get any secrets from this data alone. Now I used the Dollar Index which is a weighted basket of currencies versus the dollar. But is this move stemming from US Dollar strength or is it weakness in the Euro or the Yen?

 
The Euro is showing obvious signs of weakness. It’s been this way since a failure at the 1.40 handle in early May, a full month ahead of the negative interest rate announcement out of the ECB. In the last two months the Euro has given up 6 cents to the Dollar. But I’m still not ready to call it a US Dollar victory. Let’s look at the Euro/Yen cross.

Similar story here, in May the pair traded near 143, today it sits below 137. So the story seems to be continued Euro weakness in the face of negative rates. Makes sense that a negative rate would have a negative impact on the currency. So it’s not just US Dollar strength but more like Euro weakness that’s causing the Dollar Index to rise.

Is there a point where Euro weakness becomes a problem for the US economy?

As the Euro sinks, it makes European goods cheaper for US consumers to purchase and has the opposite pull on US goods purchased by Europeans.  This would have a negative effect on Net Exports for the US and thus be a drag on the GDP number. Of the 14% of GDP we export, Europe is a small fraction of this. So that drag would likely be very small.

I think the point where Euro weakness really becomes a problem for the US is very far away from where we are now. It seems like the Euro area is just taking its place in line following up Japan in the global “race to the bottom” for currency valuation. If the world was really worried about it, you wouldn’t have yields at 200 year lows in European sovereign bonds.

What do you think?

Zacks Investment Research

Lagarde's Error Could Be Costly For The Euro Area

The IMF’s Article IV consultation with the Euro area makes grim reading.

It starts off upbeat:

The euro area recovery is taking hold. Real activity has expanded for four consecutive quarters. An incipient revival in domestic demand is adding to the impetus from net exports. Financial market sentiment has improved dramatically, particularly after the recent ECB measures. Sovereign and corporate yields are now at historic lows in many countries, and lower funding costs have helped banks raise more capital.

And it then goes on to praise the efforts national governments have made to clean up their balance sheets. It also commends policy-makers and regulators for the nascent banking union and the clean-up currently in progress. “Strong policy actions have boosted investor confidence and laid the foundations for recovery”, it cheerfully proclaims.

But that’s where the cheerfulness ends. The fact is that the Euro area is still in deep, deep trouble. The IMF identifies four key areas of weakness:

  • Activity and investment have yet to reach pre-crisis levels. The recovery of private investment has been weaker than in most previous recessions and financial crises. In the first quarter of 2014, growth was weaker than expected and unevenly distributed across countries.
  • Balance sheets are still impaired and debt levels elevated. Public debt levels remain high. Weakness in banks’ balance sheets inhibits the flow of credit and corporate and household debt overhangs impede demand.
  • Inflation is worryingly low, including in the core countries. By keeping real interest rates and real debt burdens elevated, very low inflation stifles demand and growth. It also makes difficult the adjustment in relative prices and real wages that must occur for sustainable growth to take hold.
  • Unemployment, especially among the youth, is unacceptably high. The average rate for the euro area is around 12 percent. Youth unemployment is even more elevated, averaging close to 25 percent. High unemployment erodes skills and human capital, inflicting permanent damage on the capacity of economies to grow.

And the IMF notes that much higher growth is needed to bring down unemployment and debt. Indeed it is. The most highly-indebted countries in the Euro area – unsurprisingly, also those with the highest levels of unemployment – are either flirting with recession, or deeply depressed. Falling gdp raises the sovereign debt/gdp ratio. If growth in these countries fails to recover, their debt/gdp levels will inevitably rise, not because they are necessarily borrowing more (though if tax receipts also fall due to recession they may be forced to) but due to simple arithmetic. Households, too, are unable to reduce their debts when incomes are stagnant or falling. The Euro area as a whole does need much higher growth, especially in the periphery.

It’s not at all clear where this growth is going to come from. Euro area policy-makers so far have relied on fiscal adjustment to restore competitiveness in order to generate export-led recovery. But there is a global slowdown at present, largely due to China’s economic difficulties. Given this, the fragile export-led recovery of countries like Portugal and Ireland looks very vulnerable.

Intra-Euro area exports don’t look too promising either. Germany’s economy is slowing, and other core countries such as Finland and the Netherlands are in recession. France’s economy is rapidly becoming a basket case. There is a general shortage of demand within the Euro Area which is manifesting itself as very low inflation. This is echoed outside the Euro Area too: inflation everywhere is on a downwards trend. There is, in fact, a global shortage of demand.

The IMF, wisely, advises that Euro area policy-makers should concentrate on supporting demand. It commends the ECB’s recent interest rate cuts and TLTRO lending programme. And it recommends that if demand remains poor, the ECB should do QE, specifically by buying a weighted basket of Euro area government bonds.

The IMF also warns the Euro area not to impose additional fiscal austerity in response to debt/gdp hikes arising from recession: “large negative growth surprises should not trigger additional consolidation efforts”. IMF researchers have previously shown that debt/gdp actually tends to rise during fiscal consolidation, so reinforcing consolidation when debt/gdp rises can cause a damaging spiral of austerity, missed debt reduction targets and more austerity.

The IMF’s dovish stance has not gone down well in Germany. The German finance minister Wolfgang Schäuble disagreed with the IMF: far from easier monetary policy being needed, he argued that there was too much liquidity in financial markets and interest rates were too low. His worry was rising house prices in Berlin and other prime real estate areas. Low inflation in Germany bothered him not a jot, and nor did high unemployment and depression in the periphery. Rather, he emphasised the importance of fiscal consolidation in the periphery. In his view periphery countries can, and should, reduce their debt and deficits through their own efforts without help either from the centre or from the ECB. Growth will return when they make the necessary structural reforms.

It didn’t go down too well at the ECB, either. Draghi reminded everyone that QE can involve purchases of private sector securities – presumably with SME loan securitizations in mind, since that is the scheme currently being cooked up by ECB policy wonks. But as ever, he prefers to “wait and see”. Maybe the measures taken in June will be sufficient to restore growth in the Euro area despite all the headwinds. Maybe there is a confidence fairy. Maybe.

Christine Lagarde

Christine Lagarde (Photo credit: Adam Tinworth)

The widening cracks in the Troika are all too evident. But there is a much bigger problem. Last year, the IMF severely criticized the UK government’s fiscal austerity programme, which it said hampered growth. But the UK is now growing more strongly than any other Western country. On British television, IMF chief Christine Lagarde apologized. “We got it wrong”, she said.

Her apology was a major error. As Simon Wren-Lewis explains, the UK’s fiscal austerity has indeed hampered growth in the last four years, delaying the UK’s recovery from the financial crisis. But more importantly, Lagarde’s apology destroyed the IMF’s credibility regarding the politically-difficult Euro area Article IV consultation. It gave carte blanche to Euro area officials and politicians to say “you were completely wrong about the UK. Why should we take your advice?”

The IMF was not wrong about the UK – it was just late to the party. And it is not wrong about the Euro area, either. The Euro area desperately needs a looser monetary policy and relaxation of fiscal austerity. Structural reforms, while necessary, will not be sufficient to restore growth. The Euro area needs more investment – as the IMF recommends – and demand support, particularly in core countries where inflation is falling.

Above all, the Euro area needs hope. Relentless austerity and debt deflation depresses not just economies, but people. And it is people that drive economies. Somehow, the people of the Euro area have to be shown that politicians and officials really want to see growth restored. At the moment, it is not clear that Euro area politicians and officials even recognise that they have a problem. Wolfgang Schäuble’s comment that he sees no risk of deflation in the Euro area – even though inflation is currently at 0.5% – is telling. While politicians and officials remain so divorced from reality, it is hard to see much hope for the Euro area. A convincing IMF Article IV consultation could have restored some hope. The IMF’s loss of credibility is a disaster.

Although the IMF’s Article IV findings were grim, the recommendations, if implemented, would help to generate recovery. But they seem likely to be ignored. Lagarde’s error could prove very costly for the people of the Euro area.

Spain to pass $8.6 billion plan to boost jobs, cut taxes in June – prime minister

MADRID (Reuters) – Spain will approve a 6.3 billion euro (5.14 billion pounds or 8.6 billion dollars) plan next week to create badly needed jobs and will cut the main rate of corporate tax to 25 percent from 30 percent to make companies more competitive, Prime Minister Mariano Rajoy said on Saturday.

About one in four workers in Spain is unemployed, with the jobless rate climbing to over 50 percent for people aged 25 or less. A tentative economic recovery has yet to feed into jobs and better living conditions for most Spaniards.

The tax announcement comes as the International Monetary Fund this week asked Spain to increase tax revenues to protect its public services and make further efforts to cut its budget deficit to ensure a lasting economic recovery.

The jobs package is due to be passed by the government next Friday and will include credit to small and medium-sized firms and an investments targeting research and development, energy-saving, transport and industrial production, Rajoy said at an event in Sitges in northern Spain that was broadcast on Spanish television.

Measures to fix the public employment service will also be put forward, he said.

Later in June, the government would approve a wide-ranging tax reform, he said, including a cut in the corporate tax rate although companies would enjoy fewer tax breaks.

“The general idea is to cut taxes. We want families to have more money in their hands, boost consumption, increase the competitiveness of the entire economy, step up savings and contribute to creating jobs,” Rajoy said.

The government already approved earlier this year a cut in social security contributions for companies creating jobs and Rajoy has said the reform would also include a cut in income tax for middle- and low-income taxpayers.

Spain’s government forecasts that the country’s ratio of public debt to gross domestic product (GDP) will reach 99.5 percent by the end of 2014, while the public deficit will remain high at 5.5 percent of GDP.

(Reporting by Julien Toyer; Editing by Raissa Kasolowsky)