European Unemployment Rises, Euro Area to Shrink in 2013

Story first appeared on Bloomberg News -

The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said.

Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth, the Brussels-based commission forecast today. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year.

Economic and Monetary Affairs Commissioner Olli Rehn said authorities must press on with reforms to end the region’s debt crisis and help the recovery. While “hard data” has been disappointing, there also has been more encouraging “soft data” that points to better times, he told reporters today.

A strengthening of the euro economy later this year may be led by Germany, where investor confidence rose in February to a 10-month high. The commission’s weak outlook reflects government austerity measures and efforts by companies and consumers to reduce debt. The European Central Bank said today banks will next week return 61.1 billion euros ($80.5 billion) of its second three-year loan, a measure introduced to aid lending at the depths of the financial crisis.

“We clearly have a decoupling with different recovery trends, with Germany certainly recovering at a much faster pace,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “We still have a lot of noise and volatility in the monthly data, but the bottom line is that the euro zone as a whole has already turned.”

German Confidence

The commission cut its forecast for the German economy, Europe’s largest, to 0.5 percent growth this year, from 0.8 forecast in November, due to a drop in euro-area demand that damps export and investment.

In a sign that Europe’s largest economy is anticipating better times, the Ifo institute in Munich said its business climate index climbed to 107.4 from 104.3 in January. That’s the biggest increase since July 2010 and the fourth straight monthly gain. Earlier this week, the ZEW gauge of investor sentiment rose to the highest in almost three years.

Separately today, the ECB said 356 financial institutions will repay money on Feb. 27 from its second long-term loan. The 61.1 billion-euro figure is about half the 122.5 billion euros forecast by economists. The ECB flooded markets with more than 1 trillion euros in three-year loans a year ago and banks have the option of repaying after 12 months. They started returning the initial loan last month.

“The second LTRO was used by a wider range of institutions with poorer collateral and given the positive carry still on offer, it makes sense for many of these institutions to hold on to these funds,” said Elsa Lignos, a currency strategist at Royal Bank of Canada in London. “We wouldn’t take this as a sign that financial tensions are returning.”

Budget Deadlines

The Stoxx 600 Index (SXXP) rose 1.1 percent as of 12:33 p.m. London time, bringing its advance for the year to 3 percent after a 14 percent gain last year. The euro slipped 0.1 percent versus the dollar to $1.3172. It has strengthened 6 percent over the past six months.
On the euro area, Marco Buti, head of the commission’s economics department, said the labor market “is a serious concern.”

“This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward,” he said.

Domestic Demand

The commission said domestic demand won’t improve until 2014, when it should take over as the main driver of growth. Investment is expected to be a drag on the economy this year, subtracting 0.3 percent from GDP, before offering a 0.4 percent contribution in 2014.

Seven euro-area economies are expected to contract in 2013, with the Netherlands joining Italy, Spain, Portugal, Greece, Cyprus and Slovenia in the new forecast.

The EU’s outlook for next year was more upbeat, with 2014 forecasts of 1.4 percent growth and 12.1 percent unemployment in the euro area. Across the 27-nation European Union, the commission projected 0.1 percent growth for 2013 and 1.6 percent growth in 2014, after the bloc shrank 0.3 percent last year.

“Some signs of a turnaround are now discernible,” Buti said. “The present forecast projects a return to moderate growth in the course of this year, as confidence gradually recovers and the global economy becomes more supportive.”

Budget Shortfalls
Rehn urged nations to keep cutting budgets and overhauling their economies in the face of slowing growth. In a statement, he said any shift away from fiscal consolidation would prolong the downturn.

“The decisive policy action undertaken recently is paving the way for a return to recovery,” Rehn said. “We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is under way, delaying the needed upswing in growth and job creation.”

Still, he said deadlines may be extended because of the poor short-term economic outlook, giving deficit violators such as Spain and France room to avoid penalties or draconian cuts.

The EU is close to agreement on how to install the ECB as a common bank supervisor for the euro area, as well as how it will apply new global standards on how much protective capital banks should hold, Rehn said. These steps also will help set the stage for improvement in future years, he said.

The euro area as a whole is expected to post a budget deficit of 2.8 percent in 2013, according to the EU report. Spain is projected to show a 10.2 percent deficit for 2012, falling to 6.7 percent in 2013. The Spanish economy is projected to shrink 1.4 percent in 2013, the same as in 2012, with unemployment rising to 26.9 percent in 2013.

France, where President Francois Hollande has tussled with EU calls for more austerity, is projected to post a 4.6 percent deficit in 2012 and a 3.7 percent gap in 2013, the commission said. Without any changes, France’s deficit would rise to 3.9 percent in 2014 and Spain’s would rise to 7.2 percent, the commission said.

Rehn said it’s too soon to determine whether the commission will call for France to take additional steps.

From Australia: Seize the Initiative -- the Race for the Clean Energy Economies

The Australian

SINCE before he was elected US president, Barack Obama made clear who he thought would dominate the world economy in the 21st century.

It would be, he repeated in his State of the Union address last month, the country that led the transformation in the clean-tech and clean energy sectors.

The US has watched its early dominance of the silicon solar panel industry being assumed by China and Japan.

It now fears that not only China but India, Brazil and others will seize the initiative to dominate other emerging industries and technologies.

The Copenhagen climate change talks may have ended in disarray, hopes for a binding treaty anytime soon may be in retreat and some conclusions of the Intergovernmental Panel on Climate Change may be under the spotlight, but it seems clear that the transition to a low-carbon economy and towards clean technology is inevitable and accelerating. "China is not waiting to revamp its economy," Obama said in his speech. "Germany is not waiting. India is not waiting. They are not standing still . . . They're rebuilding their infrastructure. They're making serious investments in clean energy because they want those jobs."

The question for Australia is how it seeks to position itself in what some are branding as the new space race.

Present policies, particularly the proposed emissions trading scheme and faltering renewable energy target, have been framed, or at least justified, with a global climate change treaty in mind.

But too little of the push to innovate has been sold on the need to maintain pace with companies equally concerned with energy security and other environmental measures as about climate change. And too little about gathering some share of the trillions of dollars that will be directed towards clean technology and investments.

In the absence of an international treaty, most leading economies are pushing for change, as a national or regional initiative, in the form of an ETS, mandated clean energy targets, green stimulus packages and a host of subsidies, taxes and financing initiatives.

"The lack of a binding international agreement on any of these issues at the Copenhagen summit last December has understandably created uncertainty in the minds of many potential climate change investors," Deutsche Bank's head of asset management Kevin Parker says in a recent report. "This is unfortunate because what matters far more is that national and local governments all over the world are not waiting for a supra-national framework. They are already pushing ahead with their own policies that will do far more than international regulation in the short to medium term to stimulate private investment."

Deutsche Bank notes that immediately before and after the Copenhagen summit ended in disarray, more than 25 significant policy announcements were made from nations and states worldwide, with some of the most notable coming from the US, China, India, Taiwan, Brazil, Japan, Britain and South Korea.

"All this new national legislation is a hugely encouraging sign that many countries not only understand the urgency of the climate change problem but see the competitive advantage of moving towards a low carbon economy," Parker writes.

He describes it as the "opportunity of a lifetime", but warns investors to focus on the quality of regulation provided by individual countries because huge differences are emerging. "We believe these disparities will, over time, translate into massive differences in the amount of investment capital countries attract and the jobs they create in renewable energy and other climate change industries. Investment capital will find the best returns, wherever they are. Countries that fail to provide them will get left behind."

In a small but symbolic sign of the changing nature of technology and established industries, the electric vehicle manufacturer Tesla last month signalled it would conduct a $US100 million ($111m) initial public offering this week. It will be the first IPO in the US auto industry since Ford listed on the stock exchange in 1956.

Tesla may well be a loss maker, but its public float has attracted the support of four heavyweight financiers -- Deutsche Bank, JP Morgan, Goldman Sachs and Morgan Stanley -- which clearly have a vision of where their future bread will be buttered.

Morgan Stanley and HSBC also have taken principal positions in the $US350M raising by Better Place, the electric car battery network provider, which has completed the largest venture capital raising in the world in the past two years. And Warren Buffett, long touted as the world's smartest investor, is sitting on an eight-fold return on a $US230m investment made two years ago in BYD. The Chinese battery and EV maker has ambitions of being the world's largest car manufacturer and is already the biggest manufacturer of any sort in China.

Closer to home, Ausra, the company that began as an academic case study at the University of NSW and was then taken to the US to gain some financial backing, has been sold to Areva, the world's biggest nuclear energy group. Areva intends to use the Ausra technology as a flagship product in its push to dominate the solar thermal energy industry.

Numerous other Australian clean-tech and clean energy developers find themselves at a similar crossroads. A report by the advocacy group Beyond Zero Emissions found that Australia, in theory, could be powered by 100 per cent renewable energy by 2020. But at its present rate of progress it seems unlikely that more than a few villages and hamlets, along with a handful of desalination plants, will be renewable at that time.

Meanwhile, talented and innovative Australian developers are packing their bags for greener pastures overseas, where broader market-based subsidies, tax incentives and loan guarantees are encouraging innovation in wind, solar, marine, energy storage and a host of other areas.

The irony is that while the likes of Scotland declare their intention to be the Saudi Arabia of marine battery and energy systems, and Chile and Arhgentina make similar claims in regard to lithium ion batteries, the key technology for EVs, Australia's natural resources could give it the ambition to become the Saudi Arabia of whichever energy source it wants. It has the capacity for geothermal, solar, wind or marine energy and advanced battery technology, and to develop a corresponding industry.

So while the cadence of Australian policy continues to be directed by the pace of international agreements, what of the future of UN climate change talks? Is there any prospect that such an agreement could be enacted?

The absence of a legally binding agreement did not surprise those who followed these negotiations closely, but there was no doubt they were stunned by the chaotic and dysfunctional ending to the two-week conference in Copenhagen in December.

And there are now few who believe an agreement can be struck in Mexico later this year, or can be struck at all if under the auspices of the UN.

Even the status of the so-called Copenhagen Accord, produced at the last minute by a group including the US, China, India, Brazil and South Africa, is under doubt. India and China this week indicated they were unsure if they wanted to be associated with the accord, which sets a goal of limiting global warming to less than 2C above pre-industrial times. "This does make it less likely that we will see a global agreement," says Graham Stuart, head of the European climate change practice at Baker & McKenzie. "What we will get is a bottom-up approach [from individual nations]. At some point, maybe, those national pledges will coalesce into a binding treaty."

Nevertheless, Stuart says there will be much activity in the realm of national actions, bilateral agreements between, say, China and the European Union on carbon credits and the power sector, as well as regional agreements. "We are looking at a whole set of national actions and bilateral treaties," Stuart says.

This a view supported by Freehills, another legal firm closely following the action at domestic and international levels. It says a global consensus may not be possible and smaller bilateral and multilateral treaties may be more productive.

On the domestic front, however, the positions of the government and the opposition appear intractable, and may be resolved only through an election.

"The signs still remain that some form of carbon regulation in Australia is inevitable," it says. "But the precise format is not certain."

Electronics Show Gets a Shock

As posted by: Wall Street Journal

A sharply slowing global economy appears to be taking its toll on one of the world's biggest technology conventions, the Consumer Electronics Show in Las Vegas, set for next month.

Organizers of the event, which is to hold its 32nd gathering between Jan. 8 and Jan. 11, now expect fewer companies to participate and less booth space to be sold. CES is on track to occupy 1.7 million square feet of floor space, about 5% less than the previous CES show.

About 15% fewer companies have registered to attend the event, compared with the show last year. Among the missing will be Philips Electronics NV. Philips declined to comment.

Meanwhile, a handful of companies are downsizing by using meeting rooms rather than renting out pricier showroom floor space, said Tara Dunion, a spokeswoman for the show's sponsor, the Consumer Electronics Association.

While a count doesn't yet exist, it is likely that products to be introduced at 2009 CES will be down from the roughly 20,000 that made their debuts at the 2008 show.

One bright spot is attendance preregistration, which is running on pace with last year's attendance of 141,000. "Will we exceed that? Who knows," Ms. Dunion said.

Behind the shrinking show is a sharply contracting global economy that is curtailing discretionary budgets for companies and consumers alike. Cutting travel and display expenses for conventions is a budget priority for many Fortune 500 companies, according to recent surveys. Many more companies have begun slashing their research-and-development budgets, meaning fewer new gadgets to display.

Some penny-pinching consumers also appear to be skipping CES, usually one of Las Vegas's biggest draws in January. Hotels have begun chopping their rates by as much as $75 a night, the show's organizers said in an email to registered attendees last week. Some hotels have vacancies during the show.

Recessions have proven difficult for conventions, particularly those aimed at consumers. During the 2001 recession, attendance at the Comdex computer show, which had drawn as many as 200,000 visitors, dropped sharply. The dot-com bust proved to be the beginning of the end for Comdex in Las Vegas. The show closed after 2003.