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European slowdown continued in 3Q14

World Cement,


The European cement association, Cembureau, has released its 3Q14 report. The following presents highlights from the report.

The economic slowdown continued in 3Q14 across the EU. Some improvements in economic performance across EU economies were noted, but these performances continued to diverge amongst Member States. Due to the rapid deterioration of the international macroeconomic scenario over the summer, the EU revised substantially its GDP growth predictions for 2014 for most European countries in its Autumn Economic Forecast: Italy still in recession (-0.4%); Spain back to recovery (1.2%); and the two biggest euro area economies, Germany and France, growing modestly (by 1.3% and 0.3% respectively). Outside the euro area, bullish growth is forecast for the UK (3.1%), clearly outperforming major euro area economies. The US will outperform the EU also in 2014 (2.2% vs 1.3%).

On a quarterly basis, the EU as a whole recorded another feeble growth rate (0.3%). Germany reverted to quarterly growth after the sudden drop in 2Q14 but recorded a meagre 0.1%. France rose by 0.5% and Spain continued along its upward trend and recorded a growth rate of 0.5%. Italy remained in recession (-0.1%, the 13th quarter without growth). Overall, ongoing austerity deflationary pressures, low consumer and business confidence and slowdown in exports due to continued geopolitical tensions (the crisis with Russia and related economic sanctions; Islamic State-driven instability in the Middle East etc) have all resulted in weak 3Q14 GDP figures. Although these figures were somewhat more positive than in 2Q14, they have contributed to the deterioration of economic growth perspectives for the next quarters.

Industrial activity lost ground across the EU (in the EU28 it fell after six consecutive positive quarters) and remained around record lows in Italy and Spain. A recovery in 3Q14 industrial production was observed only in France, while it entered recession in Germany (albeit at a very low rate) and fell further in Italy. In Spain the recovery observed over the latest quarters came to a halt and remained at very low levels in historical terms.

Leading indicators for construction activity in 3Q14 (construction production index and construction investment) continued to signal very low activity in historical terms, with quarter-on-quarter drops in construction production in the EU and in all major euro area economies, contrary to positive developments recorded in 2Q14. Cement manufacturing production indices in 3Q14 have revealed positive performances compared to the previous quarter for the EU as a whole and for Germany, but dropped to record lows in France and remained subdued in Spain – after positive developments in 2Q14 - and Italy.

In a nutshell, in 3Q14 the EU’s construction sector continued to be affected by unsupportive factors, namely the stagnation in real incomes that continues to curb demand for new housing and residential construction activity, plus austerity measures and cuts in government spending on the civil engineering side.

In order to tackle the continuing economic downturn and to stimulate demand, on 26 November European Commission President Juncker presented the “Jobs, Growth and Investment package”, which aims to mobilise existing resources as well as providing additional funding for private and public investment over the next three years up to €315 billion (of which, €16 billion will be raised by the European Fund for Strategic Investment, EFSI – of which €8 billion will be guarantees and €8 billion will come from reallocation from the EU budget plus €5 billion from the European Investment Bank, EIB). This investment should be primarily targeted towards infrastructure (broadband, energy networks and transport infrastructure) as well as renewable energy and energy efficiency.  As a result, the Commission’s package could have a potential expansionary impact on infrastructure and civil engineering expenditure.

The ECB has also announced “unprecedented” actions to tackle the quasi-deflation economic picture so as to stimulate business investment and household demand, recalling somewhat the QE in the USA and Japan via the purchase of asset-backed securities and covered bonds (and possibly government bonds on the secondary market, as President Draghi stated at the European Parliament on 17 November). It is not yet fully clear what these concrete measures will be, but government bond markets have been stable recently and yields on the government bonds of Spain and Italy are no longer at high levels.


Written by Cembureau.

Read the article online at: https://www.worldcement.com/europe-cis/17122014/european-slowdown-continued-in-3q14-31/

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