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CEMBUREAU quarterly economic report

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World Cement,

Latest quarterly figures (Q1 2015) from CEMBUREAU reveal some economic momentum across Member States as GDP growth gained speed in many EU Member States (MS). However, divergences in economic performances persisted and recovery from the cumulated GDP losses is still lagging behind in some of the MS that were most affected by the subdued economic cycle across the EU since Q4 2008.

Very low inflation rates and/or deflation remains a major concern as the ECB’s Asset Purchase Programme started in March this year. The main intention of this plan is to tackle deflationary developments by increasing asset values. The negative yearly changes in consumer prices continued from November 2014 to March 2015 and in April consumer prices recorded zero growth compared to the previous year in the EU, as negative inflation rates were still recorded in most MS. A 0.6% annual Harmonised Index of Consumer Prices (HICP) growth rate is foreseen for 2015, however, as a result of more vigorous economic activity and the QE. Unemployment rates attained 9.7% (April 2015) in the EU (stable, having been 9.8% in January), ranging from 22.7% in Spain to 4.7% in Germany. Confidence indicators among consumers and businesses are improving slowly and have remained above 2014 levels since January 2015.

The economic cycle is gaining ground even though recovery is uneven across EU countries. The outlook for 2015 GDP growth has become more positive as the combination of the effects of the EU’s QE (on interest rates and asset inflation), depreciated EUR/USD nominal exchange rate (-19% since June 2014) and the decline in oil prices (-44.5% in nominal terms) - which is expected to continue, despite some fluctuations, throughout 2015 – should all benefit the macroeconomic environment. Data on Q1 GDP breakdown in various MS showed that economic growth was relatively less export-driven compared to previous quarters, relying on private and public investment.

As a result, the latest European Commission forecast (Spring 2015) outlined improved macroeconomic conditions and more positive economic sentiment for the next quarters, and therefore their GDP predictions for 2015 were upped compared to the Winter forecasts released in January this year (see table below).

Overview of GDP growth forecasts (%)

However, there are also sources of uncertainty for the economic outlook. A primary concern is the continuing dispute on the possible restructuring of Greek sovereign debt and/or a possible agreement on financial aid to Greece from the three institutions, i.e. European Commission, ECB and IMF (former “Troika”). In addition, continued political tension in the Middle East and the problematic relations with Russia are not supportive of the EU’s exporting economies. Lastly, a considerable slowdown is expected to continue in emerging economies – mainly due to the drop in commodity prices - which are particularly relevant for EU exports.

In line with improved macroeconomic conditions, some recovery in industrial activity was widespread across the EU in Q1 2015. Across the EU as a whole, the upturn in industrial production in Q1 2015 continued and even gained some speed, remaining far above the historical low of Q2 2009. Industrial production recovery continued also in Germany, albeit at a slower rate, and returned to positive territory in France after a temporary quarterly drop in Q4 2014. In Italy and Spain industrial production rose on a quarterly basis for the second consecutive quarter, although cumulative peak-to-through falls remained very significant in both countries (24.1% and 21.5% respectively).

Leading indicators for the construction sector in Q1 2015 revealed a mixed picture, bearing in mind that every year, Q1 construction activity is traditionally subdued due to weather conditions. Recovery in the construction production index was recorded for the EU28 and Germany, while in France construction activity continued to experience a recession. Signs of recovery were observed in Italy and Spain, although in the latter instance construction sector data showed mixed signs: growth in construction investment gained ground on a quarterly basis but construction production dropped due to the negative performance of the residential subsector. In other countries, residential subsector conditions have generally improved, due to higher housing affordability for households. However, since the onset of the crisis in 2008 civil engineering has proved more resilient and continued to record a more vigorous performance, particularly in the EU28 and Germany, driving the recovery of the whole sector.

Cement manufacturing indices in Q1 2015 remained around record lows across the EU, with negative quarterly changes (with the exception of Italy), including Germany where the recovery had been significant in previous quarters. Cement manufacturing activity reached a record low in France and improved in Italy after three quarters, albeit remaining at very low levels in historical terms, while no substantial recovery in cement manufacturing has yet been observed for Spain.

Edited from source by Joseph Green. Source: CEMBUREAU

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