France: Confirmation of fiscal slippage
Contrary to government expectations, the fiscal deficit and public debt were both above target at end-2012. The fiscal deficit is estimated at -4.8% of GDP (compared with -4.4% in the Stability Programme) reflecting higher public expenditure (56.6% of GDP, 55.8% projected) as a result of Dexia’s recapitalisation in December 2012 and lower public receipts (51.7% of GDP, 52.1% projected) because of weak economic activity. Consequently, public debt increased more than expected (+4.4pps of GDP to 90.2%, compared with an expected 89%). France now has to submit a new Stability Programme by mid-April against a background of European Commission forecasts of fiscal deficits of -3.7% and -3.9% of GDP in 2013 and 2014, respectively, but government forecasts of -3% and -2%, respectively. EH expects economic stagnation to prevail in 2013 (GDP +0.1%) with a moderate rebound in activity in 2014 (+0.9%). In this environment, EH expects the fiscal deficit to decrease to -3.6% of GDP in 2013 and -3.1% of GDP in 2014, while public debt is likely to increase to 95% of GDP in 2014.
US: Non-housing data are lacklustre
Recent economic data were welcomed by local financial markets but the impact may be temporary. Housing remains a bright spot in the economy as prices increased for the 12th consecutive month in January, by +8.1% y/y. Overall Q4 2012 GDP growth was revised upwards, but only to a weak +0.4% annualised as a sharp fall in government spending and an increase in inventories were barely outweighed by very weak consumption growth of +1.8% annualised. Disposable personal income and expenditures both recovered in February, yet their real y/y rates of +0.9% and +2% are still markedly below average. The March ISM index showed manufacturing activity still expanding (51.3) but it registered a sharp drop from the previous month (54.2).
Eurozone: Demand capped by record unemployment
Unemployment increased further in February, to a record high 12%, which is +1.1pps above the rate in the corresponding period in 2012. Significant divergence within the Eurozone group of countries continues to be evident, with rates of unemployment in Spain and France continuing to increase, to 26.3% (from 26.2%) and 10.8% (from 10.7%), respectively. In contrast, Italian data show a decrease for the first time in seven months, by -0.1pps to 11.6%, while German unemployment continues to reach new record low levels (5.4%). Euler Hermes expects this divergence to continue for several months against a background of generally weak economic activity in the Eurozone in H1 2013, with private consumption remaining the main drag on overall growth (-0.1% q/q on average). However, a gradual stabilisation in economic activity is likely in H2, mainly driven by the export sector.
Turkey: Slowdown in 2012, improving outlook
According to data from the Turkish Statistical Institute, Q4 2012 real GDP growth decelerated further, to +1.4% y/y (+1.6% in Q3 and 0% q/q (+0.1% in Q3). Full-year 2012 growth was +2.2%, sharply down from an upwardly revised +8.8% in 2011. Tight monetary policy, aimed at facilitating a soft landing for the economy (after overheating in 2010-11) curtailed private consumption(-0.7%) and private investment (-4.5%) in 2012. Countervailing fiscal policyreflected in robust growth in public consumption (+5.7%) and public investment (+8.9%)and a surge in gold exports to Iran kept the economy growing in 2012. Exports increased by +17.2% in 2012 while imports were flat because of weak domestic demand. Early indicators and sentiment indices suggest an improving outlook for 2013. Expect full year growth to pick up to around +4%.