Portugal: Fiscal ruling
On 5 April, the Supreme Court rejected a series of austerity measures amounting to EUR1.35 billion, equivalent to 0.8% of GDP. The ruling comes as Portugal looks to receive the next EUR2 billion tranche of its EUR78 billion bail-out package and negotiate an extension of its loan maturity. The European Commission reaffirmed Lisbon’s commitment to the adjustment programme, yet the ruling makes full implementation even more challenging. The issue is likely to be discussed during the EcoFin meeting to be held this weekend and the Troika mission scheduled in April-May 2013 will be crucial as it assesses the evolution of the adjustment programme. The next steps must also be placed in the context of the return to the bond markets in mid-2013 envisaged in the programme, which will depend on market confidence, and without which there will be a financing shortfall. Portugal has around EUR15 billion in total refinancing needs by end-2013 of which only EUR6 billion is covered in the existing bailout programme. A key date is 23 September, when around EUR5.8 billion of Portuguese bonds will mature.
US & Canada: Labour markets and growth
The US employment report for March was a disappointment, as it shows that only 88,000 jobs were created, markedly below expectations of around 190,000. Average hourly earnings were flat for the third consecutive month in March and inflation adjusted wages contracted by -0.5% over a twelve month period. Although unemployment continues to edge down, the fall is driven largely by people leaving the workforce, rather than job gains, and the result is the lowest labour force participation rate since 1979, a significant impediment to recovery. Nevertheless, a shrinking trade deficit and resilient consumption, perhaps boosted by the wealth effect from the rising stock market, could push Q1 GDP growth above +3% q/q annualised. Meanwhile, the Canadian labour market is even weaker, shedding 54,500 jobs in March and suggesting that Q1 GDP growth in that country will be less than +2% q/q annualised.
China: Inflation and foreign trade
Consumer price inflation eased to 2.1% y/y in March from 3.2% in February. However, the fall was largely the result of movements in food prices after the New Year and the non-food index was up 1.8% y/y (1.9% February). Although the low inflation rate does not pressure the authorities to tighten monetary policy it is also unlikely to encourage further monetary loosening at this point. March trade data showed a record monthly deficit, with imports up +14.1% y/y and exports up +10.0%. Export growth returned to pre-New Year levels, although it was led by emerging economies as exports to the EU and US both fell, while stronger domestic demand appears to have boosted import growth above expectations. Meanwhile, Fitch lowered its local currency debt rating, reflecting concerns over the growth of domestic credit, including the rise of shadow banking, although the rating is still A+.
Germany: Labour costs above the EU average
Employers in the private sector paid an average EUR31 per working hour in 2012, which was up +2.8% y/y. German labour costs in the private sector, as a result, ranked eighth in an international comparison among EU countries and exceeded the EUaverage of EUR23.5 by 32%. France ranked fourth with EUR34.9 (49% higher than the EU-average), while the UK ranked twelfth with EUR21.9 (7% below average). Within the EU, Sweden recorded the highest level with EUR41.9 and Bulgaria the lowest (EUR3.7). Relative positions in the manufacturing sector were Sweden still at the top (EUR43.8 per working hour), followed by France (fourth, EUR36.3), Germany (fifth, EUR35.2) and UK (twelfth, EUR22.7), while the EU-average was EUR24.