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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (10131)	8/3/2004 9:32:42 AM
From: Knighty Tin	Read Replies (4) \| Respond to of 116555

Haim, Silence is golden. <G>

To: Haim R. Branisteanu who wrote (10131)	8/3/2004 11:14:17 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Euro-zone economy on upswing - maybe: IMF [Haim - This is what I do not get. They say the big problem holding back Europe is labor restrictions. Well it would seem if they relax those wouldn't jobs go in mass to China and India? If that is correct how the hell would europe consumer spending rise. I do not get it. It almost seems to me there is no way out of this mess. What is your take on this. Mish] Tuesday, August 3, 2004 2:18:01 PM WASHINGTON (AFX) - The euro-zone economy is gaining momentum, but is still having trouble flying because it is wearing some cement shoes from tightly regulated labor markets, the IMF said Tuesday in its annual review of the regions economy "A recovery is in the works, but in the (IMF) staff's view is not in the bag," said Michael Deppler, director of the IMF's European division at a press conference accompanying the release of the report The IMF staff raised its forecast of real gross domestic product growth for the euro-zone to about 2.0 percent this year from the previous forecast in April of 1.75 percent. The euro-zone economy barely grew in 2003, increasing by 0.5 percent. The economy is projected to improve marginally to a 2.25 percent growth rate in 2005 "Momentum is lagging in Germany and Italy, but France and most other countries are experiencing more balanced growth patterns," the IMF said Domestic demand growth "remains subdued" as consumers and businesses have been slow to step up spending. This is one of the largest downside risks to the outlook There may be a lag in job creation as the economy improves, the IMF said "This recovery will be in the bag only once we see a strong response from final demand," Deppler said Headline inflation is above target but the outlook is "benign," Deppler said In 2004, inflation is expected to grow 2.0 percent in 2004, but then ease to a 1.75 percent growth rate next year The IMF executive board said that the European Central Bank should maintain its accommodative monetary policy stance as long as the medium term outlook for inflation was stable. But further rate cuts are not needed at this time, Deppler said The IMF called for an overhaul of the Stability and Growth Pact, which mandates that budget deficits must be below a target range of 3 percent of GDP. At present, six euro-zone nations, including the three largest -- Germany, France and Italy -- are over the target range "If the big states do not begin to respect the pact more, the smaller states are not going to respect it either," Deppler said. "Most IMF directors felt that a failure to build a new consensus of the Stability and Growth Pact could have potentially grave consequences for EMU and its member countries," the IMF said With the European economy "gaining traction," the IMF said euro-zone countries with weak budget positions should cut their deficits by at least 0.5 percent of GDP a year But the "main issue" on the mind of the IMF staff and executive board is the importance of sustaining and raising longer-term growth outlook by raising labor utilization The IMF has cut is estimate for the euro-zone potential growth rate to 2.0 percent Low rates of employment and hours worked in the euro-zone "are not due so much to a preference for leisure, but as the result of policies that essentially condone paid leisure," Deppler said "This can no longer be afforded and needs to be reversed," Deppler said The euro-zone has to allow workers to work as long as they want for pay that they will accept because that is the basis for the funding of its social safety net, Deppler said The IMF said exchange value of the euro was roughly in line with historical averages, but there was a risk of future currency appreciation if the dollar were weakened by the large U.S. current account imbalance "There is a need to be careful about the risk of euro appreciation," Deppler said