U.S. leaving euro zone in dust

  • 2003-08-28
  • Geraldine Amiel
AFP PARIS - The economic gap is widening across the Atlantic, as the U.S. economy is
showing tangible signs of recovery while the euro zone is slipping into
In the United States, the closely watched Conference Board's index of
leading economic indicators, a barometer of activity expected in the coming
six to nine months, showed a rise of 0.4 percent in July compared with 0.3
percent in June.
The July increase, in line with analyst forecasts, was the best reading in
more than two years and the fourth straight monthly improvement.
"America's long-awaited economic recovery is taken as a given these days. At
least that's what the stock and bond markets are telling us," said Stephen
Roach, chief economist at Morgan Stanley.
In comparison with their March levels, the world's stock markets have gained
an average 28 percent in value, according to data published Aug. 22 by
Merrill Lynch.
And the Japanese economy, undermined by its financial sector and in the
doldrums for more than a decade, also seems to be waking up.
A key barometer of economic activity in Japan rose in June from a month
earlier with the core services sector gaining a seasonally adjusted 1.2
percent, a state ministry said Aug. 22.
The all-industries index, which monitors growth in a range of agricultural,
manufacturing and service industries, rose 0.9 percent month-on-month in
June, marking the second consecutive monthly rise, the Japanese Ministry of
Economy, Trade and Industry said.
But "while the United States, or even Japan, have shown a distinct
improvement in their activity, France and the euro zone are clearly still
not in such a favorable scenario," said Nicolas Claquin, economist at the
French bank Credit Commercial de France.
In fact, the euro zone seems to be bogged down.
Three members ‹ Germany, the biggest economy, Italy and the Netherlands ‹
are in recession, and France ‹ the zone's second-biggest ‹ is just skirting
This week France reported a second-quarter contraction of 0.3 percent,
provisionally pushing the entire 12-nation euro-zone economy into a
0.1-percent contraction, the European Union statistics office Eurostat said.
According to analysts, two main factors are stifling euro-zone growth: a
decline in consumer demand, particularly in France, and most of all a steep
drop in exports.
Exports have been hit hard by the euro's strength against the dollar in
recent months, making them more expensive compared with rival U.S. goods and
services and especially Asian exports.
Against this backdrop, the widening growth chasm between the United States
and the euro-zone could lead to a softer euro and higher exports, eventually
helping turn the lights on in Europe.
"The worst could be over due to the signs of recovery in the United States,
of the euro's moderation and of some movement that has already been seen in
France and in Europe in [economic confidence] surveys," said Anne Beaudu,
economist at Credit Agricole.
In Germany, a few signs this week, like the ZEW confidence index, have
hinted at an emerging economic recovery.
The euro, which some had believed was firmly supported above $1.1, was
weaker this week, pressured by the latest U.S. and euro-zone figures. It
slipped below $1.09 on Aug. 22 to a new four-month low.
The single currency has lost about 3 percent of its value from average
levels in June.
"Strong demand from Asian investors for dollar-denominated assets, higher
yields for U.S. Treasuries and the huge growth advantage which the U.S.
economy will enjoy over the euro zone at least in the next six months are
likely to support the U.S. dollar despite the burgeoning U.S. current
account deficit," said Holger Shmieding, chief economist for Europe at Bank
of America.