Has Deleveraging in EU only just Begun?

Only in Ireland private debt has gone down notably. In Greece and Italy only the growth stopped, no deleveraging can be seen yet. For a fast recovery in all of these countries, private debt needs to decrease more. 

Washington Post

Portugal Country Chart Spring 2014

Today Portugal issued 10-year bonds for the first time since it received a bailout from the EU and the IMF in 2011. Average yield of today's issuance stands at 3.58 percent. In May 2014 the bailout ends and with these yields Portugal may not need an extension. The chart of this post shows government debt, government deficit (inverted) and unemployment rate of Portugal from the start of the bailout until 2015 (projections for 2014 and 2015).

While the budget deficit has decreased in 2013 versus 2012, the rate of unemployment remains relatively high. The government debt is also expected to keep rising to almost 130 percent in 2015.

Projected Government Spending For Developed Countries in 2013

Denmark has the highest projected government spending as a percentage of GDP, with 58.4 percent. France and Austria also have notably high expentiture percentages, even above Noric countries Finland and Sweden. Greece doesn't have that high government spending after all with 48.3 it is around the average. Australia has the lowest government spending for the selected countries.

Banking Sector: Percentage of GDP Across the World

This chart shows the banking sector in terms of assets as a percentage of GDP forcseveral continents. What stands out, are the extremely large banking sectors in European countries.

ZeroHedge

PIIGS Current Account 2011-2012

Société Générale made this chart on the current account balance as a percentage of GDP for Greece, Italy, Spain, Portugal and Ireland. In October 2012 Ireland, Spain and Greece had a positive balance on the current account, meaning that the value of their exports was higher than the value of imports. Especially for Greece this is a tremendous improvement since the huge negative numbers in the beginning of 2011. Both Italy and Portugal also temporarily had a positive balance in the beginning of 2012.

The question is whether these improved current account balance mainly reflect better export fundamentals or lower imports due to lack of economic growth.

Societe Generale

Euro Zone Unemployment Spreads Q4 2012

When people talk about Euro Zone spreads they normally refer to the difference between the government borrowing interest rate of a particular Euro Zone country in comparison to the interest rate for the German government. German government bonds are taken as the benchmark since lending to the German government is basically seen as risk free. When lending to other countries, especially the southern Euro Zone countries, a risk premium is added on top of the German interest rate to reflect the higher default rate of those countries.

Besides this financial interpretation of spreads, a different form of spreads can be constructed to show the differences in the real economy between the Euro Zone countries: unemployment spreads. Unemployment spreads for the Euro Zone are defined as the difference between the unemployment rate in a particular Euro Zone country and the unemployment rate in Germany. As can be expected Euro Zone countries most hit by the Euro crisis have the highest unemployment spreads, with Greece and Spain even above 20 percent. This is a lot higher than the Euro Area average of 5.8 percent and the EU average of 5,3 percent. Austria, the Netherlands and Finland on the other hand have unemployment rates comparable to that of Germany.

OECD Yearly 2012 GDP Growth

More and more countries have been reporting their fourth quarter GDP growth for 2012 lately, and hence the yearly 2012 GDP growth rate. For the countries that have reported their figures China had the highest yearly growth rate of 7.8 percent. Indonesia and Norway are following China with 6.2 and 3.0 percent respectively. Yet, most countries had a growth rate of less than 2 percent, with most all European countries on the lower end. Portugal and Italy saw their economy's decline the most, in Portugal even with 3.2 percent.

World 2013 GDP Forecast: Fastest Growers and Contracters

The Economist constructed this overview of those countries in the world that are forecasted to have the highest GDP growth rate as well as those that have the most negative rate. As you can see the developing countries are forecasted to grow the most. From economic theory this can be explained by the fact that these countries still have a lot growth potential, because their economies are still small. Another reason why countries may see high growth is because they are located near China, as China is growing fast the country invests a lot in neighboring countries. Mongolia and Macau (a small country similar to Hong Kong also inside China) are examples. Another reason why a country may grow fast is that it is recovering from a disaster like a natural disaster or a war, of which Libya is an example. 

On the other hand developed countries are growing a lot less and consequently all the forecasted fastest contracting countries are developed countries. Notice that all the fastest contracting countries, besides Syria and Iran, are located in Europe. 

Due to a request by the Economist this graph has been removed. 

View the graph here

2012 Euro Area Bond Yields

Compared to the beginning of the year, especially Greek and Portuguese, bond yields have come down quite a lot during the year. As is noted in the graph the Greek debt restructuring for Greek debt and the verbal commitment by the ECB president Draghi in July dampened the exit and breakup risk and hence brought down sovereign debt yields.

Where will the bond yields go in 2013?

The Economist

EU Countries 2012 Government Debt Projections

Reuters constructed this graph, with data from the European Commission, which shows the projected government debt ratio's for the selected EU countries. As you cansee for most countries the debt to gdp ratio is well above it's 10 year average.

As you might have expected Greece has the highest debt to gdp ratio. On the other hand, Sweden's debt is even lower than it's 10 year average. Euro Area avearge government debt is expected to be at 95 percent.

Reuters

Household Debt Versus Disposable Income (1995-2011)

This graph gives the ratio of total household debt divided by the total of disposable income of the households in countries of the Euro Area and the USA. On average the household debt to income rate was relatively stable in the Euro Area approaching the 100 percent just before the credit crisis from around 70 percent at the beginning of the Euro. The household debt to income ratio was already higher in 1999 in the USA and saw a much bigger increase, but unlike in the Euro Area the ratio has come back quite a lot already in the United States.

The average of around 100 percent currently in the Euro Area is mainly formed by the bigger economies: Germany and France, who have a ratio close to the Euro Area average. There are notable outliners, especially Denmark, The Netherlands and Ireland that have a way bigger ratio of 200 to almost 300 percent.

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Credit Ratings, U.S., Japan and Euro Zone (Oct 2012)

Thompson Reuters created this graph with the long term sovereign debt ratings for the Western countries. For the three major credit rating institutions the ratings are listed.

Thompson Reuters

Government Debt in the EU Countries (second quarter 2012)

This great graph from Reuters shows per EU country the government debt it had at the end of the second quarter, as a percentage of GDP.

Since the crisis Portugal, Ireland have been accumulating debt at a high rate, while seeing their economy shrink significantly. This is shows in the government-debt-to-GDP measure, for which they are in respectively  the third and the fourth place in having the highest government debt in the EU.

Estonia and Bulgaria have the lowest government debt in the EU.

IMF Euro Zone Inflation Forecasts to 2017 (WEO Fall 2012)

Greek inflation is slowing down tremendously, from more than 4 percent in 2010 to expected deflation in 2013 and 2014. The other countries are expected to have their inflation rates to be relatively close to the EU average. Lower in Spain and Italy and higher in Germany.

Bondvigilants

Some Convergence Actually Took Place In The Euro Zone

This graph, from a presentation of the ceo of the Dutch Central Bank, shows that some convergence actually  took place since the implementation of the Euro. The graph shows the difference in the growth of the listed countries with the growth of Germany. Especially Ireland, Greece and Spain grew a lot faster than Germany. In 2007 that difference was even 40 percent for Ireland, cumulatively. Portugal and Italy were not able to generate more growth than Germany.

DNB

One of the causes for this convergence may be that Ireland, Spain and Greece saw their real interest rate decline significantly. This graph shows that the extra growth was actually partly financed with borrowed money:

DNB

Also this was accompanied by inflation:

DNB

IMF Euro Zone GDP Forecasts (WEO Fall 2012)

This graph shows the latest IMF forecasts for the GDP growth rates for a number of selected countries. For most countries the next few years won't be easy, but will see GDP growth rates get out of negative territory gradually. Greece is even expected to grow by more than three percent from 2016.

Bondvigilants

IMF Euro Zone Unemployment Rate Forecasts (WEO Fall 2012)

This graph shows the unemployment rates the IMF has projected for several Euro Zone countries. Note that the institute expects the high Greek unemployment to go down faster than the high unemployment in Spain.

Bondvigiliants

Developed Countries GDP Growth (2nd Quarter 2012)

This chart show the quarterly economic growth (second quarter versus the first quarter of 2012) for the countries in the Euro Zone, compared with the United States and Japan. What is interesting is that most Euro Zone countries saw their economic growth far below the U.S. and Japan, especially Portugal and Italy. Not being in the Euro Zone is not a guarantuee for economic growth though, as you can see with the -0.7 percent contraction in the United Kingdom.

http://twitpic.com/aj9dlc

EU VAT-Rates Compared

The value added tax raises the price on consumer goods. Almost all EU countries had a higher VAT-rate in 2012 compared to 2000. Perhaps surprisingly, Hungary has the highest VAT-rate, followed by Scandinavian Denmark and Sweden. Cyprus, Portugal, Greece, Spain and Romania particularly saw their VAT rising in the last twelve years. Except for Cyprus, all of these countries have now a higher rate than the average for the EU of 21 percent.

Reuters

Exports As a Percentage of GDP (Germany Versus PIIGS)

Ireland is the champion of exports in the Euro Zone. Germany takes a good second place and Portugal's economy is also quite dependent on the international trade. Greece on the other hand has the lowest exports as a percentage of GDP, of the selected countries.

Reuters