Europe’s economy edges towards contraction

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Euro-zone Q3 GDP came out last night and as expected the numbers weren’t great:

Europe’s economic expansion failed to accelerate in the third quarter as Germany and France struggle to shore up a region bracing for a recession sparked by an escalating debt crisis.

Gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace, the European Union’s statistics office in Luxembourg said in a statement today. That matched the median forecast of 39 economists surveyed by Bloomberg News. From a year-earlier, euro-area GDP increased 1.4 percent in the third quarter.

European growth may slow in the fourth quarter as leaders continue to battle the sovereign-debt crisis. Italian and Spanish bond yields climbed today on concern governments will struggle to implement promised austerity measures. EU Economic and Monetary Affairs Commissioner Olli Rehn said last week that the recovery “has come to a standstill” and European Central Bank President Mario Draghi warned about the risk of a “mild recession” when the ECB unexpectedly cut rates this month.

Both Germany and France grew slightly in the quarter, however those two countries alone are approximately half of euro-zone GDP, which suggests that the everyone else is struggling. Portugal’s recession deepened with GDP falling 2% and Greece fell 5.2%:

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Industrial production grew quite well in July and August before falling in to September, the latest Eurozone PMI suggest that this trend continued well into Q4:

Conditions in the Eurozone manufacturing sector continued to weaken in October. At 47.1, down from 48.5 in September, the final Markit Eurozone Manufacturing PMI fell to its lowest level since July 2009 and below the flash estimate of 47.3. The PMI has remained below the neutral mark of 50.0 for three months. Signs of weakness are becoming increasingly apparent in the core nations, while the periphery remains mired in recession.

German manufacturing, one of the main drivers of the earlier Eurozone recovery, saw its PMI indicate contraction for the first time since September 2009. Rates of decline were the fastest for 27 months in both Austria and the Netherlands, while France signalled deterioration for the third month in a row. Rates of contraction accelerated sharply in Greece and Italy, with the performance of Italy deteriorating.

Last night the latest German ZEW business confidence survey was released and, once again, it supports the downwards trend:

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German economic sentiment deteriorated more-than-expected in November, falling to the lowest level since November 2008 as the ongoing sovereign debt crisis in the euro zone continued to weigh on sentiment, data showed on Tuesday.

In a report, the ZEW Centre for Economic Research said that its index of German economic sentiment decreased by 6.9 points to minus 55.2 in November from a reading of minus 48.3 in October. The index declined for the ninth consecutive month. Analysts had expected the index to fall by 4.2 points to minus 52.5 in November.

The assessment of the current economic situation in Germany is still in the positive territory, but it has once again worsened compared to the previous month. The corresponding indicator has dropped by 4.2 points to the 34.2 points-mark.

Meanwhile, economic sentiment in the euro zone declined by 7.9 points in November to minus 59.1 from minus 51.2 in October. Economists had expected euro zone economic sentiment to decline by 4.1 points to minus 55.3.

On the index, a level above 0.0 indicates optimism, a level below 0.0 indicates pessimism.

Obviously none of this is good news for those Eurozone economies that are struggling with funding, and we saw the effects of that in the debt markets. The Italian 10 year bond yield is up to 7.07%, 5 yr at 7% and 2 yr at 6.47% , the Spanish 10yr is at 6.33% and both the Belgium and French 10 yrs are up significantly at 4.9% and 3.68% respectively.

Credit default swaps aren’t looking much better

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Meanwhile in other news, Greece’s new parliament is lining up for yet another show-down with the European commission, the EU is still struggling to “contain” the rating agencies, the calls for the ECB to do “something” are growing louder as the Deutsche Bank Chief Economist claims Italy is “partially insolvent” and Italy looks like it finally has a new government.