One my major themes for the European periphery over the last few months is that although the ECB’s 3-yr LTRO operations may well impress the broader markets, it will do nothing for the real economies of southern Europe. In fact, my base case is that the LTRO combined with austerity will lead to a zombification of the periphery banking system while the private sectors of these nations decelerated due to the narrowly focussed one-sided change in government sector economic policy.
Overnight we had the Greek manufacturing PMI from Markit and the title of the document, “Operating conditions in Greek manufacturing deteriorate at survey-record pace” pretty much says it all:
The Greek manufacturing sector fell deeper into recession during February as both output and new orders declined at series-record rates. Purchasing activity was also lowered at the fastest pace in the survey history amid reports of ongoing difficulties accessing working capital and demands from vendors for cash payments. There were reports that working hours were being cut, while job losses were again heavy as workloads continued to diminish.
The headline Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing economy – fell to a survey low of 37.7 in February (data have been collected since May 1999). Moreover, the PMI has now posted sub- 50.0 readings in each of the past 30 months, with the rate of deterioration accelerating since the turn of 2012.
Underlying the steep deterioration in operating conditions in February were the most severe reductions in output and new orders recorded in nearly 13 years of data collection. Respondents commented on shortages of working capital at their plants and amongst clients, while austerity measures continued to undermine demand. Sales of Greek manufactured goods were down from both domestic and foreign sources: new export orders fell for a sixth successive month and at the steepest pace since May 2010.
A number of survey respondents noted that reduced working hours had also led to lower output volumes in February. This was in the main deliberate as a number of manufacturers tried to avoid job losses by cutting days worked for employees. Nonetheless, employment losses were inevitable and the degree to which payrolls were reduced was the steepest since March 2009. Employment has continuously declined throughout much of the past four years.
There is no Portugal PMI from Markit, but recent data from Portuguese agencies suggests a similar dynamic occurring in that country. Although Greece is obviously the front of the pack, as I have been warning, Spain appears to be making its way a long the same path:
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Operating conditions in the Spanish manufacturing sector deteriorated again in February. Output and new orders decreased at broadly similar rates to those seen in the previous month as domestic demand in particular contracted. Meanwhile, the rate of job cuts hit a 26-month high and input cost inflation was recorded for the first time since last September.
The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – posted 45.0 in February, signalling a broadly similar pace of deterioration to the 45.1 recorded in January. Business conditions in the sector have now deteriorated in each of the past ten months.
The ongoing economic crisis in Spain was widely mentioned by respondents throughout the survey. Deteriorating economic conditions, particularly domestically, were linked to the latest drop in total new orders, which was substantial. New export orders also decreased during the month.
Falling sales led to a tenth consecutive fall in output at Spanish manufacturers. The rate of decline in production remained marked.
Backlogs of work decreased again, and at a sharp pace. Anecdotal evidence suggested that the latest depletion largely reflected the drop in new orders.
The rate of job shedding intensified to the strongest since December 2009 in February, with both redundancies and the non-replacement of leaving staff mentioned by panellists.
As the miserable European youth unemployment data presented by the Prince this morning displays, my overall meme for Europe continues. Germany outperforming, France muddling through unless it truly implements austerity , the periphery falling away while the entire ship slowly sinks. Given the outcome of today’s summit I don’t expect anything to change any time soon:
