Is Europe in a Depression?

Another night of Eurozone PMI data, this time manufacturing, and, much the same as last time, the news was not good at all.

As BeyondBrics reported the previously performing ‘core’ of Europe is now getting dragged down:

Any hopes that central Europe could decouple from the troubled eurozone and continue growing were dashed when Poland, the Czech Republic and Hungary released their manufacturing PMI numbers for April on Wednesday. The numbers revealed that output in all three countries was slowing.

PMIs fell below 50 – the important line dividing expansion from contraction – across the region.

Hungary saw the steepest fall, dropping to 46.9 from 56.8 in March, while the Czech Republic fell to 49.7 from 52.1 and Poland – the largest economy in the CEE – saw PMI drop to 49.2 from 50.1 a month earlier.

To the data in more detail:

EuroZone manufacturing PMI

  • Final Markit Eurozone Manufacturing PMI at 34-month low of 45.9
  • Production declines across big-four economies for first time in the year-to-date
  • Production declines across big-four economies for first time in the year-to-date

The Eurozone manufacturing downturn took a further turn for the worse in April. The seasonally adjusted Markit Eurozone Manufacturing PMI® fell to a near three-year low of 45.9, down from 47.7 in March and below the earlier flash estimate of 46.0. The headline PMI has signalled contraction in each of the past nine months.

The April PMIs also indicated that manufacturing weakness was no longer confined to the region’s geographic periphery. The German PMI fell to a 33- month low, conditions deteriorated sharply again in France and the Netherlands also contracted at a faster rate.

There was no respite for the non-core nations either, with steep and accelerating downturns seen in Italy, Spain and Greece. Only the PMIs for Austria and Ireland held above the 50.0 no-change mark.

German Manufacturing PMI

  • First drop in output since December 2011
  • Sharp fall in new work, especially from export markets
  • Marginal reduction in workforce numbers

At 46.2 in April, down from 48.4 in March, the final seasonally adjusted Markit/BME Germany Purchasing Managers’ Index® (PMI®) posted below the neutral 50.0 threshold for the second month running. April’s index reading was much lower than the long-run series average (52.2) and pointed to the sharpest deterioration of overall business conditions since July 2009. The drop in the PMI since the previous month largely reflected a renewed contraction of output levels, alongside negative contributions from the new orders and employment components. April data highlighted particular weakness in the investment goods sector, with firms in this market group seeing a rapid drop in their workloads.

Overall production levels in the German manufacturing sector fell at a solid pace in April. This was the first decline in the year to date, and the sharpest rate of contraction since mid-2009. Anecdotal evidence widely attributed the reduction in production volumes to an ongoing deterioration in new order books.

FrenchManufacturing PMI

  • Drop in new work intakes primarily reflects weak domestic demand
  • Employment declines at fastest pace since July 2010
  • Input price inflation eases to three-month low

Operating conditions in the French manufacturing sector continued to deteriorate in April. The headline Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – posted 46.9. The latest reading was little-changed from March’s 33-month low of 46.7, but weaker than the earlier flash estimate of 47.3.

Underlying the fragile performance of the manufacturing sector was a further reduction in the level of incoming new orders received by firms. April’s reduction in new work was the tenth in as many months and the sharpest for three years. Data signalled that weakness was primarily domestically-based, as new export orders fell only marginally on the month (mainly attributed to lacklustre demand in European markets).

Lower new orders resulted in a further drop in production at French manufacturers during April. The fall in output was the second in successive months, albeit slower than in March.

  • Marked contraction in new work leads to accelerated decline in output levels
  • New export orders down solidly
  • Job losses sharpest in 27months

Operating conditions facing Italian manufacturers deteriorated sharply in April, as new orders received in the sector contracted at the fastest rate in three years. In turn, both production and employment levels were reduced at accelerated rates, and factory gate prices lowered for a third straight month in spite of further input cost pressures.

April saw the seasonally adjusted Markit/ADACI Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – fall from 47.9 in March to 43.8, signalling the sharpest deterioration in business conditions facing Italian manufacturers since last October. The index has now posted below neutrality for nine months in a row.

Latest data showed that new orders placed at Italian manufacturers fell sharply in April. This eleventh straight monthly decrease in incoming new business was the steepest for three years, and reflective of reductions in both domestic and international demand for Italian manufactured goods. New export orders fell solidly over the month, contrasting with a brief return to growth in March.

  • Issues surrounding access to finance continue to hamper activity
  • Output, new orders and purchasing all down markedly
  • Employment cut severely in line with excess capacity in manufacturing sector

Operating conditions in Greece’s manufacturing sector continued to worsen in April, according to the latest survey data from Markit. Output, new orders, employment and purchasing all continued to decline at steep rates as issues surrounding access to finance continued to severely hamper economic activity.

April’s Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single- figure snapshot of the performance of the manufacturing economy – registered 40.7. Remaining below the 50.0 no-change mark that separates growth from contraction and down from 41.3 in March, the headline index implied a steep and accelerated deterioration of Greek manufacturing business conditions in April.

In line with recent surveys, output and new orders continued to fall markedly at the start of Q2 2012. Panellists again reported that sourcing working capital remained tough for both themselves and their clients. These issues exacerbated already weak demand and conducting business therefore remained challenging, particularly in domestic markets. On the export front, a further (albeit modest) fall in foreign sales was recorded as international demand reportedly remained subdued.

  • Marked deterioration in operating conditions
  • Rate of contraction in output accelerates
  • Further substantial fall in new orders

Operating conditions in the Spanish manufacturing sector deteriorated sharply again in April. New orders fell at a substantial pace, while the rate of contraction in output accelerated. Spare capacity led to further reductions in backlogs of work and employment. Meanwhile, firms lowered output prices in the face of strong competitive pressures and weak demand, despite robust input cost inflation.

The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – fell for the third month running in April, posting 43.5, from 44.5 in March. The latest reading signalled the fastest worsening of operating conditions since June 2009.

New orders decreased at a considerable pace that was broadly unchanged from that seen in March. Panellists reported falling demand, particularly from domestic markets. New export orders also decreased, and at a marked pace.

The latest HSBC PMI® report signalled a stagnation in business conditions in the Czech manufacturing economy at the start of the second quarter. Central to the deterioration in performance was a fall in new orders received, which led to a slight cut in staffing and slower output growth. Export demand remained subdued, while cost inflationary pressures increased.

The headline HSBC Czech Republic Manufacturing PMI is a composite single-figure indicator of manufacturing performance. Any figure greater than 50.0 indicates overall improvement of the sector. The PMI fell from March’s 52.1 to 49.7 in April. That signalled a marginal deterioration in overall business conditions, primarily reflecting lower new orders, employment and stocks of purchases.

Driving the overall weakening in the business climate in April was a fall in the volume of new work received. That followed a two-month sequence of growth, although the rate of decline in the latest period was weaker than that registered between November and January. New export orders fell for the sixth successive month.

The second quarter of 2012 began on a more positive note compared to the end of the first quarter for Turkish manufacturers. Declines were recorded across a number of monitored variables during February and March, but April data showed that output, new business, and buying activity all returned to growth. Reports indicated that the rise in activity reflected stronger demand, amid an improved economic environment.

The seasonally adjusted HSBC Turkey Manufacturing PMITM – a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing industry – registered 52.3 in April, moving above the 50.0 no-change threshold for the first time since January. The latest reading indicated a moderate improvement in the operating conditions of the Turkish manufacturing sector.

Overall new business expanded for the first time since the beginning of Q1. Furthermore, the rate of increase was the sharpest since last November. Where new orders rose, panellists generally attributed this to strengthening demand.

Reflecting the trend in new business, manufacturing production increased for the first time in three months in April. Output growth was moderate on the month.

Polish Manufacturing PMI

  • New orders fall at fastest rate since June 2009
  • Output largely flat since March
  • Cost pressures remain strong

The latest survey of the Polish manufacturing economy, compiled by Markit for HSBC, signalled an overall deterioration in business conditions in April, following a flat trend over the previous two months. The headline HSBC Poland Manufacturing PMI®, a composite single- figure indicator of manufacturing performance, fell from 50.1 in March to 49.2 in April. That signalled a slight worsening of overall business conditions in the goods- producing sector, following a neutral trend in the previous two months. The PMI has registered below 50.0 three times in the past six months.

Driving the overall deterioration in operating conditions in April was a decline in new business. The volume of new work has fallen for the past three months, and the latest contraction was the steepest since June 2009. Foreign demand remained weak, as new export orders fell in the latest period. New business from export markets has now declined nine times in the past eleven months.

The ongoing decline in new business flows to Polish goods producers resulted in a near-stagnation of production at the start of the second quarter. Output was little-changed from March, with the respective Index posting its second-lowest figure in two-and-a-half years. That said, production has not registered an outright contraction since July 2009.

So, as the chart below shows, even the previously strong ‘core’ of Europe now appears to be slowing with the periphery continuing to go deeper into economic contraction:

However it isn’t just the PMI data that continues to disappoint. The latest employment figures are out from EuroStat and they can only be described as depressing:

The euro area1 (EA17) seasonally-adjusted2 unemployment rate3 was 10.9% in March 2012, compared with 10.8% in February4. It was 9.9% in March 2011. The EU271 unemployment rate was 10.2% in March 2012, stable compared with February4. It was 9.4% in March 2011.

Eurostat estimates that 24.772 million men and women in the EU27, of whom 17.365 million were in the euro area, were unemployed in March 2012. Compared with February 2012, the number of persons unemployed increased by 193 000 in the EU27 and by 169 000 in the euro area. Compared with March 2011, unemployment rose by 2.123 million in the EU27 and by 1.732 million in the euro area.

When is it ok to start calling this a depression?

EuroZone Unemployment

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  1. The eurostat heading should be Spanish under 25 unemployment 51.1%, and 36.1% in Portugal. That’s the real tragedy.

    Listening to Krugman I think he called a depression in the US?

    Again when do we get LTRO3?

    • Agreed, the youth unemployment figures are staggering. Especially for a young guy like me.