I discussed yesterday that the success of last week’s EU summit needed to be measured on a political scale not an economic one. There were obviously economic ramifications from the outcome, but the ratification of whatever they eventually turn out to be is likely to take many months of further politicking.
In the meantime the downward pressure on the economy due to implementation of government sector austerity against de-leveraging private sectors continues to show in the statistics. As I said yesterday:
Do I somehow think that this summit means that Europe is fixed? No. The problems of Greece, Spain, Italy, Portugal, Cyprus and Ireland exist today as they did on Thursday. The outcome of this summit has further solidified the implementation of the fiscal compact which is guaranteed to slow the economy of Europe further …
During the conference there were two announcements that were a under-reported due to the timing. Firstly there was some announcements out of France:
The French economy posted zero growth in the first quarter of this year following a weak 0.1% expansion in the fourth quarter of 2011.
INSEE had forecast earlier this week that the French economy would grow only 0.4% in 2012, slightly less than the 0.5% previously forecast and budgeted by the government.
“France will suffer from a contraction in internal demand from its euro zone partners, which will hurt exports, and its efforts to consolidate its budget,” INSEE’s research director Eric Dubois had said.
This news appears to have led to some warnings from French auditors about France’s economic metrics:
France will have to find 6-10 billion euros ($7.6-12.6 billion) this year and a massive 33 billion in 2013 to meet its European deficit targets, or risk unnerving financial markets, the state auditor told the new Socialist government on Monday.
Responding to President Francois Hollande’s request for a thorough review of state finances, the Court of Auditors – a quasi-judicial body responsible for overseeing public accounts – said a revenue shortfall was threatening deficit goals.
The news from Spain wasn’t much different:
Spain’s economy will contract at a faster rate in the second quarter than in the first three months of the year, economic indicators suggest, the Bank of Spain said in its monthly bulletin published on Wednesday.
The economy shrunk by 0.3 percent from January to March on a quarterly basis, as Spain fell back into recession for the first time in three years.
Overnight we also had Euro area unemployment which continues to set records that no one can be proud of:
Euro area unemployment rate at 11.1% – EU27 at 10.3%
The euro area1 (EA17) seasonally-adjusted unemployment rate was 11.1% in May 2012, compared with 11.0% in April. It was 10.0% in May 2011. The EU27 unemployment rate was 10.3% in May 2012, compared with 10.2% in April. It was 9.5% in May 2011.
Eurostat estimates that 24.868 million men and women in the EU27, of whom 17.561 million were in the euro area, were unemployed in May 2012. Compared with April 2012, the number of persons unemployed increased by 151 000 in the EU27 and by 88 000 in the euro area. Compared with May 2011, unemployment rose by 1.952 million in the EU27 and by 1.820 million in the euro area.
And then there was the latest manufacturing PMIs:
June PMI data signalled that the downturn in the Eurozone manufacturing sector extended to an eleventh successive month. Production and new orders suffered further severe contractions, leading to the steepest job losses since January 2010.
At 45.1 in June, unchanged from the previous month, the final Markit Eurozone Manufacturing PMI® was up slightly from its earlier flash estimate of 44.8. However, the rate of decline signalled was identical to May, when operating conditions deteriorated at the fastest pace for almost three years. Over the second quarter as a whole, the PMI registered its lowest average reading (45.4) since the second quarter of 2009.
The Germany PMI data once again shows that the crisis has made its way to the core of Europe and, although the Greek data continues to be extremely poor, it is the data from both Italy and Spain that is now the major point of concern. Spanish data is now at 37 month lows and deteriorating rapidly, while Italy shows the same trend. Only Ireland is showing any real improvement, most probably due to the fact that its main trading partner is not European.
Obviously these outcomes were predictable and the expected result of supra-European austerity at a time when many nations have private sectors still trying to recover from the aftermath of the GFC. One of the lines I hear bantered around quite a lot is that ‘you can’t get out of debt with more debt’ which, dependent on the situation, I’m not sure is always true. However, what I do know is true is that you can’t reduce your debt to GDP ratio if your GDP is falling faster than your debt. Something to think about maybe? I am thinking of you, Jörg Asmussen, a German member of the ECB executive board, who reckons that everyone’s simply not trying hard enough.