European data still poor

The Eurozone services and composite PMI data was released overnight and like the manufacturing indexes earlier in the week, the data points to a continuing slowdown across the region:

The eurozone’s recession looks to have deepened in the final quarter, with GDP likely to have fallen by considerably more than the modest 0.1% decline seen in the third quarter. France, Spain and Italy continue to see strong contractions, while a milder downturn is evident in Germany.

“There are signs that the recession may have reached a nadir, however, at least in terms of the rate of decline, and it is reassuring to see that the final Eurozone PMI reading came in higher than the earlier flash estimate. Services in particular surprised to the upside, contracting to the least extent for three months, while manufacturing output fell at the slowest rate for seven months.

Despite the easing in the rate of decline, the region sill looks set for further contraction in the early months of 2013, as weak consumer demand in many countries combines with low levels of business confidence and falling global trade.

You can see from the chart below that the rate of decline has broadly slowed, but the region as a whole remains in contraction:

Obviously the areas of major concern are those countries that are already under economic stress. I mentioned yesterday that Spain and Portugal appear to be displaying similar qualities in regards to the feedback effects from fiscal tightening on private sector behaviour . This latest PMI data from Spain once again shows that the country remains in serious economic strife.

Another periphery country that is looking particularly weak is Italy, where the manufacturing PMI has been contracting for over a year and now services appears to have rolled back over:

The downturn in Italian manufacturing continued in November with a fourteenth straight monthly decrease in factory output, and one that was the most marked since August. The level of new orders also fell at a faster pace, leading businesses to make more job cuts and reduce inventories. Furthermore, after progress was made by Italian manufacturers across export markets in October,  there was a renewed decline in new business intakes from international clients during the latest survey period. As well as reflecting further downturns in economic activity across neighbours France and Germany, the decrease in new export orders was perhaps also a result of higher factory gate prices reversing some of the gains made to the sector’s competitiveness over recent months.


These data, showing business activity at service providers contracting at a marked and accelerated rate in November, mark a turnaround from the general trend seen in recent months when the pace of decline had eased steadily. Furthermore, a sharper decrease in new business inflows points to further weakness in coming months and adds to the  suggestion that Italy’s largest sector is some way off a return to growth. Firms were quick to react to the renewed downturn, reducing employment levels at near survey-record pace over the month amid efforts to lower costs. The sharpest decrease in backlogs since August 2009 shows that there remains a substantial degree of excess capacity, giving businesses more room to cut staff numbers.

As I warned back in January of this year, Italy has some fairly significant historical baggage when it comes to growth:

The real problem in Italy is that its economy has been stagnate for nearly the entire decade. According to the IMF between in 2000-2010 among all countries of the world Italy only grew faster than Haiti and Zimbabwe. In 2010, Italian GDP was only 2.5% higher than in 2000. This problem is actually made worse by the fact that this is such a long term trend. Italy’s per-capita GDP growth was 5.4% in the 1950s, 5.1% in the 1960s, 3.1% in the 1970s, 2.2% in the 1980s and 1.4% in the 1990s. Since the new millennium the country has hardly moved forward and if we extrapolate out that trend Italy will spend the next decade in contraction.

Obviously it’s a stretch to suggest that this trend is set in stone, but the latest data is showing that Italy is on track to continue this trend despite the temporary technocrat government leadership of Mario Monti. As we move into 2013 and approach national elections, which have well and truly begun, Italy is surely a country to keep an eye on.

The PMI data wasn’t the only economic news out overnight. The latest retail sales data also came out from Eurostat and the reading was very poor:

In October 2012 compared with September 2012, the volume of retail trade fell by 1.2% in the euro area2 (EA17) and by 1.1% in the EU272, according to estimates from Eurostat, the statistical office of the European Union. In September retail trade decreased by 0.6% and 0.2% respectively.

In October 2012, compared with October 2011, the retail sales index fell by 3.6% in the euro area and by 2.4% in the EU27.

Although the big dip in retail sales was probably helped by previous front-loading of purchases in some countries in order to avoid tax increases it is clear that fiscal austerity is dragging down demand for good and services. Given that many national governments are entering into 2013 with an aim for even further fiscal tightening, it is difficult to see anything other than a continuation of slowly lowering economic growth across the region.

National reports below:

Eurozone Composite PMI November

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  1. I guess its no surprise that the EU is heading for its own cliff, but where is the growth in China coming from if the EU is so sick. I have talked with a number of people who work in factories exporting, all said orders have reduced a lot and one is worried his factory will close.

    The US is not that much stronger, and who knows if it’s just a Christmas thing helping the economy.

    I don’t believe the growth rates in China, China is an export lead nation, it’s domestic economy can’t replace it’s export markets, and the EU is it’s second biggest market.

    I saw the Chinese markets jump by %3 yesterday, but I think its just a blip on a market going down, on top of a number of Chinese companies that will most likely get delisted over the accounting practice.

    This should all feed back into the EU as more negative problems and the EU should be heading for a depression.

  2. Isn’t Italy at a point in it’s demographics whereby it ought not expect much if any real GDP growth?

    I think Japan is in the same boat, and China hits in in a few years because of the 1 child policy.

    If population is aging, dependency ratio is increasing, population is barely growing, then why would GDP increase in real terms?

    Australia is not yet in that boat and there is constant expectations of growth of about say 1.5%pa which should mean increased real GDP in Oz for the next 10 years, but not necessarily real median per capita GDP.

    Are there any articles on demographics based projections of GDP? I couldn’t see demographics in the tags cloud at right.