European recession grinds on

The latest Eurozone  manufacturing PMI data came out on Friday night and the story is much the same that we have seen over the last year.

  • Final Eurozone Manufacturing PMI unchanged at 47.9 in February (flash: 47.8)
  • Germany stabilises but downturns seen in all other nations bar Ireland
  • Upswing in new exports–especially for German goods – fails to offset weak domestic markets

The good news is that there is some consolidation in the rate of decline in new orders, but the bad news is that this is a continuation of the divergence in the economies of the Eurozone. The other large economies, France, Italy and Spain are all still deep in contraction and an improvement in Germany is actually the reverse of what is required in regards to re-balancing the Eurozone’s economy.

So much the same story. The Germany economic machine continues to show strength in an environment of peripheral austerity, but the rest of the Eurozone continues to struggle as internal demand shrinks further. Italy is looking particularly weak.

Over the weekend the Spanish government also released its latest quarterly Spanish accounts for  Q4 2012 which backed up the already known fact that there has been further deterioration in fiscal targets and growth.

  • The Spanish economy registers a quarter-on-quarter variation in volume of –0.8%, five tenth less negative than that recorded for the previous period.
  • GDP year-on-year growth in the fourth quarter stands at –1.9%, three tenths lower than that recorded for the third quarter.
  • As a result of the corresponding estimations’ aggregation for the four quarters of the year, GDP at current prices of 2012 stands at 1,051,204 million euros, registering a nominal variation of –1.14% and a variation in volume of –1.42%, as compared with 2011.
  • The contribution of national demand to aggregate growth is seven tenths more negative than that for the previous quarter, standing at –4.7 points, whereas the contribution of external demand to quarterly GDP increases the figure of the previous quarter (2.4 to 2.8 points).
  •  Employment in the economy decreases at a year-on-year rate of 4.7%, one tenth higher than in the third quarter of 2012, indicating a net reduction of 805 thousand full-time jobs in one year. In turn, the hours actually worked decrease at a year-on-year rate of 3.9%.
  • The annual rate in the unit labour cost stands at –5.8% this quarter, around six points below the implicit GDP deflator (0.1%).

And once again, the overall outcome is every greater unemployment across Europe.

The euro area1 (EA17) seasonally-adjusted2 unemployment rate3 was 11.9% in January 2013, up from 11.8% in December 2012. The EU27 unemployment rate was 10.8%, up from 10.7% in the previous month4. In both zones, rates have risen markedly compared with January 2012, when they were 10.8% and 10.1% respectively. These figures are published by Eurostat, the statistical office of the European Union.

Eurostat estimates that 26.217 million men and women in the EU27, of whom 18.998 million were in the euro area, were unemployed in January 2013. Compared with December 2012, the number of persons unemployed increased by 222 000 in the EU27 and by 201 000 in the euro area. Compared with January 2012, unemployment rose by 1.890 million in the EU27 and by 1.909 million in the euro area.

The Italian election proved that there is a growing political backlash against these failing economic policies and that some nations are willing to use their democratic powers to push against them. Austerity fatigue is setting in across the Eurozone and even the usually quiet Portugal has seen mass protests as the economic situation worsens.

Hundreds of thousands of people took to the streets of Lisbon and other Portuguese cities Saturday to protest against the government’s austerity measures aimed at rescuing the debt-hit eurozone nation.

The rallies were organised by a non-political movement which claimed 500,000 marched in the country’s capital and another 400,000 in the main northern city of Porto. There have been no official estimates of the crowds.

But the mood of the crowd was clearly political, calling for new elections with banners declaring “Portugal to the polls!” and “If you fall asleep in a democracy, you wake up in a dictatorship”.

The question now is exactly what the European Union , Commission, Bank along with the IMF can do in order to suppress the growing tide of social and political angst in Europe. Over the weekend Italy’s Beppe Grillo raised the question whether Italy should leave the Euro, once again bringing “convertibility” risk back to the fore.

It would appear, as I predicted some time ago, that the fiscal compact is reaching its political and social limits and I suspect there will be renewed calls for a re-negoitation of both it and the rules of engagement of the ECB’s OMT over the coming months as it becomes clear that 2013 is not the year that growth returns to the Eurozone.

That does, of course, make the German elections later this year just that little bit more interesting.

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