Europe’s bog deepens


There was a hint from yesterday’s China PMI that the good news from global trade was looking very toppy. There was therefore a good chance that the powerhouse of Europe, German, was going to disappoint with its PMI number overnight, and it certainly managed that.

April data indicated a decline in German private sector output, thereby ending a four-month period of expansion. This was highlighted by the seasonally adjusted Markit Flash Germany Composite Output Index posting 48.8 in April, below the crucial 50.0 no-change value and down from 50.6 in March. The latest reading indicated a moderate reduction in private sector business activity, with the pace of decline the fastest since October 2012.

The manufacturing and service sectors both registered renewed falls in output levels during April, with the former posting a slightly faster rate of contraction. The decrease in manufacturing production was the first so far in 2013, while the reduction in service sector activity was the first in five months and the most marked since last October.


It must be noted, however, that this isn’t the first round of “core rot” we have seen from Europe, and Germany has managed to bounce back before. What hasn’t changed though is the on-going and sustained contraction across the rest of the zone.

The Markit Eurozone PMI Composite Output Index was unchanged on March’s reading of 46.5 in April, according to the flash estimate. The sub-50 reading indicated a drop in activity for the nineteenth time in the past 20 months, the exception being a marginal increase in January 2012.

Activity fell sharply again in both manufacturing and services. While the former saw the steepest rate of decline for four months, the latter saw the downturn ease slightly compared with March.

New business fell for the twenty-first successive month, with the rate of deterioration accelerating for the third month in a row to signal the steepest decline since December. Marked falls were seen in both manufacturing and services.


Markit Economics chief economist provided the following wrap on the data.

Although the PMI was unchanged in April, the survey is signalling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify further in coming months rather than ease.

Thanks to an upturn in the survey at the start of the year, the PMI suggests that euro area GDP fell by around 0.2-0.3% in the first quarter after a 0.6% drop at the end of last year. However, the April reading points to a 0.4% rate of decline, with downside risks. Worryingly, the rate of loss of new business gathered further momentum, suggesting that activity and employment could fall at steeper rates in May.

The renewed decline in Germany will also raise fears that the region’s largest growth engine has moved into reverse, thereby acting as a drag on the region at the same time as particularly steep downturns persist in France, Italy and Spain.

Policymakers will at least be relieved to see inflationary pressures cooling, which could further open the door to renewed policy stimulus.

So the data still stinks and looks to be getting worse, which means we can expect even higher unemployment from Eurostat in the next round of data and more announcements of lower GDP expectations over the coming months. The door is now open for the ECB to do a little more on the policy front, but as we’ve seen over the last 3 years much of the issue is demand not supply of credit so the outcome can be expected to be muted at best.


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  1. We know the answer, and it’s not more printing; it’s scrapping the Euro and allowing rebalancing of the Eurozone economies. That’s less good for Germany and better for France etc. But that won’t be allowed because lower currencies , the Peseta, the Punt, The Escudo, The Drachma and The Lira aren’t a lower US$. As was once noted – If the World economy goes down in flames, the USA wants to make sure that it at least, on top of the ashes…..

    • notsofastMEMBER


      But I don’t think scrapping the Euro is any answer either. In most cases large scale emigration and/or mass multicultural immigration has destroyed the prospects of each individual country going back to their own little fiefdoms.

      And Europe can’t go forward to full banking union because they don’t have a political union. A full banking union without the required political union is just kicking the can down the road for much bigger problems in future. And they are still a long way from a genuine political union.

      Europe is indeed stuck in a bog. And to use an analogy, any sudden rapid movements, like scrapping the Euro or adopting a full political union are likely to see them rapidly disappear into the mud.

      The Euro problems can only solved with slow, careful and considered action in small steps.

  2. It would seem doubtful Bernanke can run a monetary policy to counter a whole lot of very minor currencies moving independently.
    So maybe…

    Anyway the European periphery has no other option does it?
    Nevertheless those thinking that it is rough in the periphery now won’t want to know about the immediate aftermath of going back to their own currencies in the current environment.

  3. ” Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.5 percent…. reiterating his view the New Zealand dollar is “overvalued”. The kiwi jumped after the statement….the RBNZ saw the currency staying above 75 on the TWI until the June quarter next year”. This, gentlemen, is how well low interest rates do. It’s lunacy. Low rates = a higher currency? I repeat: If we want lower currencies to help what’s left of our domestic industry, then we have to RAISE interest rates….

  4. The European data must have been good news because Euro markets are up more than 3% across the board. I mean, how could it be otherwise?

    • Bad is good. They expect the ECB to cut rates so stock markets rally. Don’t you know that we are just a 0.25% cut away from a full-blown recovery?

    • notsofastMEMBER

      In this world where the main economic powers are trying to lower their currencies to gain an export advantage, then raising a countries currency is a way for the market to say they are unhappy with the direction the country or this case the continent is taking.

      Geopolitics 101.

  5. Plus, Spain now agrees that they need to give up some sovereignty to kick the can once again.

    What will it take before people revolt? It seems to me that they are willing to get shafted at all depths from any directions. Do they think done news poll is enough to voice their discontent?

  6. Make of this what you will.

    ECB gags State on IBRC liquidation
    Monday, April 22, 2013

    The ECB has gagged the Government from releasing any information in relation to the liquidation of the former Anglo Irish bank, IBRC.

    A senior official in the Department of Finance told the Irish Examiner they were under strict instructions from the ECB not to release any details to the public.

    As Forewarned, The Irish Savers Have Just Been “Cyprus’d”, And There’s MUCH MORE “Cyprusing” To Come

    The Irish Business Post announces senior bondholders will get wiped out. That’s right, a 100% loss! Zilch! Zero! Nada! Now, that’s investing. That’s getting “Cyprus’d”, plus some!!! From IBRC senior bondholders to be burned

    As you can see, this is actually MUCH WORSE than the deal the Cypriots got. These Irish pensioners are facing a total wipeout – 100% LOSS!!!

    • notsofastMEMBER

      Who cares about the domestic bond holders and domestic depositors?

      What the “market” really cares about is what happens to foreign investors. You know, the people who pumped in their hard earned into the gullible Irish Banks to allow the housing bubble to be built in the first place.

      Whats happening to these people?

  7. Why the shock and awe?

    Are any of you genuinely surprised?

    I also think its time to stop looking at Aussie RE as a single entity. Anyone can see the diversity between the NT/Perth to the other states is now so wide, we may as well include France in our data.

    Each state and even to some degree region should be considered in its own context. I know for a fact Cairns is in more shit than Elton Johns finger.