Back in November 2012 Mario Draghi had this to say when asked when the Eurozone would begin to emerge from the economic crisis that had been on-going for almost 3 years at that time.
The Eurozone is expected to pull out of recession in the second half of 2013, European Central Bank President Mario Draghi said in an interview Friday on France’s Europe 1 radio station.
Draghi said the ECB’s updated forecasts to be released next week would give a “full picture” for 2013 and 2014. He pointed to the ECB’s current forecasts as signalling that a recovery in the euro area as a whole “would start probably in the second half of 2013.”
Asked if that means the dark clouds over Europe will be lifted in 2013, Draghi responded: “I hope so.”
Well the second half of 2013 is fast approaching, but that recovery he continues to speak of doesn’t want to materialise. As I talked about late last week, unemployment in the zone is still heading for the moon and the latest manufacturing PMI data, released over the weekend, is yet another set back.
Eurozone manufacturing downturn deepens at start of second quarter
- Final Eurozone Manufacturing PMI at four- month low of 46.7 (flash: 46.5)
- German output contracts for first time in 2013, joining ongoing downturns elsewhere
- Job losses recorded across the currency union, as March recoveries in Germany and Austria prove short-lived
Eurozone manufacturing started the second quarter of 2013 on a weak footing, with conditions in the sector deteriorating at the sharpest pace in the year-to-date.
At 46.7 in April, down slightly from 46.8 in March, the seasonally adjusted Markit Final Eurozone Manufacturing PMI® signalled contraction for the twenty-first successive month – despite edging up from the earlier flash estimate of 46.5.
All of the national PMI indices signalled contraction in April. Rates of decline accelerated in Germany, Ireland and Austria, but eased in France, Italy, Spain, the Netherlands and Greece. The four worst performing nations nonetheless remained France, Italy, Greece and Spain.
It should be noted that any reading below 50 signals contraction and not even the trading power-houses of Ireland or Germany could manage it this month, and looking at the comments from Chris Williamson, Chief Economist at Markit, certainly doesn’t instil a sense that the zone is on the verge of a recovery.
The fact that the Eurozone Manufacturing PMI came in slightly higher than its flash reading offers little consolation to the fact that the index fell further in April, and suggests that the industrial sector is contracting at a quarterly rate of 0.5% at the start of the second quarter.
Manufacturing therefore looks to be acting as a significant and increasing drag on the economy, raising the risk of a deepening contraction of GDP in the second quarter.
There is nothing here to suggest that manufacturing will turn the corner and stabilise any time soon, putting greater onus on policymakers to act quickly to reinvigorate growth.
The news that prices charged by companies for their goods fell at the fastest rate since the start of 2010 brings mixed signals. An easing of price pressures is a good thing from a policy perspective, opening the door for further central bank stimulus. However, it is also a worrying sign of a lack of pricing power and deflationary forces, highlighting the extent to which demand has slumped in recent months.
Speaking of deflation, how about an entire spanish village for €45,000. Ok, maybe that story isn’t as good as it sounds, but you get the point that there is a very long way to go before economic recovery in Spain and the PMI report shows that manufacturing has been in continuous contraction for 2 years. The story from Italy isn’t much different, where the number is 21 months, and a record , but at least in that case pricing is responding to the fall in demand.
Overall, isn’t another depressing round of data out the Eurozone and talk of recovery remains well with the delusional sphere.