As austerity lifts, so does Europe

Another good week for Europe as the latest PMI data shows the tentative recovery is gaining pace.

Eurozone manufacturing recovery gathers pace in August

  • Final Eurozone Manufacturing PMI at 26 – month high of 51.4 in August (July:50.3)
  • Growth improves in Germany, the Netherlands, Italy, Austria and Ireland.
  • Input prices broadly unchanged since July

The recovery in the eurozone manufacturing sector entered its second month during August. At 51.4, up from a flash reading of 51.3, the seasonally adjusted Markit Eurozone Manufacturing PMI rose for the fourth successive month to reach its highest level since June 2011.
National PMIs improved in all nations bar France, while France and Greece were the only countries to register readings below the 50.0 no-
change mark.

The Netherlands topped the PMI league table,followed by Austria and then Ireland. Growth rates for production, new orders and new export business all accelerated to the fastest since May 2011, with back-to-back increases also signalled for each of these variables. Meanwhile, the outlook for output remained on the upside as the new orders-to-inventory ratio hit a 28-month high and backlogs of work rose marginally


The upturns in production at German, Italian, Dutch and Austrian manufacturers all strengthened on the back of improving inflows of new business. Output also rose further in Ireland and returned to growth in Spain as a result of an increase in new business. All of these nations also reported higher levels of new export business, with rates of increase hitting 28-month highs in Italy and the Netherlands, a 32-month record in Spain and a 29-month high in Austria. German exports rose following five months of decline, while the rate of growth in Ireland held
broadly steady at July’s seven-month peak.

In contrast, output, new orders and new export orders fell at French manufacturers. Production also declined in Greece, despite stabilisations in both total new business and foreign demand following prolonged spells of contraction.

And, with improving PMI data, comes an improvement in confidence metrics .

Certainly not out of the woods, but definitely on the up-trend.  Unemployment, although intolerably high in many nations, also appears to be stabilizing across the region.

The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in July 2013, stable compared with June. The EU28 unemployment rate was 11.0%, also stable compared with June. In both zones, rates have risen compared with July 2012, when they were 11.5% and 10.5% respectively.

These figures are published by Eurostat, the statistical office of the European Union. Eurostat estimates that 26.654 million men and women in the EU28, of whom 19.231 million were in the euro area, were unemployed in July 2013. Compared with June 2013, the number of persons unemployed decreased by 33 000 in the EU28 and by 15 000 in the euro area. Compared with July 2012, unemployment rose by 995 000 in the
EU28 and by 1.008 million in the euro area.


Importantly we are seeing some improvements in South Europe. Portugal saw a 1% rise in QoQ GDP in Q2 with a 6.3% rise in exports. They have also seen a small up-turn in car sales and a small drop in unemployment.

Greece also had some good news this week.

Greece registered a primary budget surplus and a vast improvement in the deficit of its state budget as a whole in the January-July period, the Finance Ministry said on Tuesday. The primary surplus was 2,555 million euros, against a deficit of 3,083 million in the first seven months of last year, while the overall deficit came to 1,929 million euros, against a target of 7,528 million and 13,216 million euros in the same period of 2012.

While Spain is also slowly seeing some small improvements appear

Spain said on Tuesday it had eked out a sixth straight month of shrinking jobless queues in August when the number of people registered as unemployed dipped by just 31 people.

The total number of registered unemployed — 4.70 million in raw figures — was basically unchanged, according to the Labour Ministry report.

But the decline of 31 people from the previous month was enough for the Spanish government to hail a sixth consecutive month of declines, and the first drop in the month of August since 2000.

That, however, has been offset by the latest poor lending data which continues to show a struggling private sector.

Outstanding credit extended by Spanish banks to companies in Spain in July declined 9.8 percent from the same month a year earlier to 677.431 billion euros, the lowest level since August 2006, according to figures released on Monday by the Bank of Spain.

The magnitude of the fall was the largest since the central bank began compiling the current historical series in 1995 and remains an obstacle to economic recovery. Compared with record levels reached in 2009 of some 950 billion euros, the amount of outstanding loans has fallen 29 percent.

So, overall, it’s more good news out of Europe as the national economies eke their way towards growth. Obviously there are still major issues, most notably the continued lack of demand for credit in many nations and the underlying issue of debt imbalances across the region. As I stated last week , the question now is whether the same adjustments in austerity policy that are supporting this recovery will continue after the German election, or whether we will see a return to old form and a renewed slow down. We’ll obviously have to wait until after September 22nd to find that out.

Latest posts by __ADAM__ (see all)


  1. I’d suggest the title of this piece is the wrong way around. It should read “As Europe lifts, so does austerity”. Austerity has, and is, working for Europe much to the surprise of many, and if the economy of The Zone falls back again, then a tightening of conditions to reign in spending will again be reimposed.

  2. This article argues that Austerity saved Europe and that it is the reason things have turned around;

    “So, in the eurozone periphery, austerity is not a question of fine-tuning demand, but of ensuring governments’ solvency. Economists like to point out that solvency has little to do with the ratio of public debt to today’s GDP, and much to do with debt relative to expected future tax revenues. A government’s solvency thus depends much more on long-term growth prospects than on the current debt/GDP ratio.

    Austerity should thus always be beneficial for solvency in the long run, even if the debt/GDP ratio deteriorates in the short run. For this reason, the current increase in debt/GDP ratios in southern Europe should not be interpreted as proof that austerity does not work

    Moreover, austerity has been accompanied by structural reforms, which should increase countries’ long-term growth potential, while pension reforms are set to reduce considerably the fiscal cost of aging populations

    More important, austerity has been very successful in restoring external balance to the eurozone’s periphery. The current accounts of all southern eurozone countries are improving rapidly and, with the possible exception of Greece, will soon swing into surplus.

    With austerity, imports have crashed everywhere in the periphery, while exports – helped by falling labor costs – are increasing (except in Greece). As a result, these countries’ current accounts are now moving into surplus, and their external solvency is improving rapidly”

    • I beg to disagree with the sweeping statement in your link. Sure, excessive government is potentially bad (at what threshold though), but the truth is that the GFC has (and is still) exposing the weaknesses in each economy and often it has little to do with public debt. In the case of Spain, US, Ireland, the Netherlands, the UK, maybe Denmark soon… it was/is excessive private debt, (particularly mortgages) fuelled by lax banking oversight. Sure the economic pain focused minds and many of the less dynamic countries (particularly Spain) continued the structural reforms they had sidelined when the Euro party began, so they have low hanging fruit to get going, which explains their increasing exporting share. But what to do with countries that were supposedly more dynamic (US, UK, Netherlands)? What to reform when you are at the bone so to speak?

      • “What to reform when you are at the bone so to speak?”

        Stop digging.

        There is no escaping the Debt. It will be repaid, defaulted on or inflated away. Excessive Govt is life threatening for an economy. That is the problem facing Europe.

      • GSM, digging is good, it shows when someone´s ideas lack a solid basis. The problem of excessive debt is that in the hands of private individuals (mortgages) or corporations (lots of mortgages) it can destroy countries far more swiftly than public debt (compare Ireland/Spain with Italy or Japan). And this is the result of cutting evil restrictions on the banking industry. By this I am not suggesting that governments should not strive for balanced budgets but not concurrently with households.

  3. GSM

    Very true. Have you noticed that in the last 18 months the euro area current account has gone from 20 US$ billion deficit to 260 bill surplus. Whereas even with shale gas and oil the USA is over 400 billion deficit. As a percentage of GDP Australia’s is higher than the USA even with iron ore still going gangbusters.

  4. Applied for a passport in a EU country this week so this is good news, like all my educated GenY friends i am out of this place asap.