4th May 2012
This week has given us updates on the state of the economy in the Euro area and it has not made pretty reading. We now have the last economic data before voters in both France and Greece go to the polls on Sunday for their Presidential and General Elections respectively. I wonder what sort of Greek government will emerge from this and note that some are already talking of a second election. Let us hope that this is not because the Euro zone thinks they have come to the “wrong” result as we have seen in their various referenda. Whilst I like the songs of Gerry Rafferty I do not want to be hearing this message.
Cause if you get it wrong, you'll get it right next time (next time)
The Service Sector in the Euro zone
This is the most important component of modern economies and is usually by far the largest sector and I have to confess I waited for this mornings update with not a little trepidation. And it turns out that I was correct to do so.
Final Eurozone Services Business Activity Index: 46.9 (Flash 47.9, March 49.2)
So as the benchmark here is 50 we see that as more data has come in after the initial estimates the outlook has worsened. And there has been a considerable deterioration between March and April of 2.3 which somewhat ominously is the biggest fall since October 2008, a period we do not want to repeat. If we move onto the national breakdown we see that Germany at 52.2 has managed some expansion so the picture elsewhere must be worse than the average.
One country which has shown a severe downturn is Italy where the services PMI has fallen from 44.3 in March to 42.3 in April. So a contraction has got worse and done so at such a rate that the producers of the report added this:
"These services figures joined earlier-released retail and manufacturing data in showing faster contractions in activity during April that, with the exception of the latter, are approaching the rates of decline seen at the depth of the 2008/9 recession."
Yes the same 2008/09 recession that we are supposed to have recovered from. Ouch!
And if we look at the detail of the notes we see that the trillion Euros of three-year liquidity provided by the European Central Bank does not seem to have filtered into the required areas as we see this;.a short supply of credit
Apparently you do not get much bang for your buck when you spend a trillion Euros these days…
After looking at Italy’s performance,or rather lack of, it was not a surprise to see this reported about Spain: both activity and new business fell at sharp and accelerated rates
We end up with the Spanish service sector falling from 46.3 in March to 42.1 in April so she has gone from a better position than Italy to a worse one. And sadly a fall of 4.2 in one month is a figure which only reminds me of Greece and what happened to her. Unfortunately there was more bad news as in a country which already has a 24.44% unemployment rate then this is grim:
Although the rate of job cuts eased to the weakest since September 2011, it remained marked. All six monitored sectors posted falling staffing levels, led by Transport & Storage and Renting & Business Activities.
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