1st October 2012
Last night gave us an example of European integration actually working for a change! Whilst Presidents Barosso and Van Rompuy struggle mostly ineffectually at great expense to achieve this they were given a lesson how to do it in the sporting arena. A Spaniard invoking the memory of another famous Spaniard led 4 Englishmen, 2 Northern Irishmen, 1 Belgian, 1 Dane, 1 German, 1 Italian, 1 Spaniard, and 1 Scot to victory in the Ryder Cup. Furthermore they did see from a very unfavourable position. Indeed there was also a spirit of unity and teamwork displayed between Northern and Southern Europeans that must have had Barosso and Van Rompuy grinding their teeth in frustration at thier failure to achieve anything similar. Mind you the leader Jose Maria Olazabal led from a position of achievement,success popularity and respect which is long since impossible for the aforementioned duo to copy.
The European Economy
As we open the month we get the latest updates on the main economies in the Euro area and let us see if Spain can lead us too in this regard.
Unfortunately there is little sign of the ambition and drive of Seve Ballesteros to be found in her manufacturing sector. From this morning’s Markit Purchasing Managers Report:
The Spanish manufacturing sector remained in contraction in September as output and new orders continued to fall sharply……..The seventeenth successive monthly fall was substantial, and broadly in line with that seen in August.
Whilst the reading did improve from August’s 44 to 44.5 there were a couple of grim reminders of the depth of Spain’s economic crisis:
Employment also continued to decrease, and at a sharp pace. Moreover, the rate of job shedding quickened to the fastest in 33 months.
When your undemployment rate if already 25% you do not want to see signals like that and even worse inflationary pressures are around too:
September data pointed to a sharp acceleration in the rate of input cost inflation, which hit a 16-month high. Respondents noted higher raw material costs, with rising food prices often mentioned.
So much for unemployment and inflation being a trade-off. But of course many official measures exclude food prices as apparently eating is not a priority or maybe paying for food is not such a priority for them.
Here we saw a similar picture of a relative improvement but not one strong enough to stop the decline of Italy’s manufacturing sector:
The seasonally adjusted Markit/ADACI Purchasing Managers’ Index manufacturing performance – climbed to a six month high of 45.7 in September, from August’s mark of 43.6. That signalled a further (albeit slower) deterioration in the performance of Italy’s manufacturing sector.
And here too the employment situation continues to look weak:
Employment fell for the fifteenth time in the past 16 months in September
After her two southern neighbour’s report one may be expecting an improvement too from France but we do not get it:
The headline Purchasing Managers’ Index recorded 42.7, down from 46.0 in August. That was the lowest reading since April 2009 and indicative of a substantial deterioration in operating conditions.
As you can see France has bucked the trend and recorded a number which reminds us of the initial contraction as the credit crunch first hit. Regular readers may recall that I felt earlier in the year that we should wait for numbers after her election period to see if the slow down hitting her was confirmed and it now appears that it has been. Indeed there are signs of building problems in La Republique as last week’s number (47.9) showed that her retail sector continues to contract too.
We seem likely to return to the debate before long whether France should be treated as a Northern European country or a Southern European one.
Even in Germany’s manufacturing sector there has been a slow down in recent months but it reduced in scale this month:
At 47.4, up from 44.7 in August, the final seasonally adjusted Markit/BME Germany Purchasing Managers’ Index pointed to the least marked deterioration in overall operating conditions since March.
So there is some relief as Germany definitely represents the core nations of the Euro and she is recovering a little.
We now come to what has been for quite a while the equivalent of an economic video nasty and it is my sad duty to report that this continues to be the case.
At 42.2, virtually unchanged from August’s mark of 42.1, the Purchasing Managers’ Index pointed to a further marked deterioration in the health of Greece’s manufacturing sector in September. The headline index has now posted below neutrality continuously for over three years.
It has indeed been three grim years for Greece and even the one part of her economy which had looked optimistic has now turned south too:
a sharp and accelerated fall in new export orders the most pronounced since the depths of the global financial crisis in early 2009.
Greek manufacturers have found themselves trying to reduce prices to combat what feels like ever falling demand and like many others are now finding that input cost pressures are restricting their ability to do this.
This is of course a long way from the original troika report which forecast economic growth of 1.1% for Greece in 2012 and an unemployment rate of 15.2% compared to a reality of circa -6% and 24.4%.
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