German Industrial Orders and Italian GDP in 3 charts

Germany: Industrial Orders in June
Two charts on German industrial orders allow a more optimistic view on the current economic outlook for developed countries.
The first chart below shows the geographical sources of these orders. The total index in purple  is mildly up trending. The decomposition shows that domestic and Euro orders are not too strong and that the main source of orders’ growth comes from outside the Euro Area. The red line has a strong momentum.
Nevertheless in June we see an impressive jump in the Euro Area. (Look at the light blue curve) This reflects aircraft orders after the  Paris Air Show in June. Airbus has received 932 orders for planes in the first seven months of 2013: 446 were registered in June.
Without these specific orders the global number would have been weak at only 0.1% in June compared to the 3.8% that was published. Orders on consumption goods and on semi-finished goods dropped in June.

The second chart shows the consistency between capital goods orders and OECD investment. What is interesting here is that the improvement in orders should drive investment higher. This would be the best signal of crisis exit.


The recent improvement is not totally convincing but the downside risk seems to be reduced now and that’s what is important for the economic outlook. The capital orders decomposition by geographical location shows that there is an improvement in every region, even in the Euro Area. A confirmation of this upward trend and a stable framework in the Euro institutions are the recipe for a stronger outlook in Europe. All the data we have had recently tell the same story for the Euro Area. After a 6 quarter recession there is convergence to stabilization in the economic activity. That’s much better that what was seen 3 months ago but is is not yet the recovery period

Italian GDP in the second quarter
The Italian GDP has dropped for the 8th quarter in a row. During the second quarter it was down by -0.24 % (-1% at annual rate) after -0.55% (-2.2% at annual rate) during the first three months of 2013. Annual change is -2% and carryover growth for 2013 at tend end of the second quarter is negative at -1.7%.
We do not have the decomposition of GDP change. So it’s not easy to discriminate between an improvement trend or a simple temporary improvement.
My guess is that it is an stronger trend. That would be consistent with all the positive imporvement that has been seen in companies’ surveys in spring. If this continues as seen in July I do not exclude a positive GDP number in the last quarter of this year.
A last point is that GDP has dropped by -8.8% since the Q3 2007 peak. This has had a strong impact on standard of living for every italian. And this impact will be persistant as the gap is wide and as productive investment has dropped dramatically during the recession period. This will dampen the cycle and be very costly for Italian people in the long run.