Growth figures in the Euro Area have been pretty good during the first quarter. The trend has dramatically accelerated in Spain, France is out of a long period of very low momentum and Italy is out of its recession.
Nevertheless, even with these good news, it is too early to be sure that the long stagnation that has characterized the Euro Area since the first quarter of 2011 is over. Austerity policies that were put in place at this moment have provoked a long recession in the Euro Area. The exit from this episode may start in 2015 with the new ECB monetary policy that focus on demand. 4 years to exit from the negative impact of these austerity policies that imagined that reduction in demand could imply a strong growth momentum (sic)
The current economic policy put demand at the front place to try to change the business cycle profile. I think that this is the best recipe to converge to a more virtuous business cycle.
This post wants to show the economic activity profile in the Euro Area and its main countries at the end of the first quarter. I do not give details of on composition of growth because usually only the GDP number has been published.
GDP Quarterly change
This graph shows the GDP quarterly change at annual rate. The red bar for the first quarter of 2015 shows strong performance in Spain, France and Italy. The German number is below expectations. Continue reading →
Euro Area GDP was almost stable during the second quarter (+0.2% at annual rate) after a slight increase of 0.8% during the first three months of this year. Compared to the second quarter of 2013, GDP is up by 0.7%. Carry-over growth for 2014 is 0.6% at mid-year (Carry-over growth at the end of the second quarter is the average annual growth if GDP level remains at Q2 level in the third and the fourth quarters. It’s a useful approximation)
The first chartshows GDP level at constant price. The red line is the trend calculated from 2000 to the first quarter of 2008 and prolonged until the second quarter of 2014. The gap between the observed GDP and the trend is -12% at the end of the first half of 2014. This is huge and we do not see any convergence between the two lines. It is more a divergence than a convergence. The line in blue is another trend that shows the momentum of the recovery in 2009 and 2010 and the break after the first three months of 2011. There is gain a divergence here. Since the first quarter of 2011, GDP is down by -0.36% (-0.1% at annual rate). The current recovery seen since the first quarter of 2013 is following a mild dynamics. From that date, average growth is 0.8% at annual rate. It is still far from the 1.9% which was the trend growth rate seen before the crisis. Continue reading →
The economic momentum is still weak in the Euro Area. Industrial production data for May dropped in Euro Area largest countries, Germany, France, Italy and Spain, but also in the United Kingdom. For the first three countries, carry over growth, at the end of May, for the second quarter is negative.
Companies’ surveys for June in the Euro Area have also shown that the current dynamics was weak except in Spain. This means that there is a risk on GDP growth numbers for the second quarter. We will wait on the publication of the Euro Area data (July the 14th) on industrial production to possibly change my forecast for the second quarter. In the UK the NIESR has published its forecast for the second quarter at 0.9% (non annualized). For them, the negative number for May was temporary. In the UK, Markit (see here) and CBI surveys are high. The momentum is different from the rest of Europe.
In France, the drop of the industrial production index was deep in May. Without a strong rebound in June we can expect a zero growth number for the second quarter. The figure could even be negative. (The probability of the rebound is low as surveys in the manufacturing sector in June were all negative) Continue reading →
This chart shows that the economic momentum is changing in Spain. The number of unemployed drops quickly and month after month. The peak was in April 2013 and since then the number of unemployed has been reduced by more than 335 450. This change can be seen on the chart by looking at the blue bars. We clearly see that the business cycle dynamics has changed. Continue reading →
The manufacturing index of the PMI/Markit survey is losing steam. Its peak was seen at the beginning of this year. This lack of momentum can also be perceived in the manufacturing part of the IFO survey in Germany and in the INSEE survey in France.
That’s what the first chart below shows. The level of the three index are different but the three profiles are consistent. For the three the short-term trend is on the downside.
We also see that the PMI index is close to its historical value (0 on the chart). It doesn’t reflect a strong momentum or a forthcoming robust impulse on economic momentum. Continue reading →
In September 1992 during the European Monetary System crisis, the Spanish Peseta was devalued by 32% vis-a-vis the Deutsch-mark while the French Franc’s exchange rate remained stable. This situation was the source of tensions between French and Spanish producers. The increased competitiveness of Spanish products was a source of fragility in France, mainly in the south.
Last Thursday I was at a dinner in the south of France, in Narbonne with business leaders and the recrimination was the same. Due to reforms in Spain, Unit Labor Costs’ indices (ULC) do not have the same profile on each side of the Pyrenees. We can notice this point on the chart, below. In Spain at the end of 2013, the index is 17% lower than it was in the first half of 2008. In France, it is just 2.5% lower than more than 5 years ago. (All these measures are corrected for inflation). The divergence is striking and the change in competitiveness conditions can clearly be perceived. Continue reading →
Growth prospects for 2014 are more positive for the Euro zone. GDP should increase by about 1%.
After 2 years of low or negative growth, this is a welcome change. This could stop the long under-performance seen since 2007 in most Euro Area countries.
However, even if 2014 brings color back to Europe, the road is still very long before considering that a new equilibrium has been reached. Especially since the situations are very heterogeneous within the Euro area. Countries have very different profiles of activity and very different dynamics
To illustrate this point I have taken the GDP per capita (at constant prices) for the Euro Area, for Germany, for France, for Italy, for Spain, for Ireland, for Portugal and for the United Kingdom. The series used are those of the AMECO database of the European Commission (see here). Continue reading →