tag:blogger.com,1999:blog-85293978081018388122024-02-21T05:22:42.453-08:00German Economy WatchUnknownnoreply@blogger.comBlogger214125tag:blogger.com,1999:blog-8529397808101838812.post-46417975009217230592011-07-31T11:29:00.000-07:002011-08-03T22:54:17.729-07:00Could There Really Be A Recession Risk In Germany?Oh, come on Edward, surely this time you are going too far? The Germany economy is the strongest in Europe, time and again we have been told it is powering and powering ahead. It has just demonstrated record growth performances. So where the hell could you possibly get the crazy idea that Germany might be in for a double-dip recession? Must be the summer Spanish heat.<br /><br />Well, no. Perhaps the idea is not as absurd as it seems at first sight. Try taking a look at this chart (exhibit A), for starters. This is what just happened to German manufacturing industry.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi47AwCCtYs-4Gaq735gdTY9kx685HpGNSUclO4AvnkZMz2T_8hCIF4rq4bpNymGIPAHqRGLeGHrXYuPNrwDxj1DtT25UW-NI7bBoVioeIXRCY6XMtp2FR6P80yTHMoBYNYMn97LCLPMt-Z/s1600/German+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636698900176290546" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi47AwCCtYs-4Gaq735gdTY9kx685HpGNSUclO4AvnkZMz2T_8hCIF4rq4bpNymGIPAHqRGLeGHrXYuPNrwDxj1DtT25UW-NI7bBoVioeIXRCY6XMtp2FR6P80yTHMoBYNYMn97LCLPMt-Z/s400/German+manufacturing.png" /></a><br /><br />It is the monthly manufacturing PMI chart, and note the sharp smooth downward line, which stretches from February's high point of 62.7, down to July's 52. Yes, German manufacturing industry is still expanding, but only just, and it is the pace of the slowdown which is remarkable.<br /><br />And this months report made plain there is worse to come, since as Tim Moore, senior economist at Markit informed us: “New order levels went into reverse in July, as fewer export sales helped end a two-year period of sustained growth". The report also highlighted a reduction in export sales, with the pace of contraction being the fastest since June 2009.<br /><br />We can also find a reflection of what we are seeing in Germany out in East European economies like the Czech Republic, where the rate of economic expansion has also slowed sharply. This is not surprising, since these economies are all tightly roped together via the German export machine.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA8XrCUJZzMsQuAhJ5zkE72c1RuBHvdpI7Dm2ZTIqc6JybHj5gapiem-GHtm1UEDpPCBebgiySvLWhRtMwWmzg7PK05wVIWXSoAG5LFkjVQ-vcSjJPwOIYLh8zarHoW6yF92g_RHXF45Cb/s1600/Czech+Republic.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636715802145456530" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA8XrCUJZzMsQuAhJ5zkE72c1RuBHvdpI7Dm2ZTIqc6JybHj5gapiem-GHtm1UEDpPCBebgiySvLWhRtMwWmzg7PK05wVIWXSoAG5LFkjVQ-vcSjJPwOIYLh8zarHoW6yF92g_RHXF45Cb/s400/Czech+Republic.png" /></a><br /><br />Well, OK, German manufacturing industry is slowing, but that's only one part of German activity, surely the rest of the economy will have sufficient momentum to keep moving forward? We this is where I bring in what I consider to be my "killer app", which is the fact that Germany has an export dependent economy.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBZ3ekK1Y_vokOt4ETyI1RrJEISUl14SQymXqbkldK6x2A9XKgKdATNFswjAYph_T9NAfBD97MXFrIwPxBzah6IFp7LPN4eKtiZYKJV8Vb8MHwKtQr000qjA3pUbqeLxvh7uW8v2woAiqX/s1600/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636716716906945154" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBZ3ekK1Y_vokOt4ETyI1RrJEISUl14SQymXqbkldK6x2A9XKgKdATNFswjAYph_T9NAfBD97MXFrIwPxBzah6IFp7LPN4eKtiZYKJV8Vb8MHwKtQr000qjA3pUbqeLxvh7uW8v2woAiqX/s400/german+exports.png" /></a><br /><br />In Germany movements in GDP follow movements in the rate of expansion of exports. Let's not get into why that is for the moment (think Germany's particular demography), and just consider the possibility, despite all the talk over the years of Germany finally "decoupling", that it can't. Export dependence could well be the key explantaion for why the performance of the German economy is so "extreme" and so volatile, with quarters of record growth being witnessed just before the onset of substantial recessions, recessions which often register record falls in output only to be followed by massive recoveries. The reality is not that Germany is either a growth or a contraction champion, but that export dependency simply makes the German economy more volatile and more susceptible to sudden changes than those of some of its neighbours (like France).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvEMjcVM7T_YEuLWyZ2RBt0dYUPwauHzmjxlqs0LN1A580X7twb7sy2uCVRuWnlSX7GvDwCl5yPrcfQZHtuHsRcmCobXZ2LAOpbWXef5VR0mP1om17j3w7DhEgzfECy3_04WOoIu6XZ3WA/s1600/German+gdp+q-o-q.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636718350492872530" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvEMjcVM7T_YEuLWyZ2RBt0dYUPwauHzmjxlqs0LN1A580X7twb7sy2uCVRuWnlSX7GvDwCl5yPrcfQZHtuHsRcmCobXZ2LAOpbWXef5VR0mP1om17j3w7DhEgzfECy3_04WOoIu6XZ3WA/s400/German+gdp+q-o-q.png" /></a><br /><br />In fact Germany's long term trend growth has been falling steadily.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiyEvrQ9mOI5mvezxCsh15AmCL2lXUeydwreZA37FtmHks4Ux4FSeOs6zzKmq6JoGPHBsEZxWYMeFfKGeh2FtM-o5LS6WbaSIisDswuptLXe2E27pVRBGNckuiePRbChaPLOU-cM5zntO3/s1600/German+Long+Term+GDP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 235px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636872457845618098" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiyEvrQ9mOI5mvezxCsh15AmCL2lXUeydwreZA37FtmHks4Ux4FSeOs6zzKmq6JoGPHBsEZxWYMeFfKGeh2FtM-o5LS6WbaSIisDswuptLXe2E27pVRBGNckuiePRbChaPLOU-cM5zntO3/s400/German+Long+Term+GDP.png" /></a><br /><br /><br /><br /><strong>We Can See The Slowdown Everywhere, Except In The ECB Rate Policy</strong><br /><br />But why do you insist that this won't simply be a slow patch, or a soft spot? Even the bundesbank is saying that German growth in the second half of the year won't be as strong as in the first half. Well, here comes exhibit B. The slowdown is global, and for an economy which needs growing exports to grow, then a global slowdown is a real problem.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjT7hFTztVqQGJYTo5RziYCBPygKS0iy5B8Nz79ADiNb6AQrEr8abYRRZnNY03FY0Bg9PMUxNIjHnhyphenhyphenGVFm4HWk17mEnhN8QN7H_6L2huKvYu6oq7Ybm_dw_flEABeznwQE-GkQue4j8lIn/s1600/JP+Morgan+Global.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636719259595050194" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjT7hFTztVqQGJYTo5RziYCBPygKS0iy5B8Nz79ADiNb6AQrEr8abYRRZnNY03FY0Bg9PMUxNIjHnhyphenhyphenGVFm4HWk17mEnhN8QN7H_6L2huKvYu6oq7Ybm_dw_flEABeznwQE-GkQue4j8lIn/s400/JP+Morgan+Global.png" /></a><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNVBeaTFz6TBRKqb2jDkyX8mRnWw7J3KRQic7IWpgMgK_abDGsyV8r8HMoSH_hJXmUWGjCtDPbKEftBPqe8tkro_GGYwgFED5KZ_mzcb4VA2h3QKsRowOuoM7DoPe0dsYYVGL6UL5xqWBL/s1600/JP+Morgan+Global+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636719429689380162" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNVBeaTFz6TBRKqb2jDkyX8mRnWw7J3KRQic7IWpgMgK_abDGsyV8r8HMoSH_hJXmUWGjCtDPbKEftBPqe8tkro_GGYwgFED5KZ_mzcb4VA2h3QKsRowOuoM7DoPe0dsYYVGL6UL5xqWBL/s400/JP+Morgan+Global+Services.png" /></a><br /><br />Even China (that other great export driven economy) is feeling the heat, with new export orders also having slid into contraction territory.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4_smYdyRnMi8VroXw20rOAmcVE9g5zo2_Rp6Xgl-Dc-WoskbyrxDX7Y3RfduDLYFTtjCQaVwnyiAM4k2BQtliASqkrg3KPurQfKoSAy8kHY1Gf7_Ynu6hDJ69q2cVj3KbJeSJN-Tr1fLg/s1600/China+Export+Orders.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 190px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636719332583392002" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4_smYdyRnMi8VroXw20rOAmcVE9g5zo2_Rp6Xgl-Dc-WoskbyrxDX7Y3RfduDLYFTtjCQaVwnyiAM4k2BQtliASqkrg3KPurQfKoSAy8kHY1Gf7_Ynu6hDJ69q2cVj3KbJeSJN-Tr1fLg/s400/China+Export+Orders.png" /></a><br /><br />And there are more indications than simply the PMI that the economic outlook in Germany is deteriorating. We have the IFO sentiment index, which has now entered overall decline.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCXo9PPHqtAyPhFxZ257_lEQzeqxoqHd7yXXC6tmMStNoVf8g4MrTiA9BgDDcFgqVqUsj2vBaoVDqsCzZQ5Q79xzbM55e_TW4ZEuUcMzRSxEtqB-o8dFDu31EPbJ4HCh65_kWGA4-nWZqk/s1600/IFO+expectations+chart.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 264px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636720625799516738" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCXo9PPHqtAyPhFxZ257_lEQzeqxoqHd7yXXC6tmMStNoVf8g4MrTiA9BgDDcFgqVqUsj2vBaoVDqsCzZQ5Q79xzbM55e_TW4ZEuUcMzRSxEtqB-o8dFDu31EPbJ4HCh65_kWGA4-nWZqk/s400/IFO+expectations+chart.png" /></a><br /><br />And then there is the latest European Confidence Index reading:<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-v1K4FlK1gCG4d9CLpF6bsWAlgx18xR5fZNdBD3Y7PT5TYYPhIAGBXTljWsxjZoE2lQWvWU4YXqHJxWTiSnpJOdPlKYoWXdKohw0kzl4NExkteUerIMLcclg18j7q7rfCUy_Q437YoLQJ/s1600/germany.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 245px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5636734128083356914" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-v1K4FlK1gCG4d9CLpF6bsWAlgx18xR5fZNdBD3Y7PT5TYYPhIAGBXTljWsxjZoE2lQWvWU4YXqHJxWTiSnpJOdPlKYoWXdKohw0kzl4NExkteUerIMLcclg18j7q7rfCUy_Q437YoLQJ/s400/germany.png" /></a><br /><br />Naturally, none of these readings are definitive, but they are what we have at this point, since data from June is hardly helpful to tell us what will happen in August, which is why we need to rely on the "softer" forward looking indicators.<br /><br />And obviously I can only discern something about the situation such as it is now. Should Ben Bernanke (<a href="http://www.economonitor.com/edwardhugh/2011/06/05/to-qe3-or-not-to-qe3-that-is-the-question/">as I argued in this post here</a>) decide to go ahead with another bout of quantitative easing, Germany would probably be one of the leading beneficiaries, but that is the world we might have, and not the one we actually have as of this moment. So summing up I cannot do better than Tim Moore, senior economist at Markit and author of the PMI report, who said in his final comment:<br /><br /><blockquote>“July’s final PMI data confirmed a sharp slowdown in German private sector growth, with output levels rising at the weakest pace since the autumn of 2009. The month-on-month loss of growth momentum was also the steepest since the recovery began two years ago. New business gains meanwhile hit a stumbling block in July as heightened economic and financial market uncertainty encouraged clients to delay spending decisions. The latest overall rise in new order levels was the slowest since the start of the upturn, which in turn is likely to weigh on business confidence and job hiring in the months ahead.”</blockquote><br /><br /><br />This post first appeared on my Roubini Global Econmonitor Blog "<a href="http://www.economonitor.com/blog/author/ehugh3/">Don't Shoot The Messenger</a>".Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-16363546844676271702010-09-01T05:44:00.000-07:002010-09-01T05:49:17.773-07:00The Odd CoupleThe modern world moves at a breathtaking pace, even when most of us find ourselves on holiday. No sooner do we receive, read and start to digest one set of economic data than we find ourselves pushed to think about what the next set will look like. The clearest recent illustration of this undoubted reality is to be found in peculiar twist of events which meant that just as the news reached us that the German economy had expanded at a record rate in the second quarter, at almost the very same moment Federal Reserve officials meeting in Washington decided to significantly downgrade their economic outlook for the United States, saying the “pace of recovery in output and employment had slowed in recent months” and was likely to be “more modest” than anticipated in the near term. But this followed a month of May when it seemed Europe's economies were on the brink of disaster, while over in the United States some sort of recovery was on the cards.<br /><br />So what is going on here, does the earth switch it’s magnetic pole every six months, with what went up last time round now going down? Or could it possibly be some kind of common thread here, one common factor which unites the unprecedented expansion we have just seen in Germany, and the fears of renewed recession in the United States. Well, as it happens, indeed there could, and it has a name - the Greek debt crisis.<br /><br /><b>Structural Problems In The Currency Architecture?</b><br /><br />So what is the link? Well, the fact of the matter is that we live in a bi-polar world, at least as far as currencies are concerned. Until our current global financial architecture evolves into something more sophistocated, we have two main currencies which rival one another for pride of place in central bank reserves and investment portfolios: the euro and the dollar, and when one of these goes up, the other must come down, and vice versa. It is as simple, and as complicated, as that.<br /><br />Prior to February, and the outbreak of the European Sovereign Debt Crisis the US economy was seen as the weaker partner, and the euro was priced at a relatively high level. Then the euro slumped (falling at one point from around 135 to 120 to the US dollar in a matter of weeks) as attention focused on what appeared to be significant weaknesses in the Eurozone infrastructure. As a result of the change German exports boomed, while the US economic recovery steadily started to grind to a halt.<br /><br />And with the rise of the dollar the global economy started to fall back into dangerous - pre crisis – habits. The US trade deficit started to open up again, and one exporting nation after another started to see yet one more time the US market as the global economy's consumer of last resort. Indeed the US June trade statistics reveal the extent to which American consumers are once more sucking in large quantities of imports as their spending power recovers, while weak demand in the rest of the world coupled with the comparatively high dollar has been keeping a brake on American exports.<br /><br />As the New York Times put it in an editorial, "China is mopping up demand everywhere you look with its artificially cheap supply of goods, while Germany, the world’s other exporting power, is cutting its budget and relying on foreign demand to drive its economic rebound. This isn’t sustainable".<br /><br /><br />And the numbers prove the point. The United States trade deficit ballooned to $49.9 billion in June, the biggest since October 2008. In July, one month later, China recorded a $28.7 billion trade surplus, the biggest since January 2009. In the first five months of the year, Germany’s trade surplus, driven in large part by demand for machine tools in recovering Asian economies (many of them busily sending exports to the US), rose 30 percent compared with 2009.<br /><br />And this impression is only confirmed when we come to look at the latest revision for US GDP in the second quarter. According to the revised data, US GDP increased at an annualised 1.6% rate (as compared with the 9% annual rate in Germany), after registering a 3.7% rate in the first quarter, according to the Bureau of Economic Analysis (BEA) today. The second-quarter growth rate was revised down by 0.8 percentage point from the “advance” estimate (of 2.4%), in part as a result of the new data on imports for June. The <a href="http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm">US Bureau of Economic Analysis report</a> stated that slower GDP growth primarily reflected a surge in imports compared with the previous quarter and a slowdown in inventory investment. In fact, real exports of goods and services increased at a 9.1% rate in the second quarter, compared with an increase of 11.4% in the first, while real imports of goods and services increased by 32.4%, compared with an increase of 11.2% in Q1.<br /><br />Effectively the American economy is simply too weak to carry this additional load, and is now showing signs of heading back towards recession, forcing the Federal reserve, which only a few months ago was moving towards a tightening in monetary policy to fend off inflation to now re-assert its policy of quantitative easing to avoid any posssibility of a drift towards deflation.<br /><br />Meanwhile the German economy turns in a 2.2 per cent quarterly growth spurt, unified Germany’s best-ever performance. The annualised 9 per cent growth rate, is, as the Financial Times noted, virtually unprecedented in developed economy terms. Such dramatic changes, rather than reassuring us that all is well, only lead to even more doubts. Is it really desireable for an economy to shoot forward so dramatically, only to fall back again in the second half, which is what almost everyone (Monsieur Trichet included) expects to happen?<br /><br />Not only does the German performance seem exaggeratedly large, at the other end, on Europe's periphery, the result was lamentably small. Greece naturally exceeded everyone's expectations, on the downside, with a 1.5 per cent quarterly contraction (a 6 per cent annual rate), but Spain remained at the bottom end of the range, with a 0.2 per cent expansion, as did Portugal. Undoubtedly the Greek contraction will slow as the year advances, but the outlook there continues to be preoccupying. Only today the Greek manufacturing PMI, which showed the contraction in Greece's industrial sector accelerated again in August, has reminded us of just how difficult it is going to be for the country to return to growth, and especially if the external environment now starts to deteriorate.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEis3JFltyB6vkO3UiyYVwZrjymClrrWjE8F1PbweswiP1DwKzWbfLAu76UZppRhsEyj2KYX1X_zYK3tpcKlw7Oo3Q8wp6yWe-Vs2W62IaIC6TUW_UOXckYXDVhhGYDqtfFrunp1B06nIYDE/s1600/Greece.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 222px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEis3JFltyB6vkO3UiyYVwZrjymClrrWjE8F1PbweswiP1DwKzWbfLAu76UZppRhsEyj2KYX1X_zYK3tpcKlw7Oo3Q8wp6yWe-Vs2W62IaIC6TUW_UOXckYXDVhhGYDqtfFrunp1B06nIYDE/s400/Greece.png" alt="" id="BLOGGER_PHOTO_ID_5511909383958052578" border="0" /></a><br /><br />As <a href="http://www.ft.com/cms/s/0/5cfcac52-b520-11df-9af8-00144feabdc0.html">the FT's David Oakley said yesterday</a>, in many ways Germany could be said to have had a "good crisis", since the Greek issue pushed the Euro down and German exports up, while the current flight to safety is driving down the yield on German bunds to record lows even as it pushes up the spreads for peripheral Europe sovereigns. Among other imapcts this gives German companies an even greater competitive advantage as their capital costs come down even while those for their competitors go up.<br /><br />Spreads – which are the additional borrowing premiums countries have to pay over benchmark Bunds – hit a fresh record of 357 basis points in Ireland this week, following problems in Allied Irish bank and a Standard & Poor's downgrade. In Portugal and Spain, spreads have been creeping back up, and are now once more close to their all-time highs. Spain’s 10-year bonds are trading at about 192 basis points above Germany, compared with 57 at the start of the year while Portugal is trading at 333 basis points, compared with 67 on January 1. The following chart shows how peripheral spreads have evolved since the start of the year (they have been indexed to 1st January). As is evident they shot up in May, then came down to lower levels in July, but during August they have once more been climbing.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghAFJJMyLuS7QQxRv7slUuOSCIFEqSalW-eAy-rF4HEeS6edbZolfBYw2LYb1nUw9WnnRaPV7fzW9zYFLHi_GhaJ4TMjDjUyg4aOnyOGTrEIN-fhi4ZqtLifXRPTKnYqwuQBjA-0iJBydB/s1600/PIIGS+Spreads.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 293px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghAFJJMyLuS7QQxRv7slUuOSCIFEqSalW-eAy-rF4HEeS6edbZolfBYw2LYb1nUw9WnnRaPV7fzW9zYFLHi_GhaJ4TMjDjUyg4aOnyOGTrEIN-fhi4ZqtLifXRPTKnYqwuQBjA-0iJBydB/s400/PIIGS+Spreads.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5511921382710182626" /></a><br /><br />All three economies are experiencing extremely weak growth and Ireland is even flirting with deflation. Higher government borrowing costs can harm economies in a number of ways, from higher borrowing costs for companies to added pressure on a country’s public finances as more is eaten up in interest charges, leaving less for public services and stimulus. Effectively the presence of a large spread differential means that monetary policy is applied unevenly across the Euro Area, despite the "one size for all" objective of the ECB. And doubly so with a credit crunch which means some banks struggle to finance as a backdrop.<br /><br /><strong>Japan Trapped On The Ropes</strong><br /><br />And as if all of this wasn't enough, Germany's main competitor in Asia (where German exports have been clocking up large increases) has been effectively KO'd by the flight to safety produced by the Sovereign Debt Crisis. Japan's exchange rate against the USD dollar is now hovering around a 15 year high.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghUsJUOQTHUk5Gk1XfFywlcyJjw0h0jm4kwUtPQ-GIej55XctinxTipI8HVQ4pKmh3IsHmXwI0QnaIHks6BiEQsWcKqFCm2xCTwZqwUiAWhQ_X-06-NgmOOL3qnTW8FQz400QWxCJumCCp/s1600/Yen+Dollar.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 209px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghUsJUOQTHUk5Gk1XfFywlcyJjw0h0jm4kwUtPQ-GIej55XctinxTipI8HVQ4pKmh3IsHmXwI0QnaIHks6BiEQsWcKqFCm2xCTwZqwUiAWhQ_X-06-NgmOOL3qnTW8FQz400QWxCJumCCp/s400/Yen+Dollar.png" alt="" id="BLOGGER_PHOTO_ID_5511914460746058994" border="0" /></a><br /><br />The consequence of this is not hard to predict, while Germany clocks up record exports to China and other parts of the continent, the Japanese "recovery" is gradually grinding to a halt, as the latest manufacturing PMI report only confirms.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWffYmdWLrmnQYFSpqsaYbOWr1CyVae9KswMo5XE7Ydxc8JEgvMSd7QSlX7PVrX0ysyAkqmWCQElSdHTn1q9XYnNs-ZXhxoF7O8w38PLYbsQ7qg0DlzkMA4_F0nbic6P4FoG10z_yTkWxp/s1600/Japan.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 222px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWffYmdWLrmnQYFSpqsaYbOWr1CyVae9KswMo5XE7Ydxc8JEgvMSd7QSlX7PVrX0ysyAkqmWCQElSdHTn1q9XYnNs-ZXhxoF7O8w38PLYbsQ7qg0DlzkMA4_F0nbic6P4FoG10z_yTkWxp/s400/Japan.png" alt="" id="BLOGGER_PHOTO_ID_5511915289534842850" border="0" /></a><br /><br /><br /><strong>We Need To Seriously Address The Imbalances</strong><br /><br />At the end of the day it is hard to avoid the conclusion that we continue to live in a very unbalanced and essentially economically unstable world, where currency valuations and economic growth rates fluctuate with unnerving rapidity. Not only that, the recent Federal Reserve meeting seems to have constituted some sort of defining moment, the point when everyone finally recognises that the long promised recovery was no longer simply weeks or months away, and that emerging from the trough in which the developed economies find themselves is going to involve a long period of slow and painful effort, one where we will also need time to clean up the mess we have made in cleaning up the original mess, assuming that is that we have the dynamism and energy to do so.<br /><br />On thing is clear, the old habits won't work any better now than they did before 2007, and external deficits which were not sustainable then will not be sustainable now. So we need a new model, a model in which the emerging markets will have a much larger role to play than ever before. And if we are to move towards a more sustainable future, then we need to move beyond those simplistic headlines stressing the virile nature of Germany's export prowess. There is no doubting the efficacy and competitiveness of many German companies, but for that very reason that country needs to shoulder more of the responsibility for sharing the burden which is involved in finding solutions. Here in Europe we don't only need sacrifices in the South, some of them also need to be made in the north. German industry is enjoying real and tangible benefits (via artificially low interest rates and an undervalued currency) from the mess that the Greeks created for themselves, but in the interest of all European some of those benefits need to be plowed back in again, since if Greece is allowed to fail, no one will be the winner.<br /><br />Looking beyond Europe we need to think about how to best aid and abet the emerging economies in their quest for growth and better living standards. Earlier in the crisis <a href="http://fistfulofeuros.net/afoe/ten-new-year-questions-for-paul-krugman/">I asked Nobel Economist Paul Krugman a question which is very much to the point</a>. “At a time when the financial crisis is generalised across all developed economies - whether because those who borrowed the money now have difficulty paying back, or those who leant it now struggle to recover the money owed them - to which new planet are we all going to export?”<br /><br />My response to him back in January was that maybe we don't need to look so far afield. Many developing economies badly need cheap and responsible credit lines, and access to state-of-the-art technologies, so why not accept the world is changing, and go for some sort of New Marshall Plan, one capable of generating a win-win dynamic which would be in all our interests? At the time the proposal seemed totally unrealistic and unobtainable. Now, with every day which passes it starts to look essential. And who knows, maybe the rise of a number of other major economic powers would help solve that bipolar currency problem which is currently causing our policymakers so many headaches.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-85279214416336559032010-08-30T03:18:00.000-07:002010-08-30T23:05:10.344-07:00One Swallow Doesn't Make A Summer, But....Well, as we all well know one swallow doesn't make a summer, and one data point doesn't swing an argument one way or another, but the latest retail sales PMI reading for Germany is far from being either uninteresting, or (for my part) surprising. Basically after only two months (in the last twenty seven) of registering growth, the August PMI suggested that German retail sales once more fell back. And the anecdotal explanation for this: Spain's victory in the world cup affected the shoppers appetite! Actually, from a long term aggregate point of view I think (and economic study would be a waste of time if it weren't like this) that rather more factors come into play than football and the weather.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbprqmbScUdI6U1syVIzi5msoOvEyZKt4YjE1CzDsI1XT3r1FiFJWxXXb3nm1m5ro71ji7JMCjGadn8HeOdZdNKEEUW4Wl9gcvnBQwkf-3Yyv7kh2K2GCh8V-lFVSTYEXnbzNMeaUsxnql/s1600/German+retail+sales.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 217px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbprqmbScUdI6U1syVIzi5msoOvEyZKt4YjE1CzDsI1XT3r1FiFJWxXXb3nm1m5ro71ji7JMCjGadn8HeOdZdNKEEUW4Wl9gcvnBQwkf-3Yyv7kh2K2GCh8V-lFVSTYEXnbzNMeaUsxnql/s400/German+retail+sales.png" alt="" id="BLOGGER_PHOTO_ID_5511145519462867298" border="0" /></a><br /><br /><blockquote>August data signalled a modest decline in month-on-month sales, reversing the solid upward trend registered in both June and July. At 48.4, down sharply from 57.2 in the previous month, the seasonally adjusted Retail PMI was below the 50.0 no-change value for the first time since May. The latest reading was the lowest for four months and slightly below the long-run series average (49.1). Anecdotal evidence suggested that less favourable weather conditions and reduced consumer footfall had negative impacts on like-for-like sales in August. Some retailers also noted that the end of the football World Cup had contributed to a decline in household spending.</blockquote><br /><br />Of course, the retail PMIs are not an exact science, and they only give us an indication of the retail environment. But their long term trend is not in disharmony with the actual sales data provided later by the statistics office, since sales in Germany have been generally trending down, and as the writers of the report say, the long-run series average (49.1) does show slight ongoing contraction .<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWndPFWGwJqbRZ7VH1qQVX3_pJ6rT5QGPxWPj0HYDumqT_uNsRyIWrHj9JmBNQzsXgM266VtuMLy-hJN1wSAqNrlQT54uROWBml3NkdpufdFJ1cA4UYESg_pqpK9TaypcTZ41rq0GA9ud6/s1600/retail+sales.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 233px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWndPFWGwJqbRZ7VH1qQVX3_pJ6rT5QGPxWPj0HYDumqT_uNsRyIWrHj9JmBNQzsXgM266VtuMLy-hJN1wSAqNrlQT54uROWBml3NkdpufdFJ1cA4UYESg_pqpK9TaypcTZ41rq0GA9ud6/s400/retail+sales.png" alt="" id="BLOGGER_PHOTO_ID_5511150892631211842" border="0" /></a><br /><br />Consumer confidence, on the other hand, has risen slightly in recent months, but it is still well below the pre-crisis level:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6peQ78ptNwmfHov4Ql8lzmwM5W256nsbrcK3SerYR_qav5cLdXs664dRI81g5zic0QRIMjARmVdLbuJRuxTWlvHWL6LUAr27DFZbs3xJhzxpJo0Hce80UezEVL9PGsqmFiBZ3kZLzlKYj/s1600/consumer+confidence.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6peQ78ptNwmfHov4Ql8lzmwM5W256nsbrcK3SerYR_qav5cLdXs664dRI81g5zic0QRIMjARmVdLbuJRuxTWlvHWL6LUAr27DFZbs3xJhzxpJo0Hce80UezEVL9PGsqmFiBZ3kZLzlKYj/s400/consumer+confidence.png" alt="" id="BLOGGER_PHOTO_ID_5511151056261730802" border="0" /></a><br /><br /><br />While the ZEW investor sentiment index - normally a forward looking indicator - has been dropping steadily for some months now.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5TZRMHUA1gl2SozLs_159XXxOdsu-jJ0CQssbOeK8jh5adbyTGkrwFz-e_EjfisMEKOcYPrJSKTfbKtRymhVjddaRP7rV2h7pLVpB8Xctx8jkDhXbLd4cok1uUEkNrpj3SrWBVGRwUBF7/s1600/german+zew.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 209px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5TZRMHUA1gl2SozLs_159XXxOdsu-jJ0CQssbOeK8jh5adbyTGkrwFz-e_EjfisMEKOcYPrJSKTfbKtRymhVjddaRP7rV2h7pLVpB8Xctx8jkDhXbLd4cok1uUEkNrpj3SrWBVGRwUBF7/s400/german+zew.png" alt="" id="BLOGGER_PHOTO_ID_5511151462476694130" border="0" /></a><br /><br />So if we combine this with the August flash German PMI reading (which dropped back slightly over earlier months), it would seem that some easing off of German GDP is taking place, and indeed few will be surprised by this, since the very rapid rate of Q2 growth was clearly a one off. The issue really is that these very rapid (Leo Messi in-the-box type) accelerations don't seem to pass through to self-sustaining (via the consumption pillar) expansions, and I do wish more people would start to ask themselves why this is.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-JH3iIDxo9pvxgEJoDIzCXEakiMCwXQin7rR5HE0LfGabFWuhCyrYbO1rClvxPACGq4CProwEVTN__LMNPArL1H0-BnVzJLALJqDk_PnvOsWcW0mMfRlsx58IAkO-HG7vypDJO2UVCXFn/s1600/German+manufacturing.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 216px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-JH3iIDxo9pvxgEJoDIzCXEakiMCwXQin7rR5HE0LfGabFWuhCyrYbO1rClvxPACGq4CProwEVTN__LMNPArL1H0-BnVzJLALJqDk_PnvOsWcW0mMfRlsx58IAkO-HG7vypDJO2UVCXFn/s400/German+manufacturing.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5511447448718988866" /></a><br /><br />Moving on to other parts of the Euro Area, French retail sales seem to have continued to grow in August, although at a rather weaker pace than in July.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXYPR_JBJi4_oB-q-V8XUaMnQ4oyTd4qbpxVlIAuckW2Ti9GfcFkxoOtmUkakiFZvvKSSPBR-kB8cwPRHS1hFRsBTpPSlrAwiX5gYq8deA_0_ScKILkjPh6DhAN52PJ1W-QBJrn34Hb6s8/s1600/France+retail+Index.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 211px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXYPR_JBJi4_oB-q-V8XUaMnQ4oyTd4qbpxVlIAuckW2Ti9GfcFkxoOtmUkakiFZvvKSSPBR-kB8cwPRHS1hFRsBTpPSlrAwiX5gYq8deA_0_ScKILkjPh6DhAN52PJ1W-QBJrn34Hb6s8/s400/France+retail+Index.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5511152709071452162" /></a><br /><br />But whichever way you look at it French retails sales have a decidedly more positive look about them than their German equivalents.<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjs-5Yn8ayYF2eUkVGQn8Np6D5Ugkx0uBa8ppVvz7JoVkOGa5PvQN8VheOM6G-zbOPtwE8Xk5M_SABvRz10-P4cqcjBUX9NBbLHqCxM-pF3GExLzr3syBjSDJcTFbvnp8OFMV5Fi-xw_gx/s1600/france+retail+sales+index.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 198px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjs-5Yn8ayYF2eUkVGQn8Np6D5Ugkx0uBa8ppVvz7JoVkOGa5PvQN8VheOM6G-zbOPtwE8Xk5M_SABvRz10-P4cqcjBUX9NBbLHqCxM-pF3GExLzr3syBjSDJcTFbvnp8OFMV5Fi-xw_gx/s400/france+retail+sales+index.png" alt="" id="BLOGGER_PHOTO_ID_5511449893236846786" border="0" /></a><br /><br />What really seems striking to me is the difference in outlook being expressed by the retailers in the respective countries. According to the German report:<br /><br /><blockquote>Although retailers were downbeat about their actual sales in August, latest data pointed to a surge in optimism about the prospects for sales in September. The degree of positive sentiment about the outlook for sales in one month’s time was the most marked since April 2008. Almost one-quarter of survey respondents anticipate sales to beat their initial forecasts. A number of retailers linked their optimism to improving conditions in the domestic economy.</blockquote><br /><br />On the other hand, the French report talks of caution among those interviewed:<br /><br /><blockquote>The value of goods ordered by French retailers for resale decreased for a second straight month in August. Panellists indicated that they preferred to take a cautious approach to stock decisions at the present time. Correspondingly, inventories declined at the fastest rate since January.</blockquote><br /><br />One wonders what the basis for such expectations actually are. It couldn't possibly be that they are being influenced by the press and media coverage of the situation, could it, since in neither case do I see the expectations as especially realistic. The French seem to be too pessimistic, and the Germans way too optimistic.<br /><br />Meanwhile over in Italy it was plus ça change, as retail sales continued their now customary decline (if at a rather weaker pace than in recent months), with the consequence that the Eurozone Retail Sales Index suggested that sales across the Euro Area fell very slightly in August (on aggregate).<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIkbQp9OJ_zzxdxi4IB9itrmhG4GtvX8LtvME9Vz1BZsoia_AsMGq2om307ABrYpGCkbDFgR2H-52QoDUsDi82_aEzhu3iX_529Mw37oq9IP4liTirGWMBKbaDSifXw4m4yrpqqDrvE8SI/s1600/italy+retail.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 208px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIkbQp9OJ_zzxdxi4IB9itrmhG4GtvX8LtvME9Vz1BZsoia_AsMGq2om307ABrYpGCkbDFgR2H-52QoDUsDi82_aEzhu3iX_529Mw37oq9IP4liTirGWMBKbaDSifXw4m4yrpqqDrvE8SI/s400/italy+retail.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5511157129973384354" /></a><br /><br />Well, all meat for Monsieur Trichet to chew on before Thursday's meeting.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-61468974997939019512010-08-27T02:10:00.000-07:002010-08-30T01:24:27.397-07:00The Baron Münchhausen EffectKarl Friedrich Hieronymus, Freiherr von Münchhausen was a German baron born in Bodenwerder in the eighteenth century. Made famous by the Hollywood director Terrence Gilliam, the baron first came to public attention for his ability to recount outrageously tall tales about his adventures while fighting abroad in the Russian army. Among the astounding feats which legend attributes to him are riding cannonballs and travelling to the Moon. But perhaps his best known marvel is the story of how he managed to escape from a swamp by pulling himself out by his own hair (or by his bootstraps, depending on who tells the story). Which puts me directly in mind of the way some people are now expecting an export-dependent German economy to drag the rest of Europe - and with it the whole global train - up and out of the ditch in which it is currently sunk, simply by exporting to everbody else. Sounds just like one of those tall tales, doesn't it. A very tall one.<br /><br />Not to be misunderstood, there is no doubting the magnificent export achievement of the German economy in the second quarter of this year, just as there is no doubting the fact that it was helped considerably in attaining it by the impact of the Greek debt crisis, which as well as pushing the euro to a comparatively low level also helped the Japanese yen on-and-up towards record highs with the US dollar (the flight to safety), while the dollar itself was pushed back up to levels which were evidently not compatible with a smooth and orderly transition of the US economy back to growth, as can now be seen from the revised second quarter data, since the growth rate is down primarily because of an increase in the US trade deficit.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYBDMsOw_xlAe4pNlagcLYQBdhyphenhyphen-mPmgYu_8erf1HlMqyfH9geXNCLI6SELayLYS6na7pwTuCwTyNj-wr7TZAfYR1_e7sp-S_sM70Spll5SMsjaeOOXj7kCTUxAy1kszMZRVgFvWQuS8L8/s1600/german+gdp+2.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 227px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYBDMsOw_xlAe4pNlagcLYQBdhyphenhyphen-mPmgYu_8erf1HlMqyfH9geXNCLI6SELayLYS6na7pwTuCwTyNj-wr7TZAfYR1_e7sp-S_sM70Spll5SMsjaeOOXj7kCTUxAy1kszMZRVgFvWQuS8L8/s400/german+gdp+2.png" alt="" id="BLOGGER_PHOTO_ID_5510501134806245858" border="0" /></a><br /><br /><br /><strong>No Mean Feat</strong><br /><br />In fact Germany's economy grew by a seasonally adjusted 2.2% in the second quarter (or as some point out, at almost a 9% annual rate). Now good news is always good news, but shouldn't the very magnitude of this number in a global economy which is struggling to find its footing as it moves forward worry us just a little bit? What is the secret of this German triumph - demand elsewhere? Then where does this demand come from? Liquidity flows to Emerging Economies fuelled by low interest rates which are meant to stimulate the developed economies in which they originate? Or fiscally supported stimulus programmes in other developed economies?<br /><br />Is this sustainable? Are Germany's sharp rises and sharp falls in GDP really that desireable? For just as we may now welcome the possibility that Germany's economy is possibly going to grow by some 3% in 2010, we should not forget that it actually fell by 4.7% in 2009, and we have no real idea at all by how much it may rise or fall in 2011, since that in fact depends on decisions which will be taken elsewhere.<br /><br />The bottom line is that Germany's economy is now totally export dependent, and as a permanent condition that is not a desireable thing, not even for the Germans themselves, since it makes their livelihood incredibly dependent on global demand, and thus on others.<br /><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrwelqBUgyCIJ90sJLP6tnJkJavpLo_QlxaCfTkr_aJss3RZkeu_7gqdR8_mIAr3DxpEXe1S6I9OptJPOV3MaY2Uppfytadbk35kX8P5KFhGbewPD363AJkO2X_ZVh4vbDE6rFU5V0dsfh/s1600/German+exports+index.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 249px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrwelqBUgyCIJ90sJLP6tnJkJavpLo_QlxaCfTkr_aJss3RZkeu_7gqdR8_mIAr3DxpEXe1S6I9OptJPOV3MaY2Uppfytadbk35kX8P5KFhGbewPD363AJkO2X_ZVh4vbDE6rFU5V0dsfh/s400/German+exports+index.png" alt="" id="BLOGGER_PHOTO_ID_5510531702429943410" border="0" /></a><br /><br /><b>French Growth More Balanced</b><br /><br />And here we come to one of the striking features of the present situation in Europe, which is that while we have been witnessing a great deal of attention being lauded on the recent German triumph, the French economy has ever so quietly and unobserved been busily recovering at a reasonably steady rate.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghft9Jito_Hb_gBfgn103yeB4Y6pJhxQAVRwSDbCQqzZUGr6TCe6VvwBYh75WYqyNBFZPxmRgbnOVQ8d8IKJRROVPdbIebM_GJcKz8-Nkuf45vAu3FVjrpI59gcZH_yQ38izzvsjGKedTH/s1600/gdp+two.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 238px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghft9Jito_Hb_gBfgn103yeB4Y6pJhxQAVRwSDbCQqzZUGr6TCe6VvwBYh75WYqyNBFZPxmRgbnOVQ8d8IKJRROVPdbIebM_GJcKz8-Nkuf45vAu3FVjrpI59gcZH_yQ38izzvsjGKedTH/s400/gdp+two.png" alt="" id="BLOGGER_PHOTO_ID_5510536965711594786" border="0" /></a><br /><br />In fact, if you look at the comparative performance of the two economies over the last decade (see chart below), we find something very odd indeed - at least for the current mainstream discourse - and that is that in GDP growth terms the French economy has easily outperformed its German counterpart.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju_iR_wYZd9Q3vyOvBLIg5M7eTVgkO1RF6UDoSXYA9aOgRfKbTKA-GXSYYzb0t8R2rJKMLLLTfPQid1hUUOwOSeUgrYPAYvUp91Qad1YNOdjA_eq-2IXwfOWyus4_hblIRSK5sMr2l_Axt/s1600/French+%26+German+GDP+Compared.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 201px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju_iR_wYZd9Q3vyOvBLIg5M7eTVgkO1RF6UDoSXYA9aOgRfKbTKA-GXSYYzb0t8R2rJKMLLLTfPQid1hUUOwOSeUgrYPAYvUp91Qad1YNOdjA_eq-2IXwfOWyus4_hblIRSK5sMr2l_Axt/s400/French+%26+German+GDP+Compared.png" alt="" id="BLOGGER_PHOTO_ID_5510726315052368690" border="0" /></a><br /><br />Of course, you cannot make deductions about GDP per capita from looking at crude growth numbers, since the underlying population dynamics also matter. And while Germany's population is now almost stagnant, France's is growing steadily - indeed hypothetically we could postulate that at some distant point on the horizon France will have more inhabitants than Germany. More to the point, France's population will be a lot younger, with important consequences for economic performance. But the key issue at this stage is that France, apart from exporting, also has vibrant domestic demand, and demand is one of the things everyone is short of right now, as we all busily rush to get ourselves out of debt by exporting.<br /><br /><br />The presence of autonomous domestic demand also has important consequences for long run economic stability. And this can clearly be seen in the present crisis. Thus, while in 2009 both economies slumped, the French one slumped by much less (-2.6%) than the German one (-4.7%). Naturally, in the first half of 2010 the German economy recovered much more rapidly than the French one - since there was far more lost ground" to recoup - and the German export sector is highly efficient (far more efficient than the French one) so as global demand recovered the German economy was one of the main beneficiaries.<br /><br />Anyway, the net result of all these "ups and downs" is that both economies are now back more or less where they were at the end of 2006. This tells us two things. In the first place we still some have some distance to go before we can really begin to talk about "recovery" in any meaningful sense of the word. To be able to use this word we would at least need to surpass the output level attained in the first quarter of 2008, which was the last time, if you remember, that people were talking about Germany and Japan "decoupling" on the back of a rapid growth surge in Emerging Markets. In fact in that very quarter German growth shot up by 1.6% over the previous one (or 6.4% annualised, an earlier high point in the German trajectory). In fact as I wrote in <a href="http://germaneconomy.blogspot.com/2008/05/german-gdp-q1-2008-detailed-results.html">my original analysis at the time</a>:<br /><br /><blockquote>So the bottom line is that the of the 1.5% increase in q-o-q GDP, nearly half (0.7% points) was accounted for by a growth in inventories, while 0.4% was accounted for by a growth in construction which was in part the result of better weather in January and February and scheduled work being advanced (although you can't simply add these numbers since some of the construction work may well have accumulated in inventories), while the net impact of external trade slowed, and household consumption only accounted for 0.2% points. So basically it would be far from in order to announce this result as strong evidence for anything about the Germany economy at this point, other than that the economy resisted a strong slowdown in Q1. The data from Q2 should make all of this much clearer, I think, we will see what gets to happen to the inventories, and we will see what happens to construction. </blockquote><br />By July the ZEW investor sentiment index (which could be seen as a predictor of economic activity six months forward) <a href="http://germaneconomy.blogspot.com/2008/07/german-investor-confidence-drops-to-16.html">had fallen to a 16 year low</a>, and I was forwarning - "<a href="http://germaneconomy.blogspot.com/2008/07/what-is-recession-risk-for-german.html">what is the recession risk for the German economy</a>?" - at a time when few others were prepared to accept the fact that a serious German recession might be on the agenda. At this point I would not be so categorical. It is evident that Germany might once more enter recession in the fourth quarter of this year, but it is far from clear that it will, since as I keep saying, to forecast what is going to happen in Germany you need to be able to see what is going to happen in the rest of the world, and this is by no means clear at this point. Here I simply want to make the point that the answer to this question is not to be found in Germany, or in anything the Germans themselves may or may not do, but in the rate of growth to be found among their key customers, many of which are now Emerging Economies. This is what export dependence means.<br /><br /><br /><b>All The Stars In Alignment</b><br /><br /><br />Coming back to the present, and Q2 2010, one thing we can say about is that it saw a very interesting confluence of factors.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4S2-MhuwXkgDwAmRAF2i2FGMXja0HOlR3jti1eSvSs_yof8YEbsfTfn9p0ebrQiqBGTSV5f3HHB83aN1N5EF0ZXQQv7X5sHXmgLCnS_-lCNylLNrBP-pd4lpxUYa5s_dai_Uf5-VCUDRt/s1600/GDP+Components+Q2+2010.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 249px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4S2-MhuwXkgDwAmRAF2i2FGMXja0HOlR3jti1eSvSs_yof8YEbsfTfn9p0ebrQiqBGTSV5f3HHB83aN1N5EF0ZXQQv7X5sHXmgLCnS_-lCNylLNrBP-pd4lpxUYa5s_dai_Uf5-VCUDRt/s400/GDP+Components+Q2+2010.png" alt="" id="BLOGGER_PHOTO_ID_5510752042183743842" border="0" /></a><br /><br />Effectively, if you look at the above chart, all the dials were on green during the quarter, with each of the key components - household spending, capital investment, net exports and construction - all showing growth. A good constellation of stars in alignment then. But this favourable configuration will not, of course, be permanently maintained. In the first place, if we take private consumption, German private consumption really peaked in the last quarter of 2006 (see chart below) for reasons which have little to do with the recent crisis - the German government raised VAT by 3% in January 2007, and German consumption growth, which was already quite weak, received a final from which it has never really recovered.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhw02m9hweVSUsgOxoMd__qWnB8cT-iwIgRmeF71EG-SWglsIoDY00hcc5dhaudSK-ieSFqAdyKhFJ5zOkiK47NmSsIHSmK7oiBG3DrJ51klkPJyUSUE0bKh5mPLgQDrkS9pgsfrGyMlr5C/s1600/German+Private+Consumption.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhw02m9hweVSUsgOxoMd__qWnB8cT-iwIgRmeF71EG-SWglsIoDY00hcc5dhaudSK-ieSFqAdyKhFJ5zOkiK47NmSsIHSmK7oiBG3DrJ51klkPJyUSUE0bKh5mPLgQDrkS9pgsfrGyMlr5C/s400/German+Private+Consumption.png" alt="" id="BLOGGER_PHOTO_ID_5510801174755222754" border="0" /></a><br /><br />Of course, German consumption hasn't always been weak. Between 1990 and 2000 it grew rapidly, but then it suddenly "maxed out" as can be seen from this Bloomberg chart.<br /><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFuGX7El8W_hg5RsVkf8U2B9vznBXHeyr8GwQBXLFsvq4hcxQdMlpGv54-UmlaAnCrnin1LB16xO235bG1VrxdoPAzHxPpHjtTIawd5qLzIoUvNneWelM-Q3c2SjfXFwW-dAZ4jG4n5SRt/s1600/Private+consumption.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 203px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFuGX7El8W_hg5RsVkf8U2B9vznBXHeyr8GwQBXLFsvq4hcxQdMlpGv54-UmlaAnCrnin1LB16xO235bG1VrxdoPAzHxPpHjtTIawd5qLzIoUvNneWelM-Q3c2SjfXFwW-dAZ4jG4n5SRt/s400/Private+consumption.png" alt="" id="BLOGGER_PHOTO_ID_5510844782646817298" border="0" /></a><br /><br />And Germany hasn't always run a current account deficit (that is to say, the high saving phenomenon is not simply cultural). During all those years of strong private consumption growth Germany was, in fact, running a (small) current deficit. Indeed, between 1991 and 2000 Germany <span style="font-weight: bold;">did not have one single year</span> where she produced a current account surplus.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZyyCFodsN0hqGdmC1Cy9QEbFEkbzjNdiO4HT7ucbX0SWvAsAvmG62BFtxnII5M-TM-tJDpYYuxSPK1r9Dxnvpldu4Xyf0oXkL_TCmd75Jm3qkOK7pN6FfJDRv7OcUUcJTt9sZmhHH9o35/s1600/Germany+Current+account.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 205px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZyyCFodsN0hqGdmC1Cy9QEbFEkbzjNdiO4HT7ucbX0SWvAsAvmG62BFtxnII5M-TM-tJDpYYuxSPK1r9Dxnvpldu4Xyf0oXkL_TCmd75Jm3qkOK7pN6FfJDRv7OcUUcJTt9sZmhHH9o35/s400/Germany+Current+account.png" alt="" id="BLOGGER_PHOTO_ID_5510860736409678258" border="0" /></a><br /><br />And just what was the median age of the German population in that fateful year of 2000, when the German economy metamorphosised from being a domestic-consumption-driven current-account-deficit one to an export driven current account surplus one? Well you could have guessed it, 40, exactly the age that my rough-and-ready, back-of-the-envelope, home-made model suggests we should find a transformation, or "tipping point".<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK0iPT5qbHnckasUGHm8tdQcSUX0Z9pAB6-ytogEPL0wNTGk3kiwd5vMZpKfbz3H86cuA4ZLNACKk-rEjVtSsh7AsZmC1jQgAzIBSigeOkSYZabqmEZuXLwp1VIwca9A5wid2B7h3gE8eW/s1600/German+median+age.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 231px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK0iPT5qbHnckasUGHm8tdQcSUX0Z9pAB6-ytogEPL0wNTGk3kiwd5vMZpKfbz3H86cuA4ZLNACKk-rEjVtSsh7AsZmC1jQgAzIBSigeOkSYZabqmEZuXLwp1VIwca9A5wid2B7h3gE8eW/s400/German+median+age.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5511110727240503922" /></a><br /><br />Another favourable factor in Q2 2010 was fixed capital formation, part of which is machinery and equipment (where some investment has taken place), and the other part is construction where, just as in 2008, a number of factors associated with the weather have served to produce an exceptional reading (see chart). Very bad weather in the first quarter lead to an exceptionally low reading, while there was then a stronger than normal rebound in the second quarter.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgolopYilfyhX05CwdBSup3kJIO3goHvp0IXXG-IcZdSNrD75oL31Zx9-Dk0YaVUu9VilsWshXhKsy9jcCaBKeeaqt2oSIUrVWqiyAVj07pStvAP9tragvnhcbMCNzFpzmLxAnTLdcRcZ9S/s1600/German+construction.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 198px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgolopYilfyhX05CwdBSup3kJIO3goHvp0IXXG-IcZdSNrD75oL31Zx9-Dk0YaVUu9VilsWshXhKsy9jcCaBKeeaqt2oSIUrVWqiyAVj07pStvAP9tragvnhcbMCNzFpzmLxAnTLdcRcZ9S/s400/German+construction.png" alt="" id="BLOGGER_PHOTO_ID_5510802594335322146" border="0" /></a><br /><br />In addition both inventories and net exports were positive. Inventories here are something of the wild card, since the level of inventory building depends on the outlook for sales, so in periods of uncertainty (and none other than Jean Claude Trichet <a href="http://www.earthtimes.org/articles/news/341367,face-unprecedented-economic%20uncertainty.html">was busy saying in Jackson Hole</a> only last week that we currently living with "a degree of uncertainty in the economic and financial sphere" is "largely unprecedented") these can be quite volatile. I had been expecting a significant increase in German inventories, but this didn't materialise, and we had only a very timid increase. This is hard to interpret, but it could wel be that in Q3 levels will be reduced if the outlook continues to deteriorate and orders don't pick up.<br /><br /><br /><strong>Liquidity To The Right Of Us, Stimulus To The Left Of Us</strong><br /><br />Exports of goods and services rose by 8.2% during the second quarter (an annual pace of nearly 35% ) - which was of course a very impressive performance, but so impressive that it is clearly not sustainable. The most important customers for German exports in June (when they were up by an annual 28%) were the rest of the European Union (which accounted for half of the export growth - other people's fiscal deficits and stimulus programmes), followed by Asia (which with contributed 6.9 percentage points to that 28% - or one quarter of the total - to the rise), and half of the Asian contribution came from China. The US only added 2.4 percentage points - or around one tenth - to total export growth. So Emerging Markets now clearly outweigh the Euro Area (which contributed 5 percentage points or one fifth of the growth), as Morgan Stanley's Elga Bartsch makes plain in the chart below.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi774PbM-yKG_GDKQXg-VtxoSIREkH8owVOgoIE8G-C-irhRC71K-rX6X53j60bgAH4F0nGKzNgQ9B-NIDoptVmyHYsuM_aBP34mBA_Evld-yjh1cfe0LOpYJVzNmim92edXQYEScGz2aeJ/s1600/German+Exports+by+country.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 259px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi774PbM-yKG_GDKQXg-VtxoSIREkH8owVOgoIE8G-C-irhRC71K-rX6X53j60bgAH4F0nGKzNgQ9B-NIDoptVmyHYsuM_aBP34mBA_Evld-yjh1cfe0LOpYJVzNmim92edXQYEScGz2aeJ/s400/German+Exports+by+country.png" alt="" id="BLOGGER_PHOTO_ID_5510806275020527186" border="0" /></a><br /><br />So German export growth at this point in time would seem to depend critically on liquidity flows to emerging markets, and stimulus programmes in developed economies. The liquidity flows depend on the continuation of Quantitative Easing at the Bank of Japan, the Federal Reserve and the ECB, while the stimulus programmes depend on countries not applying the fiscal austerity measures that Angela Merkel herself has been advocating. Thus would our erstwhile Baron drag us all out of that ditch into which we have all so carelessly fallen.<br /><br /><strong>Enthusiasm Unbounded</strong><br /><br />Curiously, none of this does that much to dampen enthusiasm for the new momentum some feel they can perceive in the German economy. As the Financial Times put it - in an editorial entitled "<a href="http://www.ft.com/cms/s/0/7e7a5a54-a70c-11df-90e5-00144feabdc0.html">Euro’s locomotive is puffing again</a>" (strange this fascination with the age of steam engines, and toy trains, now isn't it?):<br /><br /><blockquote>"Germany’s sudden rediscovery of its old role as Europe’s growth locomotive brings the continent back to the future. The 2.2 per cent growth spurt is unified Germany’s best-ever performance. It was not entirely unexpected: trade figures early in the week led economists to predict good news from Berlin. But the outcome was almost a full percentage point above estimates, and helped lift the euro-wide rate".</blockquote>But, as is by now well know, what the lord giveth with one hand the lord also taketh just as quickly away with the other:<br /><blockquote>"Germany’s feat is a one-off: sustained 9 per cent yearly growth rates are unheard of in rich countries. Slowdowns in China or the US may well throw cold water on exporters. Europe’s industrial production is already flatlining. And we must not forget how bad things still are: although the second quarter put German output 4.2 per cent above its low point in the crisis, it is still lower than in 2007".</blockquote>Valentina Romei, in an article entitled "<a href="http://www.ft.com/cms/s/0/cb8c22f6-ac7e-11df-8582-00144feabdc0.html?ftcamp=rss">Economic Outlook: Indices to confirm German ascendancy</a>" (published just before the August Flash PMI report), went rather further in proclaiming the current German "renaissance":<br /><blockquote>"Germany has outperformed the US, the world’s largest economy, in terms of growth in recent months and the trend is set to be confirmed this week. The German purchasing managers’ indices are expected by HSBC to remain at relatively high levels, while US economic growth is likely to be revised downwards".<br /><br />"Economists say that the slowdown in the recovery in Asia and in the US, and the difficulties in other parts of Europe, could soon have an impact on German growth, which is largely export-driven. However, signs of improving domestic consumer confidence in Germany, and in Europe generally, portray a stable overall scenario".</blockquote>Of course, the data releases did confirm the continuing high level of German activity, and the downward revision in US GDP - although as Valentina Romei meticulously fails to point out, the downward revision was due to a deterioration in the country's net trade position, as more imports flowed in (from where, I wonder?). Curiously, the PMI data she referred to showed France's manufacturing industry expanding more rapidly and Germany's slowing slightly, but I still haven't found anyone speaking of that new French ascendancy as the Gallic locomotive steams ahead, nor any similar such drivel. <br /><br /><strong>Why The Obsession With The French Deficit?</strong><br /><br />But still, as I say, France's economy <b>is</b> more balanced, and France <b>is</b> running a (smallish) trade deficit, which is arguably marginally more supportive of both European and global growth. The day the German economy runs a current account deficit again, the very same day the economy will start to fold in on itself, and that's one robustness test it is sure to fail.<br /><br />But what is so peculiar is that all we seem to hear about France is how she needs to get her deficit under control. And we are talking here of a deficit which, as I say, is helping to sustain demand for products produced elsewhere, and keep that German locomotive puffing away. And if we come to the general topic of endebtedness, neither France's government nor her private sector are among the most seriously at risk. The French banking sector was much more prudent during the boom years, and neither French households nor French corporates are hopelessly in debt. Yet the French administration seems to be under almost perpetual attack, <a href="http://www.ft.com/cms/s/0/cb8c22f6-ac7e-11df-8582-00144feabdc0.html?ftcamp=rss">as the Financial Times reports</a>:<br /><br /><blockquote>Christine Lagarde, French finance minister, on Sunday hit back at critics of the government’s plans to meet its deficit targets, accusing markets of failing to give Paris credit for two years of reform. Speaking to the Financial Times after the government last week reduced its forecasts for growth next year from 2.5 per cent to 2 per cent, Ms Lagarde denied the new estimate remained overly optimistic.<br /><br />“It is realistic and prudent,” she said, adding that even if the market consensus of 1.5 per cent growth was revised upwards, it would “not grant much credit to the reforms we have implemented and to the added flexibility in the economy”. France had been criticised by the International Monetary Fund and the European Commission for basing its pledge to cut the deficit from 8 per cent to 6 per cent of gross domestic product next year on unrealistic growth forecasts of 2.5 per cent.</blockquote><br />Look, sometimes I have difficulty believing what I am reading here. This "criticism" coming from an IMF and and EU Commission who are more or less swallowing wholesale the most ridiculously optimistic growth forecasts from the Spanish government, who evidently also have a much higher level of deficit, and a much more serious economic situation to contend with is almost beyond belief. Is so little macroeconomics understood out there? To be explicit, I have no interest in defending either of the main French political parties, or the current state of the game in the French labour market, or even the absence of reform in the French pension system.<br /><br />But why, just now, are we seeing all this pressure on Christine Lagarde, and by implication, of course, on Nicolas Sarkozy. Why is almost everything we here about what is going on in France negative, and why does no one ever value the point that, at least in terms of family friendly economic policy they are streets ahead of most other Euro Area countries. Do people imagine that this doesn't matter, and that you can blithely go forward funding generous pension systems whatever your elderly dependency ratio?<br /><br />Just one little detail. Dominique Strauss Kahn is head of the IMF, and a potential candidate for the French presidential elections due next year: there couldn't possibly be more than meets the eye going on here, could there? (What a wicked mind I have).<br /><br />To speak plainly, if we make the sort of assumptions which are being made about recovery in all other Euro Area countries, then I personally don't find a 2.5% growth forecast for France in 2011 particularly exaggerated. Of course, if there is a global double dip, and renewed financial stress, then all bets are off. But this applies to everyone, so why single out France? Why are countries like Spain, Hungary, Latvia etc being cut so much slack in the generosity of their forecasts, and France being castigised so?<br /><br />I mean, if we look at the chart below, France's long term growth rate is quite stable, and somewhere around the 2% mark. And if we assume that ECB interest rate policy is going to remain accommodative in 2011 (a reasonable assumption when we look at the number of patients in the "intensive care" ward), then 2011 could easily see French growth slightly above par.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5f28lFl0emI8f-XjHohR79OoJgAUab_sJns6pBjcSnyJVHn3dpMTQiFlaxX1SthoRP4VvuO1zUx02kPDX5QJOaQUg902iACLEGDccM6Ri72WyAId_xvYHQH6Q0bd_nTfKAOkrEtv_RWBm/s1600/France+long+term+GDP.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 227px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5f28lFl0emI8f-XjHohR79OoJgAUab_sJns6pBjcSnyJVHn3dpMTQiFlaxX1SthoRP4VvuO1zUx02kPDX5QJOaQUg902iACLEGDccM6Ri72WyAId_xvYHQH6Q0bd_nTfKAOkrEtv_RWBm/s400/France+long+term+GDP.png" alt="" id="BLOGGER_PHOTO_ID_5510813333005419522" border="0" /></a><br /><br />On the other hand Germany's long term growth rate has been falling steadily since the early 1990s, and the ten year average in 2010 is something like 0.8% a year, which is more or less Germany's sustainable trend growth rate at this point.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWqz6JnKqsYuzVTAUbhVBUwXh4hlvdOZstDf2NdUYkDezPneTLFn0KgxyTFgspfrXvyxtDjpd0eV01a1-dGrpBUuQZqPmaQMgearMPH52vHbL6Z53hxAcSA6Jc79yjnkseT83jBqM84H6B/s1600/Germany+Long+Term+GDP.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 235px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWqz6JnKqsYuzVTAUbhVBUwXh4hlvdOZstDf2NdUYkDezPneTLFn0KgxyTFgspfrXvyxtDjpd0eV01a1-dGrpBUuQZqPmaQMgearMPH52vHbL6Z53hxAcSA6Jc79yjnkseT83jBqM84H6B/s400/Germany+Long+Term+GDP.png" alt="" id="BLOGGER_PHOTO_ID_5510815012849623874" border="0" /></a><br /><br />Personally, I can't help reaching the conclusion that there is a huge bout of hypocrisy going the rounds at the moment. For example, <a href="http://ftalphaville.ft.com/blog/2010/08/16/315776/germany-and-the-90-threshhold/">as reported in FT Alphaville</a>:<br /><br /><blockquote>"The bailout of Germany’s banking sector may swell the country’s public debt rate to 90% of gross domestic product, Die Zeit weekly newspaper reported on Wednesday. The weekly based this estimate on a recent decision by Eurostat requiring Germany to include the balance sheets of public-owned bad banks — set up to help financial institutions offload toxic and non-strategic assets — into its overall debt ratio".</blockquote> This situation is getting surprisingly little coverage. And of course, we could see more situations like that of WestLB and Hypo given the extent of German bank exposure to the Spanish debacle. In fact, the underlying demographic pressure on Germany's very expensive pension and health systems constitutes a serious long term worry about a debt to GDP level which is now creeping dangerously near to the 100% threshold.<br /><br /><strong>Short Memory Spans?</strong><br /><br />And people have short memories. Back in 2008, in the early days of the current economic crisis, Chancellor Angela Merkel's bi-party cabinet pushed through a 1.1 per cent increase pensions. The increase, which included a further 2 per cent rise for 2009, had an estimated cost of €12bn by 2013 - a cost which will largely be borne by companies and younger people via higher insurance contributions.<br /><br />Then in 2009, the very same cabinet adopted a permanent ban on pension cuts, effectively shielding the country's 20 million pensioners (who might have faced old-age benefit cuts starting this year) from the effect of the economic crisis. But given the extremely low German long term birth rate, wouldn't it have been better to shield some of those young couples who want to have children from some of the negative effects of the crisis in a way that enabled them to push the up the number of children the country has. Isn't it better to invest in the future, than invest in the past?<br /><br />Naturally the move shocked German public finance economists, who were worried that Berlin's precipitate partial dismantling of decade-old reforms in the social security system could leave future governments facing painful choices between drastic benefit cuts or further tax and contribution increases to finance the weakened system. "We had almost fixed the pension system. We had made it demography-proof and business-cycle-proof," Bernd Raffelhüschen, professor of economics at Freiburg University, said at the time, "In fact, we had a buffer. The pension system could have gone through the crisis. Now we are back to the drawing board."<br /><br />"What the government did decouple pensions from wages," according to Karl Brenke, a labour market expert at the DIW economic institute in Berlin. "This is something no government had been irresponsible enough to do for the past 30 years."<br /><br />Since 2001 the value of benefits that German pensioners receive had been indexed to wages. But last year's move broke the link and means pension payments will only ever go up, removing the mechanism that would have reduced payments if and when contributions to pension funds are reduced. The only way to compensate for this is via tax hikes (not VAT again, please!) or increased contributions, the main burden of which will fall on the countries ever less numerous younger population cohorts. Gerontocracy anyone?<br /><br />In conclusion then, my intent here is not to mount some sort of "anti German" diatribe. Far from it. It is to mount a diatribe against a discourse which seems to me to be extraordinarily biased, and extraordinarily short sighted. German economy and society is facing long term issues and long term problems which it seems to me need to be addressed now, and not ignored by deflecting attention onto France. That German output levels are far more volatile than French ones, is not opinion, it is fact. Fact which unfortunately is all too likely to find itself confirmed yet one more time as we approach the end of this year.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-12790623998587185852010-03-10T23:02:00.000-08:002010-03-10T23:56:03.689-08:00German Exports and that Looming Double DipI hadn't seen an advance release of the <a href="http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2010/03/PE10__090__051,templateId=renderPrint.psml">January German export data</a>, when <a href="http://fistfulofeuros.net/afoe/economics-and-demography/the-german-economy-is-essentially-intact/">I wrote the following </a>on Tuesday, honest injun I hadn't:<blockquote>Well, this is only a hypothesis. But if the hypothesis has any validity we should be able to make some predictions on the basis of it. I would make two. Firstly, since East Europe’s economies are often dependent for their growth on exports to the West, and in particular to Germany, then we should be able to see some “shadow” of this German process cast out into the East.<br /><br />In the second place, we should see the process continue to some extent in Q1 2010. That is, based on what we have seen so far, in Q1 imports should rise, as industrial output in the early parts of the supply chain surges, and net trade should as a consequence be less positive than in Q4 2009. On the other hand, all the imported components awaiting processing should make inventories rise. So that’s a prediction. Now we need to wait and see how good it is.</blockquote>I think I oulined in the post itself just how much you could see the impact of the long Eastward shadow cast by the German economy in the industrial output performance in Central Europe, but little did I expect, when I wrote those words that further confirmation of the hypothesis would come within a mere 24 hours:<blockquote>Germany's exports unexpectedly declined in January compared to the previous month, official data showed on Wednesday, highlighting risks of a bumpy recovery in Europe's largest economy.Exports, adjusted for seasonal and calendar effects, dropped 6.3% in January compared to December 2009, <a href="http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2010/03/PE10__090__051,templateId=renderPrint.psml">the Federal Statistical Office, or Destatis, reported</a>.<br /><br />Most analysts expected a 0.5% increase in exports, which posted a monthly rise of 3.4% in December. Imports posted a monthly rise of 6% in January after gaining 5% in the previous month..</blockquote><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnnfEevumWxvQZswDExGI0RLE8h5cW3K-KsfwycaMsyo1v9WMkGC1UYhPiLF1zanrqrYl2XnMvXmYOQ9z93X8sPGYaJcbGEM2KbgmGugGMpU5wsUw8SnsBOeLMduK18bAdTxReUGYSsR7S/s1600-h/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5447269961790990226" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnnfEevumWxvQZswDExGI0RLE8h5cW3K-KsfwycaMsyo1v9WMkGC1UYhPiLF1zanrqrYl2XnMvXmYOQ9z93X8sPGYaJcbGEM2KbgmGugGMpU5wsUw8SnsBOeLMduK18bAdTxReUGYSsR7S/s400/german+exports.png" /></a><br /><br />So we are seeing the imports rising effect, which suggests, since domestic consumption is falling at this point, that those inventories are starting to rise again, given that the expected follow through on exports is nothing like as dynamic as most analysts are suggesting. Oh, I know, I know, we have been having some very bad weather of late...<br /><br />Axel Weber <a href="http://www.bloomberg.com/apps/news?pid=20601100&sid=aYhQe.NDNByM">is forecasting a slight negative performance of the German economy in the first quarter</a>, but in fact things are still not so clear since, as I wrote on Tuesday:<br /><blockquote>"Given everything I have said above about swings in imports and inventories, I would say German GDP will be very near to stationary again this quarter, with a possible slight upside depending on the inventory swing, but whatever upside we do see will more than likely disappear as quickly as it came when we get to the Q2 2010 data."</blockquote>In other words, it is all down to inventories again, and these are very difficult to foresee. Nonetheless I would make two more points:<br /><br />Firstly, the Bundesbank’s forecast for growth of 1.6 percent in 2010 is looking rather optimistic at this point, even though GDP was at a very low level last year, so in theory getting some growth should not be that hard.<br /><br />And secondly, that <a href="http://fistfulofeuros.net/afoe/economics-and-demography/is-there-a-double-dip-risk-in-germany/">German recessionary "double dip" that I mentioned back in November</a> does not look so implausible at all at this point. All that is needed is a very slight downward revision to the Q4 2009 data, and Axel Weber's own prediction for very slight negative growth in this quarter to be confirmed, and there we will be, back in recession. Which would only leave us with the French economy - among the EU majors - showing any sign of a robust recovery.<br /><br />Of course the implications of all this rather technical argumentation are fairly profound. In the first place, <a href="http://eurowatch.blogspot.com/2010/03/hanging-in-balance-over-at-ecb.html">as I noted in this post</a>, any talk of the ECB raising interest rates either this year, or in the first half of 2011, would seem to be way, way too premature. And secondly, it is becoming increasingly obvious that Europe's (theoretically) stronger economies are inexorably yoked together with all those supposedly weaker ones, via the Eurozone (and EU27) current account imbalances.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbQLHy6Y-w7qOE9_0zkzg6cxvYBAhfEhd_8j60ArmArC5LmjvEWx2gKC9qUKLbkv4qgBmDngwJrsYHQ6mJ_3PCSjsIpoKtKMi0rNXpS-d77hrg5mUvNpg3ytG1FYqm3N-hTkqLGUQv29MJ/s1600-h/Spain's+Net+IIP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 288px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5447274863622003474" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbQLHy6Y-w7qOE9_0zkzg6cxvYBAhfEhd_8j60ArmArC5LmjvEWx2gKC9qUKLbkv4qgBmDngwJrsYHQ6mJ_3PCSjsIpoKtKMi0rNXpS-d77hrg5mUvNpg3ytG1FYqm3N-hTkqLGUQv29MJ/s400/Spain's+Net+IIP.png" /></a><br /><br />So solving one problem also implies solving the other. Never has the case for a "united we stand, divided we fall" approach been clearer. So gentlemen, please, let's get a note of reality back into all those deliberations about what to do with the problems being faced in countries like Latvia, Hungary, Greece and Spain. We need common solutions to common problems, and we need solutions that work.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-37192869014334183712010-03-08T11:36:00.000-08:002010-03-09T11:52:40.413-08:00The German Economy Is Essentially "Intact"According to Bundesbank President Axel Weber, <a href="http://www.bloomberg.com/apps/news?pid=20601100&sid=aYhQe.NDNByM">Germany’s economic recovery is “essentially intact”</a>, and is now set to benefit from stronger demand in countries outside the euro region.<br /><blockquote>“I firmly believe that the recovery process that began in summer 2009 is essentially intact, and that it will continue despite the slower growth dynamic in the winter semester. An additional factor in this context is that the German labor market continues to be in extremely robust shape.”</blockquote><br /><br />What exactly it means to say that an economy is intact we will explore below, but it is clear that some confirmation for the view that the German economy is benefiting from increased demand originating outside the Eurozone can be found in the <a href="http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2010/03/PE10__087__421,templateId=renderPrint.psml">latest press release on manufacturing industry turnover from the Federal Statistics Office</a>, where they note that while January's manufacturing sector turnover surpassed that of January 2009 – by a working day adjusted 2.6% - domestic sales actually fell (by 1.1%), and export turnover rose by 7.3%. Most interestingly, as between destinations, sales to euro area countries only increased by 2.4%, while those to other foreign countries were up 12.0%. This illustrates two points: that the German economy is now more dependent than ever on exports, and that sales to emerging markets are what is really driving export growth at this point. This latter development is hardly surprising given the strong fiscal corrections being applied in many of Germany's former customer countries.<a name='more'></a><br /><br />In fact, while German industry is surely now in "recovery mode", the process is something of a stop-start one (see chart below), since even though according to the latest data from the technology ministry output was up by an estimated 0.6% in January over December (and even up by 2.2% over the very low level hit in January last year) it is still down by 18.5% over the March 2008 peak.<br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj45UEvfsDBFDux56R1TQueEJ9lHKpKUq_DYmM9HgAckDOy3mjaskeBd9YTbPdTcj5qeICCr2SiBv1gLUTUAJM71NpReToIqdhxEXr9qcAsYUCRoFy0IQDp_WUfY3ybu96A4A1k6cKsSjbJ/s1600-h/German+Industrial+Output.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 213px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446640839812664194" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj45UEvfsDBFDux56R1TQueEJ9lHKpKUq_DYmM9HgAckDOy3mjaskeBd9YTbPdTcj5qeICCr2SiBv1gLUTUAJM71NpReToIqdhxEXr9qcAsYUCRoFy0IQDp_WUfY3ybu96A4A1k6cKsSjbJ/s400/German+Industrial+Output.png" /></a><br /><strong>More Export Dependent Than Ever<br /></strong><br /><br />Still the story of the German economy remains very much one of a tale of two components, with net trade offering some relief to pretty negative domestic demand data. According to the Federal Statistical Office, German gross domestic product stagnated in the fourth quarter of 2009, remaining unchanged from the level of the previous quarter level(0.0% change). Thus the slight upward trend noted during the second (+0.4%) and third quarters of 2009 (+0.7%) did not continue.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGZmKU4mZYcvoco16JT7hqwHHyGQcCwfcqHhZ_3VXblJSnlcdKCa6UerZvcAIjWr80m9-7WKbiUS6uUqP1eKCRZ68uVbapq8NpzNiZ39n0z3NlPBFhEkVRTbC2ft-K8aSNfwvQNdL6Tn74/s1600-h/german+gdp+2.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446354052176854946" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGZmKU4mZYcvoco16JT7hqwHHyGQcCwfcqHhZ_3VXblJSnlcdKCa6UerZvcAIjWr80m9-7WKbiUS6uUqP1eKCRZ68uVbapq8NpzNiZ39n0z3NlPBFhEkVRTbC2ft-K8aSNfwvQNdL6Tn74/s400/german+gdp+2.png" /></a><br /><br />GDP from October to December was down by 1.7% on a year earlier. The decrease, which was smaller than in the previous quarters of 2009 still meant that German GDP fell by 5% in 2009 as a whole when compared with 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgt682wTufz2-LGCHDLT6rf9QM5gL1CZGrm8onXGBCgbQDSBh8uMQAayFP2zYLCFLTn8Av8P_qjnwifr4BZgD_-SGADfz0THPP5PDhHJohx1xkMVDnDThSz-tVuHWq-n-OS76dKsuzO4d1z/s1600-h/german+GDP+1.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 207px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446368060292790930" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgt682wTufz2-LGCHDLT6rf9QM5gL1CZGrm8onXGBCgbQDSBh8uMQAayFP2zYLCFLTn8Av8P_qjnwifr4BZgD_-SGADfz0THPP5PDhHJohx1xkMVDnDThSz-tVuHWq-n-OS76dKsuzO4d1z/s400/german+GDP+1.png" /></a><br /><br />Economic growth in the fourth quarter of 2009 was, in fact, only really supported by foreign trade: exports rose 3.0% on the previous quarter, while imports decreased 1.8%.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_85gdkZMDxB8jGghGlzmTnjafgwWpzXKBN-dlrFRXd9AFSyat8gjfziiwVMHfa_NAcJayqV9tI-pMfvlb6y21359X-SwfSsgi93650MCOTAWwXDATvvfbn58ZniPlT-PDzPhqaysAFJq6/s1600-h/German+exports+index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446373321410471666" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_85gdkZMDxB8jGghGlzmTnjafgwWpzXKBN-dlrFRXd9AFSyat8gjfziiwVMHfa_NAcJayqV9tI-pMfvlb6y21359X-SwfSsgi93650MCOTAWwXDATvvfbn58ZniPlT-PDzPhqaysAFJq6/s400/German+exports+index.png" /></a><br /><br />The resulting balance of exports and imports contributed 2.0 percentage points to GDP growth. That positive contribution was, however, entirely offset by a fall of 2 percentage points in total domestic demand (including inventory movements). Both household consumption expenditure and gross fixed capital formation exerted a negative impact on growth. </p><p>Final private consumption expenditure fell by 1.0% shaving 0.6 percentage points from headline GDP growth. </p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeu1HtiSQ9hSXAq_CW8KHaDLMH5qcnkKqw9d-R6b_aPJLk6yMog-2z_t0XsCSTJCE4ZiuL-MvgnGpcZMvr34EiVd6DUqKHf4wzG1eh3CJrg0fsFAJYlUEJHLUJTbQZXjhTTdkOPEc-GIBJ/s1600-h/German+Private+Consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446678178290122338" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeu1HtiSQ9hSXAq_CW8KHaDLMH5qcnkKqw9d-R6b_aPJLk6yMog-2z_t0XsCSTJCE4ZiuL-MvgnGpcZMvr34EiVd6DUqKHf4wzG1eh3CJrg0fsFAJYlUEJHLUJTbQZXjhTTdkOPEc-GIBJ/s400/German+Private+Consumption.png" /></a><br />Interestingly German wage rates rose (see chart below) in the second half of 2009 (although due to significant quantities of short time working, gross wages were more or less stationary), but even this seems surge to have had little in the way of positive impact on consumption.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjul82n8eMwv13iMnXN39zt0XX4_hC7cHfJfT8TRcbcXGaXg_gKaLZOuKnXn5w87868zwMK3-XkgvklbLV09cY9xMdbfp_qlm2i5OU7c30vYuP1oeksSH-pvawf2BXNOx8U3UoN6Sw8Buuj/s1600-h/German+Hourly+wage+costs.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 204px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446678421554601970" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjul82n8eMwv13iMnXN39zt0XX4_hC7cHfJfT8TRcbcXGaXg_gKaLZOuKnXn5w87868zwMK3-XkgvklbLV09cY9xMdbfp_qlm2i5OU7c30vYuP1oeksSH-pvawf2BXNOx8U3UoN6Sw8Buuj/s400/German+Hourly+wage+costs.png" /></a><br /><br />Gross fixed capital formation fell back, and was down by 0.5% (spending on machinery and equipment fell by 1.5%).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG8MdLbjtUS6hbpouk2vq-YLXv0ylmFVEjTfaD-mSl3PUgYoObPAutCJC9lk4xdt-P8EP5f4cJSrG21LjpBW7F9egaD5MZWnqM3OOhnu7lje1-_b8DjS1aeM4hjbUR3hiR0AoFgUCty-MQ/s1600-h/German+GFCF.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446679230499116354" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG8MdLbjtUS6hbpouk2vq-YLXv0ylmFVEjTfaD-mSl3PUgYoObPAutCJC9lk4xdt-P8EP5f4cJSrG21LjpBW7F9egaD5MZWnqM3OOhnu7lje1-_b8DjS1aeM4hjbUR3hiR0AoFgUCty-MQ/s400/German+GFCF.png" /></a><br /><br />In addition the German government started to rein in spending (after many quarters of significant support) following the election, and government final consumption expenditure fell by 0.6%.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAbrwhfJB-6YHN5ALAEIouR4Xf8e-wwkyD-d_X7_qxWsF_w30SX4G7VGXb1psTBLlW_p6Wq-v8vhqyiaPA5F8keYzxR68MBmooOqXGSrxbopulud7WQ39RKROyqi2bYejFRmCsEKTyZ6Nw/s1600-h/Germany++Government+Consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446679919695832434" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAbrwhfJB-6YHN5ALAEIouR4Xf8e-wwkyD-d_X7_qxWsF_w30SX4G7VGXb1psTBLlW_p6Wq-v8vhqyiaPA5F8keYzxR68MBmooOqXGSrxbopulud7WQ39RKROyqi2bYejFRmCsEKTyZ6Nw/s400/Germany++Government+Consumption.png" /></a><br /><br /><strong>So We Are Back To Inventories</strong><br /><br />In fact however, the biggest drop in domestic demand did not come from household spending, or from fixed capital investment, or from government consumption: it came from movement in inventories. Inventories were cut back sharply again during the quarter, and made a negative contribution to growth of 1.2 percentage points (out of the 2 percentage point negative contribution from domestic demand as a whole). This drop followed a considerable increase in inventories in the third quarter, wherby they contributed 1.5 percentage to growth.<br /><br />Now, I think I am begining to discern a pattern in these large swings in trade and inventories which characterise German GDP movements. Basically, it is important to keep in mind the East European component in German manufacturing (<a href="http://www.eurointelligence.com/With-Byline-Single-View.581+M569b5c32b00.0.html">Hans Werner Sinn's Bazaar</a> - not bizarre - economy idea). Basically a significant part of German exports are <a href="http://germaneconomy.blogspot.com/2007/06/structural-aspects-of-german-export.html">assembled products put together from materials manufactured in the East </a>(a process which <a href="http://www.gesy.uni-mannheim.de/dipa/77.pdf">Delia Marin suggestively calls Maquilladores in reverse</a>), and thus there may well be a correlation between high imports in one quarter (based on anticipated demand) and rising inventories (and falling imports) in the subsequent one as <strong>demand expectations systematically fail to be achieved</strong> (the excessive business expectations factor). Let's see.<br /><br />Below you will find three charts summarising movements in the key components of German GDP during the last three quarters of 2009. In Q2, as you will see, trade is up (as exports rise much faster than imports), while inventories are down, as accumulated stocks are exported.<br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS6ukqapEpecJziTQfP0thmdZK99V3HP44XMhhmW_9_7a1ODuRXcYM4Ayfp4x2fNdcHTtytZtC5fqpkUg6yfjjV3kDo9bAknrLlpqNjOViBUmSOpUE37AyxCiHVs7ygjhOsflhPAPjWnL9/s1600-h/GDP+Components.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 245px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446680550635031058" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS6ukqapEpecJziTQfP0thmdZK99V3HP44XMhhmW_9_7a1ODuRXcYM4Ayfp4x2fNdcHTtytZtC5fqpkUg6yfjjV3kDo9bAknrLlpqNjOViBUmSOpUE37AyxCiHVs7ygjhOsflhPAPjWnL9/s400/GDP+Components.png" /></a> The in Q3 we see the opposite phenomenon, as inventories pile up, as imports surge without the expected growth in exports.</p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi87R4uQIh8Z5f1r_P1QrBeqRgL05xiXC37vWH6-6513LKblHLKw_xmfDrfoZY9sn_oamMw551l1JvWspXGVJHrmZktKtW5SFtjR7tH1GMUMcIytZRakrjfQuLFZRZCvjeTE5lflX9dtiIN/s1600-h/GDP+Components+Q3.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446680473528507602" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi87R4uQIh8Z5f1r_P1QrBeqRgL05xiXC37vWH6-6513LKblHLKw_xmfDrfoZY9sn_oamMw551l1JvWspXGVJHrmZktKtW5SFtjR7tH1GMUMcIytZRakrjfQuLFZRZCvjeTE5lflX9dtiIN/s400/GDP+Components+Q3.png" /></a> Then finally we have Q4, and the opposite happens again, imports fall, exports rise, net trade is a growth positive, and inventories are cut back. In each case the other components of growth are rather insignificant, and have in fact weakened as the recession has progressed - I hope this is not what Axel Weber means by saying that the German economy has survived the recession "intact" (namely that it is as export dependent now as ever it was).</p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMcQg208VOPrRW-F-x5OwTFe2JV_BiUGPQYWloiydp6-7Uy8FYg9gDXpLeH09I1HBxOrUJdzDLjHaF8lpV8YpfNekYYrAIq8HRhTAm3Kx_G1o9DnLy7kssr9uIHRhLRmzIqF84FVTjMlRh/s1600-h/GDP+Components+Q4.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446680384218638978" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMcQg208VOPrRW-F-x5OwTFe2JV_BiUGPQYWloiydp6-7Uy8FYg9gDXpLeH09I1HBxOrUJdzDLjHaF8lpV8YpfNekYYrAIq8HRhTAm3Kx_G1o9DnLy7kssr9uIHRhLRmzIqF84FVTjMlRh/s400/GDP+Components+Q4.png" /></a><br />Well, this is only a hypothesis. But if the hypothesis has any validity we should be able to make some predictions on the basis of it. I would make two.<br /><br />Firstly, since East Europe's economies are often dependent for their growth on exports to the West, and in particular to Germany, then we should be able to see some "shadow" of this German process cast out into the East.<br /><br />In the second place, we should see the process continue to some extent in Q1 2010. That is, based on what we have seen so far, in Q1 imports should rise, as industrial output in the early parts of the supply chain surges, and net trade should as a consequence be less positive than in Q4 2009. On the other hand, all the imported components awaiting processing should make inventories rise. So that's a prediction. Now we need to wait and see how good it is.<br /><br />But on the upstream componenents, maybe we can learn something from the East. Let's start with Hungary, which has Germany as its largest single customer, and the manufacturing Purchasing Manager's Index (PMI).<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3wIgGx-RWeYWFSJFooiXe2nzIvDPTjJq0ss5fRny3CVvT7Yrk9CXAyxoopKtJ1GyKv0GhNEaiCmM5ZFIL9wnXZzc7bGqpYVWxmMrOvoL-ma9g1-RKImpU2bBwL7eXIdB96SclCfgKz5Ft/s1600-h/Hungary.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446686853109601250" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3wIgGx-RWeYWFSJFooiXe2nzIvDPTjJq0ss5fRny3CVvT7Yrk9CXAyxoopKtJ1GyKv0GhNEaiCmM5ZFIL9wnXZzc7bGqpYVWxmMrOvoL-ma9g1-RKImpU2bBwL7eXIdB96SclCfgKz5Ft/s400/Hungary.png" /></a> Well, basically if we think about the fact that German inventories were run down in Q4 last year, and imports slumped, then it is interesting to note that Hungarian manufacturing, after improving steadily during the earlier part of the year (barring August), slumped back again in the three months from October to December.</p><p>If we also look at Czech industry, a similar sort of picture emerges - stagnation in Q4 2009, and a surge in activity in this quarter.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1qIxZp5J8701rYe1dzgEUKChLzxk6iuPBuMNl8InrNEilFMsZWIDteYcYhu-AXTUsYzwL0G7Bc2wYswmian3i8RyuF0BneHxHs4ReWzebL0FtJuDVvX7nuXCLrM1vej6Q_KzAnUe4T_28/s1600-h/Czech+Republic.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446688170896042578" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1qIxZp5J8701rYe1dzgEUKChLzxk6iuPBuMNl8InrNEilFMsZWIDteYcYhu-AXTUsYzwL0G7Bc2wYswmian3i8RyuF0BneHxHs4ReWzebL0FtJuDVvX7nuXCLrM1vej6Q_KzAnUe4T_28/s400/Czech+Republic.png" /></a> </p><br /><p>When we come to Poland things are rather different, since the Polish economy have vibrant autonomous demand, so the Polish industrial sector has local market growth to give some impetus, but things did taper off a bit in Q4, and they have now rebounded.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTTt0mmLyUAWbdyIK3ecwdKtyAOK9KxyXVnQ5mlpe1CvxDANnbKgvEUqT-_jSaqQTSlanXMZiN31-ONedLKGo3maO7k80BjRlftvZrCnEu0GlNbBIuWcl2Y87EDjRigAurbj0qJSf4CN4e/s1600-h/Poland.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446688596403303922" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTTt0mmLyUAWbdyIK3ecwdKtyAOK9KxyXVnQ5mlpe1CvxDANnbKgvEUqT-_jSaqQTSlanXMZiN31-ONedLKGo3maO7k80BjRlftvZrCnEu0GlNbBIuWcl2Y87EDjRigAurbj0qJSf4CN4e/s400/Poland.png" /></a></p><br /><br /><strong>So What Does "Intact" Really Mean In The German Case?</strong><br /><br />So, to come back to Axel Weber's point, I fear intact does mean "business as usual".<br /><br />Certainly, if we look at the most recent manufacturing PMI, the pace of expansion has improved slightly over the previous quarter, which may mean that those good old inventories are simply piling up again.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOOyoWFx_wTSWE24qV48aTe9EOlATqqhp-ivm9mbRTTE2sqK6pHah2XOlWpO3oWlRigl4qaykPsrQvCUkSVnCJbyDdISQiuWp60-VEthhmbm7IWjv0MNj3E4ZbeWvZRscmIPtJKO7cOWNP/s1600-h/German+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 218px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446689690118941506" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOOyoWFx_wTSWE24qV48aTe9EOlATqqhp-ivm9mbRTTE2sqK6pHah2XOlWpO3oWlRigl4qaykPsrQvCUkSVnCJbyDdISQiuWp60-VEthhmbm7IWjv0MNj3E4ZbeWvZRscmIPtJKO7cOWNP/s400/German+manufacturing.png" /></a><br /><br /><br />While the services element has, if anything, lost momentum over Q4.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwxbR4qNK9yVlCm0dmWrFegbvqhoAQj-GPs-zW26jmxiGM3-Sq5KM8MMyHyJASA6TiGasc2i284jfhtPhjP7RvloGq0ogHEWUoohUxk-dWAEGZApWrl0MxLnsU3tIFnH46FYByBtdW4pj6/s1600-h/German+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446690123434863250" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwxbR4qNK9yVlCm0dmWrFegbvqhoAQj-GPs-zW26jmxiGM3-Sq5KM8MMyHyJASA6TiGasc2i284jfhtPhjP7RvloGq0ogHEWUoohUxk-dWAEGZApWrl0MxLnsU3tIFnH46FYByBtdW4pj6/s400/German+Services.png" /></a><br /><br />Bad weather seems to have sent construction falling off a cliff - falling an estimated 14.3% in January:<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhecRenV6wJN4ZqTKAYATCZkQniknSH08LhQFFFm1xQZ0SyyK2KfUbw0zdnLV40EFfewKoJehjWqfH9GQKNTBF8D4KUsE0HdPPcA_xz4jTRYzwXUmG_0T0NlcWAaDifZ0ZD7_v5dnftLUBK/s1600-h/Germany+Construction+Index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 238px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446690766710975618" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhecRenV6wJN4ZqTKAYATCZkQniknSH08LhQFFFm1xQZ0SyyK2KfUbw0zdnLV40EFfewKoJehjWqfH9GQKNTBF8D4KUsE0HdPPcA_xz4jTRYzwXUmG_0T0NlcWAaDifZ0ZD7_v5dnftLUBK/s400/Germany+Construction+Index.png" /></a><br /><br />And the February construction PMI looks even worse, with the indicator showing the worst decline in activity since the survey was introduced in September 1999.<br /><br /><blockquote>Poor weather conditions continued to have a negative impact upon the construction sector in February. Anecdotal evidence pointed to widespread weather disruptions, alongside relatively weak underlying demand. As a result, the headline seasonally adjusted Construction Purchasing Managers’ Index – a single-figure snapshot of overall activity in the construction economy – fell sharply from 40.2 in January to 28.9 in February. This was the lowest reading in the survey’s ten-and-a-half year history.</blockquote><br /><br />Consumer and business confidence readings are faltering:<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvGQP08Nxl0p09wd1Y8WHSSzv1NwPMCI5TaksLiAQIdqCeR9vkfPQ-RLdddqDGNTgtlZsHkoWGbhYc_h9wpDOcCdTir3ZQYfB15mI1L63Tq-eSgb7PFH2t0v4DBKsvQbjrctXx3ISZb6VK/s1600-h/consumer+confidence.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 200px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446710113500903218" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvGQP08Nxl0p09wd1Y8WHSSzv1NwPMCI5TaksLiAQIdqCeR9vkfPQ-RLdddqDGNTgtlZsHkoWGbhYc_h9wpDOcCdTir3ZQYfB15mI1L63Tq-eSgb7PFH2t0v4DBKsvQbjrctXx3ISZb6VK/s400/consumer+confidence.png" /></a><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEim-6c0QEAQtKB8lr2cgWCMrj6XbArGblJnvJ1fyLz6M1FU_-z1JcXgxsr0_d6S8TmnFyvzbLtjpKKk562EuEIiOyLKwaKQq-tfYHqeJl3ew4ISReypkNxOkb2ys6oe4vml2q1H8E6XRUil/s1600-h/German+IFO.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 244px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446710335830638882" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEim-6c0QEAQtKB8lr2cgWCMrj6XbArGblJnvJ1fyLz6M1FU_-z1JcXgxsr0_d6S8TmnFyvzbLtjpKKk562EuEIiOyLKwaKQq-tfYHqeJl3ew4ISReypkNxOkb2ys6oe4vml2q1H8E6XRUil/s400/German+IFO.png" /></a><br /><br />Retail sales have been in serial decline since the VAT increase in January 2007.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBrcy8X__AIPGrqOefYW_Essl2wJLHhKkQ6rIGRkOJ5ZdB0ZHTJk2Af_d_QHqNsp0QnKudCSMoRl0M8BknplRJGMSTp-svdKoH8qMhthScEynUQWRxPMZ1uqmHKv0gw-b7wR9qLqOAceGq/s1600-h/retail+sales.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 232px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446710558466743682" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBrcy8X__AIPGrqOefYW_Essl2wJLHhKkQ6rIGRkOJ5ZdB0ZHTJk2Af_d_QHqNsp0QnKudCSMoRl0M8BknplRJGMSTp-svdKoH8qMhthScEynUQWRxPMZ1uqmHKv0gw-b7wR9qLqOAceGq/s400/retail+sales.png" /></a><br /><br />And the February retail PMI showed another sharp contraction, although again, weather conditions do seem to have played a part.<br /><br /><blockquote>Retail sales in Germany declined sharply on a month-on-month basis in February. At 42.1, down from 42.7 in January, the seasonally adjusted Retail PMI was below the 50.0 no-change threshold, continuing the trend observed since June 2008.The latest reading pointed to the sharpest rate of contraction since January 2009, which survey respondents linked to a combination of bad weather and unfavourable economic conditions. A post-scrappage scheme downturn in demand for new cars was also cited by those in the automobiles sector.</blockquote><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcs_ATwI3Z4S9Jjwjwsy6Dx_6xDdbqCapKKPTKeKFqLSlJ67CXVDe_o5Ouul3gW3CVCw0USM7FaKXzZ3Mts0gqMeXsQXfxtthgCT1l51gT18Yt3E9-seJh3gypPSS1-iRsApYQ3UZ3ebXi/s1600-h/german+retail.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446711151562922178" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcs_ATwI3Z4S9Jjwjwsy6Dx_6xDdbqCapKKPTKeKFqLSlJ67CXVDe_o5Ouul3gW3CVCw0USM7FaKXzZ3Mts0gqMeXsQXfxtthgCT1l51gT18Yt3E9-seJh3gypPSS1-iRsApYQ3UZ3ebXi/s400/german+retail.png" /></a>So, to conclude where we started, we can well agree with Axel Weber that the German economy is indeed intact - intact and near stationary. If we look at the composite PMI below (which is the nearest thing we have to a GDP indicator), it does show slight improvement over Q4 2009, but only a very slight one. Given everything I have said above about swings in imports and inventories, I would say German GDP will be very near to stationary again this quarter, with a possible slight upside depending on the inventory swing, but whatever upside we do see will more than likely disappear as quickly as it came when we get to the Q2 2010 data.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5rNHH0sVYVSMK0Pm_Se26bS5rFUbA-JD3rpeyw0ujlJNBbPQ0RDPnESGpNPVBFeagywPMweGY05qlPsqbFpRwD9rQNb2uz3XSO8rtKE-d9iEA4kvL6zTiILvRbQWEhI3f-ezFk01W-ZGj/s1600-h/german+composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5446713890723783698" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5rNHH0sVYVSMK0Pm_Se26bS5rFUbA-JD3rpeyw0ujlJNBbPQ0RDPnESGpNPVBFeagywPMweGY05qlPsqbFpRwD9rQNb2uz3XSO8rtKE-d9iEA4kvL6zTiILvRbQWEhI3f-ezFk01W-ZGj/s400/german+composite.png" /></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-83188979016999125732010-01-13T02:20:00.000-08:002010-01-13T02:24:09.690-08:00German GDP "Probably" Stagnated In The Fourth Quarter of 2009Whoever said economists are people who <a href="http://eurowatch.blogspot.com/2009/11/just-how-much-of-eurozone-rebound.html">don't ever get anything right</a>?<br /><blockquote>"Economic growth in Germany probably stagnated in the fourth quarter from the previous three months, <a href="http://www.bloomberg.com/apps/news?pid=20601068&sid=aj3F4Dd24X_4">the Federal Statistics office said</a>. Still, the figure is “surrounded by uncertainty,” Norbert Raeth, an economist at the office, said in a press conference in Wiesbaden today."</blockquote><br /><br />So German GDP was probably more or less flat quarter on quarter between October and December. The figure is surrounded by uncertainty, as I pointed out in this post (<a href="http://fistfulofeuros.net/afoe/economics-and-demography/is-there-a-double-dip-risk-in-germany">Is There A Double Dip Risk In Germany?</a> ), quite simply because German growth numbers at the moment are all about net trade and inventories, with domestic consumption in an entirely secondary role, and imports rebounded in the third quarter, which means the trade impact may at best be neutral, while inventories were probably run down (the extent to which this has taken place is what most of the uncertainty is likely to be about). As <a href="http://eurowatch.blogspot.com/2009/11/just-how-much-of-eurozone-rebound.html">I started to point out back in mid November</a>:<br /><blockquote>The question in hand is the Eurozone third quarter growth one, and the story is all about differences (between countries) and these differences in the key cases (France and Germany) are in many ways all about inventories……Now if you look at the chart below, you will see that German growth was in the second quarter was, more than anything, a statistical quirk which resulted from a balancing act between strong swings in inventories and in net trade. In the third quarter, as far as we can see (since we don’t have that ever so important detailed breakdown), this position has quite literally been inverted, as the earlier trade bonus has been eaten away by growth in imports....</blockquote><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjm8SxQFhBMBdhG1GNb4vIqUjQq8ATsiH5fm-Jhr99Vx_in_7GCLC8wGmQM72W_AbKNYFLctehtHHylqpEfmCaqBI7ApuP3c65qtK5PPh86n6_Uc_a6XRPKdkzfkkwkPW5V-yfP7UW9EMxu/s1600-h/GDP+Components.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 245px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5403873769478938962" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjm8SxQFhBMBdhG1GNb4vIqUjQq8ATsiH5fm-Jhr99Vx_in_7GCLC8wGmQM72W_AbKNYFLctehtHHylqpEfmCaqBI7ApuP3c65qtK5PPh86n6_Uc_a6XRPKdkzfkkwkPW5V-yfP7UW9EMxu/s400/GDP+Components.png" /></a><br /><br />That was before we got the detailed breakdown of Q3 growth. On November 28, following the publication of this data, <a href="http://germaneconomy.blogspot.com/2009/11/what-is-double-dip-risk-in-germany.html">I went on to argue that</a>:<br /><blockquote>While a positive contribution to growth was made by goods exports, which were up 4.9% on the previous quarter, imports also rose , and by more than exports (up by 6.5%), and the resulting trade balance had a negative effect on growth of –0.5 percentage points. This was more or less the same as the contribution from household consumption (which was also negative by 0.5 percentage points). But what really, really mattered here - see the chart below - was the inventory build-up which added a staggering 1.5 percentage points to growth., while government final consumption expenditure only increased slightly (+0.1%) over the period and effectively had zero impact on the growth number. So, as I said, it is all about inventories in Q3.</blockquote><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_3l_okDPF1eOmMGB4x-RcH-IxxgDyc04FMzAAR8a681dztYkKEnmbDePdhM7t9qklIvSNaUz6gj3EUYAqMkwUJ7hoq0TnSXVkNdWyZpcsJyBtorZFsl3i23ZWRiyNG9m6pPGxXEOBVPd0/s1600/GDP+Components+Q3.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409104677659318386" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_3l_okDPF1eOmMGB4x-RcH-IxxgDyc04FMzAAR8a681dztYkKEnmbDePdhM7t9qklIvSNaUz6gj3EUYAqMkwUJ7hoq0TnSXVkNdWyZpcsJyBtorZFsl3i23ZWRiyNG9m6pPGxXEOBVPd0/s400/GDP+Components+Q3.png" /></a><br /><br />Which lead me to conclude that:<br /><br /><blockquote>In Q4 it is all going to be about trade. Since if German exports hold up, then the run down in inventories need not be that strong, but if exports don’t sustain momentum in December - and what just happened in Dubai is making me very nervous on that front - then German GDP will almost certainly fall back into negative territory in the fourth quarter. On the other hand, if I am jumping the gun slightly here, and German economic activity does manage to eke out some small increase at the end of the year, then I think a return to negative growth in the first quarter of 2010 is almost guaranteed. That is to say, we have a double dip on the horizon. At least, that is my call. Now it is over to you.</blockquote><br /><br />Well, my instincts seem to have been more or less good ones, and just to show that my forecast was not simply a fluke (ie that it is backed by some sort of coherent analysis, one that is testable), I would also draw attention to my "twin" post on Japan - <a href="http://fistfulofeuros.net/afoe/economics-country-briefings/double-dip-alert-in-japan/">Double Dip Alert In Japan</a>, dated 7 December - where I said: <br /><br /><blockquote>"Despite recent optimism about the apparent renaisance of growth in the Japanese economy, and the heightened sense of enthusiasm which surrounds the surge in economic activity right across the Asian continent there are considerable grounds for caution about the sustainability of the Japanese recovery itself".</blockquote><br /><br />Just two days laters <a href="http://www.theaustralian.com.au/business/markets/japans-economic-woes-deepen-q3-gdp-revisions-show/story-e6frg926-1225808663827">Japan's third quarter results were revised down</a>, sharply (and for most analysts unexpectedly sharply).<br /><br /><blockquote>JAPAN'S economy grew much less in the third quarter than initially reported, revised government data showed today, as a strong yen and deflation weighed on economic activity by prompting firms to hold off on new investments. The new data revealed that July-September's real gross domestic product grew 0.3 per cent compared with the previous quarter, much slower than the 1.2 per cent expansion reported last month, and worse than analysts' consensus forecast of a 0.6 per cent rise.</blockquote><br /><br />So what's the point of all this? Well certainly not to say simply "aren't I clever now". The issues is that (for demographic reasons) the German and Japanese economies are totally export dependent, and thus it is unrealistic to expect the global recovery to be lead by an expansion in these economies. The recovery will have to come elsewhere (in France, for a start, but with France alone there is not enough) and the export dependent economies can then "couple" to that dynamic. It is difficult to say whether or not the Japanese economy will show some marginal growth in the fourth quarter, since the Q3 revisions make for a much lower base, industrial output has risen considerably on the quarter, but the important services sector has been contracting.<br /><br />Essentially, until those heavily indebted economies (the US, the UK, Spain, Ireland, Eastern Europe, etc) who formerly ran current account deficits can find a way back to sustainable growth without the aid of large government stimulus programmes, any general recovery will remain extremely weak. And the German result has, of course, implications for four quarter Eurozone growth. As I said <a href="http://eurowatch.blogspot.com/2009/11/just-how-much-of-eurozone-rebound.html">in this earlier summary of the Q3 eurozone performance</a>:<br /><br /><blockquote>So, going back to my original question, is this a whimper recovery, or are we on the verge of a double dip? I think, basically, it is all down to Germany, and those inventories. If external demand weakens in key customer countries then Germany will fall back into negative growth, and with it the whole "eurozone sixteen economy". Since demand in the South and the East of Europe is hardly going to be strong, given the new found need of countries in those regions to run trade surpluses, my inkling is that just this outcome is now a clear possibilty. So while the consensus at the moment seems to be that France disappoints, my view is that it is the German economy we really should be worrying about.</blockquote>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-40097774534919615802009-12-03T10:38:00.000-08:002009-12-04T04:09:13.984-08:00Global Manufacturing Loses Momentum In NovemberOperating conditions in global manufacturing industry improved for the fifth successive month in November, although there was an evident slowdown in the overall rate of expansion, with differences between countries accentuating and not diminishing. The JPMorgan Global Manufacturing PMI aggregate reading came in at 53.6, down from October's 39-month high of 54.4, and signalling that the first wave of post crisis momentum may be losing force as governments slowly start to remove stimulus measures.<br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwCLUFIgw76VcnX-gSnRe7yMzpXBTlgmhh4o6XMkM6g7UrnJ6YJRAsSmTNOamN2laEXdaiT-GHaZLYhE2C94yAnhKqYzf4R164gl5zgQqXeqc1Nh0c9ouo-CdIGAb4L_cCZ1wR8jMy8lj8/s1600-h/JPMorgan+Global.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 225px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411082029318133458" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwCLUFIgw76VcnX-gSnRe7yMzpXBTlgmhh4o6XMkM6g7UrnJ6YJRAsSmTNOamN2laEXdaiT-GHaZLYhE2C94yAnhKqYzf4R164gl5zgQqXeqc1Nh0c9ouo-CdIGAb4L_cCZ1wR8jMy8lj8/s400/JPMorgan+Global.png" /></a><br /><br />Also notable in this month's survey was the unevenness of the expansion which was registered, with some emerging economies - like China and Brazil - continuing to experience a solid expansion, others - like India, Turkey and Russia, showed some slowing in activity. South Africa returned to expansion for the first time in many moths. Among mature economies Japan showed a notable relaxation in the pace of expansion, with a significant drop in new export orders, and a fall in the backlog of work, while in Europe the "usual suspects" of uncompetitive contracting economies - Greece, Ireland, Spain and Hungary in particular - are still to really to show clear signs of recovery. Spain once more trailed the rest of the world, at least in terms of those countries included in the survey.<br /></p><blockquote>Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The headline PMI fell back slightly in November, but the global new orders and production indexes remained at very elevated levels. National PMIs point to broadly-based manufacturing growth. With final sales rising and inventories falling, the stage is set for continued, strong output growth. Encouragingly, the PMI indicates that the pace of job-shedding is easing although employment growth has yet to resume despite robust output gains."</blockquote><p><br /><strong>Brazil And China Continue To Surge</strong><br /><br /><br />The Brazil PMI rose to its highest level for two years driven by faster expansions in output, new order and employment The headline PMI at 55.5, from 53.7 in October, suggested a marked expansion in Brazil’s manufacturing economy. Furthermore, the latest reading was above the pre September 2008 series.<br /><br />Underlying demand for Brazilian manufactures increased during November, as indicated by a sharp rise in total new business, with growth primarily coming from the domestic market, as new export orders were largely unchanged on the month. Companies generally linked improved domestic demand with better economic conditions inside Brazil itself, while survey respondents suggested that foreign demand weakened due to the strong real and difficult business conditions in key export markets. </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSqICDBc9xNLJqGagHbjl2FHuBEoGiv1kiPEqOF37dLJ0nH9krVnOkiTHeEqoYGNADQ0dEMJJ0B5mJ84rM005Pg66e5PGOrxuMfgLL0bKvh9XxEr2WTTDrD7VUHAZTIAiV08u-dks95bYQ/s1600-h/brazil.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 222px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411083632294233218" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSqICDBc9xNLJqGagHbjl2FHuBEoGiv1kiPEqOF37dLJ0nH9krVnOkiTHeEqoYGNADQ0dEMJJ0B5mJ84rM005Pg66e5PGOrxuMfgLL0bKvh9XxEr2WTTDrD7VUHAZTIAiV08u-dks95bYQ/s400/brazil.png" /></a><br /><br /><br />China's November PMI pointed to another strong improvement in manufacturing operating conditions in the country. The headline HSBC China Manufacturing PMI rose to 55.7 in November, from 55.4 in October, pointing to a continuation in the most marked period of improvement in operating conditions since the start of data collection in April 2004, with Chinese manufacturers reporting that output growth was maintained for the eighth month running in November.<br /><br />Data suggested that export sales rose again in November, increasing at the fastest rate since March 2005. Those firms that reported an increase in new export business widely attributed this to stronger external demand. November data signalled that staffing levels in the Chinese manufacturing sector increased at the second-fastest rate in the survey history, extending the current period of growth to six months.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS1mMu-6jvevA9v1oZdAbwkeR_UwtHKHkvD73f99e_EDssD5LBUdkuNPZ81Uf-WXJw74dh3d3Xu6zSxrdjg7ErgkAdy6HknDWopvjuT05X3W4SF6RJNU7CYLlEKA2cAqB03z5deavqlUEc/s1600-h/China.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 237px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411083713560033266" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgS1mMu-6jvevA9v1oZdAbwkeR_UwtHKHkvD73f99e_EDssD5LBUdkuNPZ81Uf-WXJw74dh3d3Xu6zSxrdjg7ErgkAdy6HknDWopvjuT05X3W4SF6RJNU7CYLlEKA2cAqB03z5deavqlUEc/s400/China.png" /></a><br /><br /><br /><strong>Uneven Trend in Eastern Europe</strong><br /><br />Activity in Eastern Europe was very uneven, with Polish industry putting in its best performance in recent months, and Czech industry just sneaking over the dividing line between growth and contraction, while Russian industry continued to fall back for a second month, and Hungary remained well behind the rest of the group.<br /><br />Survey data for the Polish manufacturing sector showed that business conditions generally improved in November, bringing to an end a downturn that had lasted a year-and-a-half. The headline HSBC Poland Manufacturing PMI posted a record month-on-month gain in November, rising from 48.8 to 52.4. This reading was the fourth consecutive monthly improvement and was the highest activity level since March 2008. </p><p><br />Survey responses suggested that the improvement was evenly distributed across both the domestic and export markets. Falling employment remained a drag on the overall recovery, although the rate of job loss slowed sharply during the month, to the weakest seen in the current nineteen-month sequence.<br /><br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi271ciRRESL-EdVYKJ4Di7QsoXWatIF0RFybXA_WKsjaf-PP6SXpQooHaIijraNYp1HHxoS5-mCBdD8vipn32MRHldMqQW924WN4kqGka4WOUAVM6lqx6BzS8u2ehwZ7A3PnP34gK0o92n/s1600-h/poland.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411091268598871490" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi271ciRRESL-EdVYKJ4Di7QsoXWatIF0RFybXA_WKsjaf-PP6SXpQooHaIijraNYp1HHxoS5-mCBdD8vipn32MRHldMqQW924WN4kqGka4WOUAVM6lqx6BzS8u2ehwZ7A3PnP34gK0o92n/s400/poland.png" /></a><br /><br />November saw the first overall improvement in operating conditions at Czech manufacturers since June 2008, with the headline HSBC Czech Republic Manufacturing PMI rising for the tenth consecutive month to hit 50.6 (from 49.8 in October), thus registering expanison for the first time in almost a year-and-a-half. Output and new order growth both gained traction, while employment fell at the slowest rate since September 2008. This was the fourth consecutive month in which manufacturing production rose and although it remained well below the long-run survey average, the rate of expansion marked an acceleration on October. Underpinning rising workloads was a fourth straight monthly increase in new orders. Incoming new business increased in both domestic and export markets, with demand slightly stronger in the former.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUBMTSAoGCsfij10p83pUQe4Cm5WqZv2YeMnw90Th91M0_ot8hknAM58ijbZ3LIccGEm3j15SfqAT22JMvKcaFEHjFVzrLHFkymOUP7k3ycEclsFpqAYevJosV8obbUSnSIWkRybmV0ypu/s1600-h/czech.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411091625883846082" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUBMTSAoGCsfij10p83pUQe4Cm5WqZv2YeMnw90Th91M0_ot8hknAM58ijbZ3LIccGEm3j15SfqAT22JMvKcaFEHjFVzrLHFkymOUP7k3ycEclsFpqAYevJosV8obbUSnSIWkRybmV0ypu/s400/czech.png" /></a><br /><br /><br />In Russia in contrast November saw an overall deterioration in business conditions for the second month running. Output rose only marginally, while incoming new orders fell for the first time since June. Growth of purchasing activity was maintained, but at a slow pace, while employment continued to fall. The headline seasonally adjusted Russian Manufacturing PMI remained below the no-change mark of 50.0, although the November figure of 49.1 indicated only a marginal rate of deterioration, even if it was a slightly worse one than the 49.6 posted in October. The fall in the PMI primarily reflected slower output growth and falling new orders.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzsHrzTqdE9LgrQ6hYH3EoQIoM8_VasdvWK4cG596y3TyIdS9Z6AaR7tYFru9QSWDjo8rTzr0Zf5w-nsnQasejntwyPZ32bfVX6Dz8csGr0b2-B4uc9WXgDTCmdm6Vsaj_KxS2aeQ6Bdyc/s1600-h/russia.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411091571181203826" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzsHrzTqdE9LgrQ6hYH3EoQIoM8_VasdvWK4cG596y3TyIdS9Z6AaR7tYFru9QSWDjo8rTzr0Zf5w-nsnQasejntwyPZ32bfVX6Dz8csGr0b2-B4uc9WXgDTCmdm6Vsaj_KxS2aeQ6Bdyc/s400/russia.png" /></a><br /><br />Hungary remains the outlier among those East European countries who have PMI surveys, and the manufacturing PMI dropped 0.8 percentage points to hit 47.5 points in November, according to the Hungarian Association of Logistics, Purchasing and Inventory Management. It is now clear that the steady improvement that started in the spring has now ground to a complete halt, and even moved into reverse gear as conditions in the Hungarian economy continue to remain extremely poor. Before the present crisis the Hungarian index had been above the 50 level for more than three years until it slumped to 42.6 last October, going on to hit its all-time low of 38.5 in January. This is thus the longest stretch of contraction in activity since the survey was first launched, and there appears to be no immininent end to Hungary's industrial agony in sight at this point.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRwuKYY6HYe6GdLrtMZzqVPyr0uVEjIP8_OohfFhFTMzupA0NKw5pOoxwlSaNIbVL4yY3HVouHdE20yij-uXRwVjJQl52n5JoTXewWVJtPdISCE4ykVp7dIpEIgzGFGGdvg3QtFDi5XNu8/s1600-h/hungary.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411091447917941010" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRwuKYY6HYe6GdLrtMZzqVPyr0uVEjIP8_OohfFhFTMzupA0NKw5pOoxwlSaNIbVL4yY3HVouHdE20yij-uXRwVjJQl52n5JoTXewWVJtPdISCE4ykVp7dIpEIgzGFGGdvg3QtFDi5XNu8/s400/hungary.png" /></a><br /><br /><br /><strong>Eurozone Also Uneven</strong><br /><br />The final Markit Eurozone Manufacturing PMI rose to a 20-month high of 51.2 in November, up slightly from 50.7 in October and above the flash estimate of 51.0.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkQECXESvYQlxCilgoIK5X3SvlyBvDXJAL1MG5J1QqD-yRe4eODV_EPwPof2MYl6pGrJM64w7UmmkgepZH0y19XamQG3nUtUsoH35V7CN67CXMKUg9zFE0ME-WvWYwupRhDc3BWPJcDjTI/s1600-h/eurozone+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411101484375875266" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkQECXESvYQlxCilgoIK5X3SvlyBvDXJAL1MG5J1QqD-yRe4eODV_EPwPof2MYl6pGrJM64w7UmmkgepZH0y19XamQG3nUtUsoH35V7CN67CXMKUg9zFE0ME-WvWYwupRhDc3BWPJcDjTI/s400/eurozone+manufacturing.png" /></a><br /><br />The headline PMI has now remained above the neutral 50.0 mark for two successive months. Growth of output and new work received was the fastest for 26 and 27 months respectively and, for both variables, stronger than earlier flash estimates. Manufacturing production increased for the fourth consecutive month in November, led by the strong performances of the intermediate and investment goods producing sectors. Higher output was also signalled among consumer goods producers, but the rate of expansion remained weak.<br /><br />Disparities between the performances of the various member states continued in November, with growth in the headline index again being predominantly driven by Germany and France. The rate of expansion of output eased back slightly in France, but remained amongst the strongest gains seen since mid-2006, while in Germany growth hit a 26-month high. An increase in the output component was recorded for the Netherlands (25-month high), Italy (26-month peak), Austria and Ireland (the first production gain since February 2008). The contraction continued in both Spain and Greece, with rates of decline accelerating over those seen in October.<br /><br /><strong>Germany</strong></p><p>German manufacturers indicated robust rises in output and new orders in November, with rates of expansion in both cases accelerating to the fastest since the third quarter of 2007. Growth was supported by improved global economic conditions, which led to a resurgence of new export orders alongside higher spending among domestic clients. Meanwhile, with backlogs increasing for the second month running and the ratio of new orders to inventories at a comparatively high level, a number of forward-looking survey indicators now suggest that firms may well continue raising output from the depressed levels seen earlier in the year. </p><p>At 52.4 in November, up from 51.0 in October, the headline seasonally adjusted Markit/BME Purchasing Managers’ Index suggested there had been a solid improvement in business conditions over the month, although substantial job shedding persisted. Lower employment numbers have been recorded continuously since October 2008, with the latest fall linked to low levels of capacity utilisation following the slump in demand earlier in the year.<br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlRG11iD7LQ2zme3rZOGhNtrf-u_gAoPCWaB330Ci3E-38G3x9031G7xVAADjVPksgOvMysiBjORx453Ue68I9JFxUfLgDptYk6qJguMJPhAHI-118VipiEi8_nRytvgUqDM_ynVqaopmI/s1600-h/German+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281304144967906" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlRG11iD7LQ2zme3rZOGhNtrf-u_gAoPCWaB330Ci3E-38G3x9031G7xVAADjVPksgOvMysiBjORx453Ue68I9JFxUfLgDptYk6qJguMJPhAHI-118VipiEi8_nRytvgUqDM_ynVqaopmI/s400/German+manufacturing.png" /></a><br /><strong>France</strong><br /><br />In France the manufacturing sector also registered another strong expansion in November, with both production and new orders continuing to rise strongly. On the other hand, there were signs of some underlying weakness since employment and output prices both fell further. The headline Purchasing Managers’ Index posted 54.4, down slightly from 55.6 in the previous month, but still the second-highest reading in the past three years.<br /><br />French manufacturers continued to reduce their staffing levels during the survey period, with many firms citing restructuring plans, but the pace of job shedding remained weaker than the steep rates seen in the early part of 2009.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX_BLobFa7JqkaLWev2vcheTWDo_Cqi6DMqXd7Z-ap1Pe7YK7mwoNejoMcqjvs_zPBesamxsQ7SRhVZo5DEgw4V8ODMZ-lS8W6Fjnreb1_ayPv09yGt8UDW7reaz_a8S1F5LWQaZQ5DqHt/s1600-h/France+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281373821741762" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX_BLobFa7JqkaLWev2vcheTWDo_Cqi6DMqXd7Z-ap1Pe7YK7mwoNejoMcqjvs_zPBesamxsQ7SRhVZo5DEgw4V8ODMZ-lS8W6Fjnreb1_ayPv09yGt8UDW7reaz_a8S1F5LWQaZQ5DqHt/s400/France+manufacturing.png" /></a><strong> Italy</strong><br /><br />November saw the first overall improvement in operating conditions in Italian manufacturing industry since February 2008. Both output and new business rose at their fastest rates over two years, while new orders from abroad increased for the first time since January 2008. This being said, as Markit point out the data show only a fractional improvement and continued to highlight underlying weaknesses in the Italian economy in general. In particular workloads were too low to maintain current workforce numbers, and pricing power remained subdued. </p><p><br />The seasonally adjusted Markit/ADACI Purchasing Managers’ Index came in at 50.1, up from 49.2 in October, but only fractionally above the 50.0 no-change mark that separates improving from deteriorating conditions. Despite higher demand and production volumes, firms continued to cut staffing numbers, and manufacturers reported that lower workloads continued to reveal spare capacity at their plants. As a consequence staffing numbers were reduced for the twenty-second straight month, and at a marked pace.<br /><br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMlGNAA8o6L4irovDQYCx2pg-jqKC9ANUo32TCWbYXIPj1OUoAnzqcIkO0si9daKVGF2UMzMpnRqmml5hxM5_CPaNArQg9JxBCZuX7hdFNPScMvkhKFK_R0n4C515jApa_VBs3fcPtauwy/s1600-h/italy.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281551797612338" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMlGNAA8o6L4irovDQYCx2pg-jqKC9ANUo32TCWbYXIPj1OUoAnzqcIkO0si9daKVGF2UMzMpnRqmml5hxM5_CPaNArQg9JxBCZuX7hdFNPScMvkhKFK_R0n4C515jApa_VBs3fcPtauwy/s400/italy.png" /></a> </p><p><strong>Spain<br /></strong><br />Spanish manufacturing is evidently the worst of the bunch for yet another month, and November data pointed to a further deterioration in operating conditions across the manufacturing sector. Worse, the rates of decline of key variables such as output, new orders and employment all accelerated during the month. </p><p><br />In fact the seasonally adjusted Markit Purchasing Managers’ Index fell to 45.3 in November, from 46.3 in October. The PMI has now stood below the neutral 50.0 mark for two years, with the latest reading showing the strongest contraction since last June. Panellists indicated that lower demand, particularly from domestic sources, led to the latest drop in new business, which was the fastest since May. New export orders also contracted during the month.<br /></p><p>With new orders continuing to decrease, Spanish manufacturers utilised spare capacity through the completion of backlogs of work. Excess capacity led firms to restructure their workforces accordingly, resulting in another sharp decline in employment. Moreover, the rate of job cuts was the fastest since June. And Spanish manufacturers continue to cut back on their holding of stocks, indeed the pace of reduction remained substantial despite easing from the month before. Stocks of finished goods also fell sharply in November, extending the current period of decline to thirteen months, as firms depleted stocks in line with lower new orders and production volumes.<br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ__H7L4exEcVpz-5l3cvxDm-U60VU8m8qe3VjuhnLKFKI5L6KECzAiwnj0aqmf4Ru2PK7vLBa0Vle_XJ5YlExRqZ_SYFO5cz0ibROEFWvs8NfSlApFHFMJ4rdLe8dDGDvb2m4faTOXIh9/s1600-h/spain.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 220px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281628854488370" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ__H7L4exEcVpz-5l3cvxDm-U60VU8m8qe3VjuhnLKFKI5L6KECzAiwnj0aqmf4Ru2PK7vLBa0Vle_XJ5YlExRqZ_SYFO5cz0ibROEFWvs8NfSlApFHFMJ4rdLe8dDGDvb2m4faTOXIh9/s400/spain.png" /></a><br /><br />Commenting on the Spanish survey data, Andrew Harker, economist at Markit, said:<br /><br />“The Spanish manufacturing sector looks set to endure a bleak winter period, characterised by falling new business, job cuts and heavy price discounting. The glimpse of a possible recovery seen during the summer appears to have been only a temporary reprieve, with even the stabilisation of demand now seeming some way off again.”<br /><br /><strong>Greece</strong><br /><br />Greece also retained its status as another of the Eurozone's weak spots, with business conditions continuing to be difficult for Greek manufacturers, while demand for their goods fell at an accelerated rate. The seasonally adjusted Markit Greece Manufacturing PMI slipped further, hitting a six month low of 47.3. If we exclude the brief respite registered in August, the headline index has now remained below the no-change threshold since October 2008. </p><p>Overall, new business fell at a strong pace, and dat showed that foreign demand was particularly weak, with incoming new work from abroad decreasing markedly since October. Backlogs were reduuced, and both unfinished work and employment continued to fall, the former at an accelerated pace. Respondents linked further workforce rationalisation to lower production requirements and cost pressures. Employment has now contracted during every month since May 2008.<br /><br /></p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHUF4EP5hDZ0KZFGf3S5Eh2qPRq2l7qeCJxdDAuwySe0krPrFF3WXqDkguCkan0VDs5zaqDSBwV0lJ1AwFpE3JcN6ZBfPFvgUL-EqAYH5HfmWld6eI-P8svSRWC-XxzeqLqPjj5DXh43e2/s1600-h/Greece.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281474135716914" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHUF4EP5hDZ0KZFGf3S5Eh2qPRq2l7qeCJxdDAuwySe0krPrFF3WXqDkguCkan0VDs5zaqDSBwV0lJ1AwFpE3JcN6ZBfPFvgUL-EqAYH5HfmWld6eI-P8svSRWC-XxzeqLqPjj5DXh43e2/s400/Greece.png" /></a><br /><strong>Ireland</strong><br /></p><p>November data indicate the first joint increase in both production and new business registered by Irish manufacturing in twenty-one months. Employment continued to fall, but at the slowest rate for a year-and-a-half. As a result the seasonally adjusted NCB Purchasing Managers’ Index rose slightly to 48.8, from 48.0 in October. This result still means that overall operating conditions in the Irish manufacturing sector continued to deteriorate during the months, extending a run that has now lasted for two years. </p><p><br />Higher output during the month largely reflected new order growth, which in turn was attributed to strengthening demand. New export orders increased for the second time in three months, and at a faster pace than overall new business. Despite the expansion in new business, Irish manufacturers continued to reduce the backlog of outstanding work as the spare capacity resulting from the severe economic downturn remains only too evident. </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX1uDaBrGnuNgUO7T9IwVMvO_OaNKyF5cTSA0abZOF0LZvlHJ0BdYHwu0kVHLIw_lh1hpKTcCs7ELIJH4bh_cPt4LL5AORNqTSrjqn_aXRBr_lNPdqHEFfksQBJ0ZvSnxoAayhg9w6G0Yq/s1600-h/ireland.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 193px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281695795679458" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX1uDaBrGnuNgUO7T9IwVMvO_OaNKyF5cTSA0abZOF0LZvlHJ0BdYHwu0kVHLIw_lh1hpKTcCs7ELIJH4bh_cPt4LL5AORNqTSrjqn_aXRBr_lNPdqHEFfksQBJ0ZvSnxoAayhg9w6G0Yq/s400/ireland.png" /></a><br /><br /><strong>Outside the Eurozone Sweden Slows Slightly Following A Strong Run</strong></p><p><br />Sweden's seasonally adjusted purchasing managers' index dipped back to 56.0 in November from 56.7 p in October, according to data compilers Silf and Swedbank. However November was the sixth straight month that the index has been over 50 following the sustained rebound from a low of 32.7 hit in December last year. One of the problems in November was that the sub-index for order eased back to 57.9 from 60.8 in October, suggesting that while new orders continued to increase they did so at a slower rate. The sub-index for order backlogs also fell back, by an even greater amount, retreating to 53.6 points from 58.9 points, but it should be remembered that both the order bookings index and the backlog index had readings over 50 and thus showed continued growth. The employment sub-index, on the other hand rose, climbing 4.9 points to reach 48.7, suggesting that although companies continued to scale back on staff they did so at a slower rate. This easing in the Swedish PMI expansion rate is hard to interpret at this point, although it could be connected with the recent rise in the krona (since September). It could also be a result of the earlier strong bounceback from very low levels losing some of its force.<br /><br /></p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibb2rZzj6ndCXThR07tv-5gQlgcjrFiinkcHJTNkmy48uyITFzgKYDH6VilramNon97Z8fBQY8vFXPEfFdvnWAHW49SQZ5hoBZ1W786ylPLTMCtz8x_3bJdZWOk9aGbfG3_VxBfi4twByr/s1600-h/sweden.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281814281293186" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibb2rZzj6ndCXThR07tv-5gQlgcjrFiinkcHJTNkmy48uyITFzgKYDH6VilramNon97Z8fBQY8vFXPEfFdvnWAHW49SQZ5hoBZ1W786ylPLTMCtz8x_3bJdZWOk9aGbfG3_VxBfi4twByr/s400/sweden.png" /></a><br /><br /><strong>While Turkey's Expansion Continues To Lose Momentum</strong><br /><br />The Turkish headline PMI posted 51.8 in November, indicating that business conditions in the Turkish manufacturing sector improved for the seventh consecutive month. They did so however at a rate which eased again since October and indeed one which hit a six-month low.<br /><br />New order growth although still solid, slowed from October, with the rate of increase being the lowest registered during the current seven-month expansion. The rate of growth of new export orders also eased during November, although it was higher than the average recorded for the earlier seven-month period of increasing export business. The overall rise in new orders led to a further rise in output during November, although the rate of increase fell for the fifth successive month from the series high posted in June 2009. Backlogs of work fell markedly in November, indicating that capacity constraints remained largely non-existent. In addition, anecdotal evidence suggested that companies were utilising stocks of finished goods to partially fulfil order obligations, and stocks of finished goods fell for a fourteenth successive month.<br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkby4SRIgNY9h7lpoobFFEkNYJfJKwWZ-9D2s-5HD19AkagcnBVPbPascvmnFnpkUeRStNhDVdEyzF1FIL4SYlfccBlm15cTwUMqxLRTEXndlmkIR7YvzpJyfxvG-P6JoAh8N54qT_OhUN/s1600-h/Turkey.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 223px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281905914480754" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkby4SRIgNY9h7lpoobFFEkNYJfJKwWZ-9D2s-5HD19AkagcnBVPbPascvmnFnpkUeRStNhDVdEyzF1FIL4SYlfccBlm15cTwUMqxLRTEXndlmkIR7YvzpJyfxvG-P6JoAh8N54qT_OhUN/s400/Turkey.png" /></a><br /><strong>South Africa Returns To Growth<br /></strong><br />The Kagiso South Africa Purchasing Managers Index rose back above the neutral 50-index point level in November, even if the rebound in South Africa’s manufacturing sector is expected to be muted compared with historical experience, especially given the strength of the rand. The November PMI poked its nose over the 50 neutral mark and hit to 50,3 points, the first time this has happened since May 2008. This was the fourth consecutive gain for the PMI and bringing to a close the run of 18 months of below 50-index point readings, by far been the longest (and most severe) decline in the South African factory sector since the survey started in 1999. The previous record contraction had been the six months between May 2003 and October 2003. Nevertheless, PMI readings from the first two months of the fourth quarter suggest that the third-quarter manufacturing sector rebound has most probably been sustained during the fourth quarter. The average PMI for October and November stood at 49 points, compared with the average 41 points recorded for the third quarter.<br /><br /><br />The annual decline in South Africa’s manufacturing output has slowed, contracting by 11,4% year-on-year in September, compared with 15,2% in August. This was an improvement on the 17,1% year-on-year contraction in output recorded in June, the 17,2% year-on-year decline recorded in May and the record 21,6% slump in manufacturing output in April.<br /><br />At the same time it should be noted that the expected business conditions subindex fell for a second consecutive month to 65, down 5.3 index points since the start of October. Kagiso and the Bureau of Economic Research (BER), which conducted the PMI survey, suggest that this could indicate that purchasing managers were becoming less optimistic about future prospects.<br /><br />On the other hand the new sales orders index recorded a 5.5 point increase to 54.4 in November, the highest level since April 2008, suggesting that demand for manufactured goods has returned in South Africa, at least for the time being. Job shedding continued, albeit at a slower pace, with the employment index improving to 46.6, compared with 45 in October.<br /><br />“Although the level of the index suggests continued factory job cuts, it does indicate that the rate of retrenchment is moderating. This is welcome news from an economywide employment perspective as official statistics showed that the manufacturing sector was the hardest hit by job losses during the third quarter of the year,” According to the comment from André Coetzee for the survey organisers.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU-S8p3srbAlK2YlFnGcMaxuBLGEoe_p85n9aYq9KKr_X8_R9uGXYAXrhlk9C3C7Mta8nMJaZWulKk2Yh9S7RHwEYr1a3mNbxC8WgvWJYk_EGZRHX16J8frMg1ZUDZ_mUbxDxM798TAPfG/s1600-h/south+africa.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 237px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411281997104889122" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU-S8p3srbAlK2YlFnGcMaxuBLGEoe_p85n9aYq9KKr_X8_R9uGXYAXrhlk9C3C7Mta8nMJaZWulKk2Yh9S7RHwEYr1a3mNbxC8WgvWJYk_EGZRHX16J8frMg1ZUDZ_mUbxDxM798TAPfG/s400/south+africa.png" /></a><br /><strong>Japan's Production Surge Fades<br /></strong><br />Despite remaining above the neutral level of 50.0 for yet another month , the seasonally adjusted headline Nomura/JMMA Purchasing Managers’ Index fell in November to a four-month low of 52.3, signalling that growth in the Japanese manufacturing sector continues to lose momentum. In particular the survey organisers noted slower growth of output and new business, even if job shedding eased to its weakest rate for fifteen months, even as output price deflation the hit the fastest rate since December 2001.<br /><br />November’s survey pointed to weaker rises in output and incoming new business, while pre-production inventories were reduced for the ninth month running. Suppliers’ delivery times lengthened at an accelerated rate, while the pace at which job cuts were implemented continued to ease.<br /></p><p>Those survey participants that reported greater inflows of new work generally attributed this to firmer demand, with China mentioned in particular. However, growth was partly offset by subdued market conditions as customers remained wary about the immediate outlook for economic activity.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs5uOO8yhY0Ehx5XxIb722vaKxRBwyaHcZjcmkRzBAjL-S6vKGTg0X0EMWtcaLDT6KqJJW_mEFXLaM9jgkdz9vstrBDEQpmV6bhC9uL-5gEga2_OJNKE2_mo2W09pO1MZHQq1NJnxnxxFq/s1600-h/japan.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 222px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411282064228508162" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs5uOO8yhY0Ehx5XxIb722vaKxRBwyaHcZjcmkRzBAjL-S6vKGTg0X0EMWtcaLDT6KqJJW_mEFXLaM9jgkdz9vstrBDEQpmV6bhC9uL-5gEga2_OJNKE2_mo2W09pO1MZHQq1NJnxnxxFq/s400/japan.png" /></a><br /><br />Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: </p><blockquote>“The Japan Manufacturing PMI fell 2.0 points to 52.3 in November. Although it remains above the key dividing line of 50.0, it fell for the second consecutive month, suggesting that the pace of improvement in operation conditions is slowing. The New Export Orders Index also fell by 1.1 points to 50.5, signalling that the rate of expansion in export orders has obviously slowed. We see growth of Japanese production activity decelerating, owing to the fading impact of economic rebounds overseas, yen appreciation and as government stimulus measures start to wane.”<br /></blockquote><p><strong>And The US Expansion Also Eases</strong></p><p><br />The US manufacturing sector expanded for a fourth month running in November but at a slower pace than expected. The Institute for Supply Management said its manufacturing index fell to 53.6 percent from 55.7 percent in October. The slowdown was sharper than the average analyst forecast of a 55.0 percent reading. Regarding the sub-indexes, the ISM said its index of new orders was 60.3 percent, 1.8 percentage points above October's level, suggesting accelerating growth. The production index however fell 2.3 points to 50.8 percent, indicating output expanded more slowly. Employment also grew more slowly, with the index at 50.8 percent from 53.1 percent a month earlier. </p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0cfoUKIu3x2pkjmiBhKHUi9EWWAofkK7_1cKaUDsq7S6fC_hC-aL8kAvH1NkiJL_E0zfP5DSnpN_RCa_SlbNIfbWZBlxdnY9zq2mrwr1z-XQvJFFX7pURmRCP52LAHa3PWF52rJQ399rm/s1600-h/usa.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411282150485290178" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0cfoUKIu3x2pkjmiBhKHUi9EWWAofkK7_1cKaUDsq7S6fC_hC-aL8kAvH1NkiJL_E0zfP5DSnpN_RCa_SlbNIfbWZBlxdnY9zq2mrwr1z-XQvJFFX7pURmRCP52LAHa3PWF52rJQ399rm/s400/usa.png" /></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-10969101034199463852009-11-28T02:47:00.000-08:002009-11-29T03:46:25.184-08:00Is There A Double Dip Risk In Germany?This is not an idle question. Despite all those bullish headlines in the press, most informed observers - including Bundesbank head Axel Weber - are only to well aware of just how fragile the German recovery actually is. Indeed only last week the OECD warned that Germany’s economy, may only recover slowly next since investment “is lagging,”. The OECD now predict that German gross domestic product will expand 1.4 percent in 2010 and 1.9 percent in 2011 after shrinking 4.9 percent this year, which is in fact up on their earlier estimate, where the OECD predicted German growth of 0.2 percent next year. So whichever way you look at it, output at the end of 2010 will still be well down of 2008 levels. Worse, events like the recent upheaval in Dubai start to cast doubts on whether even the rather optimistic 1.4 percent growth level may now not be excessively optimistic for next year. The problem is that the recent rebound in Eurozone growth is extremely uneven as between countries, and, given its long standing export dependence, the German economy is hardly going to be leading the charge. As I said in <a href="http://eurowatch.blogspot.com/2009/11/just-how-much-of-eurozone-rebound.html">my most recent post on the Eurozone </a>:<br /><br /><blockquote>"The question in hand is the Eurozone third quarter growth one, and the story is all about differences (between countries) and these differences in the key cases (France and Germany) are in many ways all about inventories......Now if you look at the chart below, you will see that German growth was in the second quarter was, more than anything, a statistical quirk which resulted from a balancing act between strong swings in inventories and in net trade. In the third quarter, as far as we can see (since we don’t have that ever so important detailed breakdown), this position has quite literally been inverted, as the earlier trade bonus has been eaten away by growth in imports (largely to stock up on export oriented inventories, not items destined towards domestic consumption) and this part we more or less know, since we do have all the trade data in for the quarter. " </blockquote><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAYztfybh0TLOLFcvOwYqIGACe8o_I7fe8sh6wo7pMBobdeK33L9alaKwPHbXhVKma8HQFZCqxfnnmR_RoXuOEpJhc9yHXR0dRA3PMb6alnk1PBz5VAR4UCAygTsVgCK8Yug_mChWryDv_/s1600/GDP+Components.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 245px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409104589519528738" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAYztfybh0TLOLFcvOwYqIGACe8o_I7fe8sh6wo7pMBobdeK33L9alaKwPHbXhVKma8HQFZCqxfnnmR_RoXuOEpJhc9yHXR0dRA3PMb6alnk1PBz5VAR4UCAygTsVgCK8Yug_mChWryDv_/s400/GDP+Components.png" /></a><br /><br /><br />Well, now we have the detailed German third quarter breakdown, and interesting reading it makes. According to the federal statistics office "economic growth in the third quarter of 2009 was supported by capital formation" - since compared with the previous quarter capital formation was up 1.5% in construction and 0.8% in machinery and equipment. As they also note, however, all this really means is that following the slump in the first quarter of 2009 (–18.5% on the fourth quarter of 2008), capital formation in machinery and equipment has now "stabilised at a low level". In fact, this "support" from capital formation was quite marginal, offering only 0.2 percentage points to growth. <br /><br />While a positive contribution to growth was made by goods exports, which were up 4.9% on the previous quarter, imports also rose , and by more than exports (up by 6.5%), and the resulting trade balance had a negative effect on growth of –0.5 percentage points. This was more or less the same as the contribution from household consumption (which was also negative by 0.5 percentage points). But what really, really mattered here - see the chart below - was the inventory build-up which added a staggering 1.5 percentage points to growth., while government final consumption expenditure only increased slightly (+0.1%) over the period and effectively had zero impact on the growth number. So, as I said, it is all about inventories in Q3.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_3l_okDPF1eOmMGB4x-RcH-IxxgDyc04FMzAAR8a681dztYkKEnmbDePdhM7t9qklIvSNaUz6gj3EUYAqMkwUJ7hoq0TnSXVkNdWyZpcsJyBtorZFsl3i23ZWRiyNG9m6pPGxXEOBVPd0/s1600/GDP+Components+Q3.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409104677659318386" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_3l_okDPF1eOmMGB4x-RcH-IxxgDyc04FMzAAR8a681dztYkKEnmbDePdhM7t9qklIvSNaUz6gj3EUYAqMkwUJ7hoq0TnSXVkNdWyZpcsJyBtorZFsl3i23ZWRiyNG9m6pPGxXEOBVPd0/s400/GDP+Components+Q3.png" /></a> <br />And now we need to make an assessment of how much this can unwind in the final quarter, since the current position is very reminiscent of Q1 2008, when the German economy put in a record annualised growth rate (1.7% q-o-q, 7.2% annually) only then to slouch off into recession and four consecutive quarters of GDP contraction. One reason for that surge in GDP, then (as now), was the massive inventory pile-up (see chart for what happened next to GDP), a pile up which was precisely the result of an anticipated continuation in demand - demand which, as it happened, never materialised.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRPx5YjO3nvjFOxvd7PTtSO4hiBuUwtSHapYzu37qgUJElv-_-3e7xnQioJDhibHvFYDH34A7VmG2N-hGswOxdzF6YaXZzW69gGHpQAPRqO0mal12rRHLi7lxydC5lr-6i_aFADDNT4vkY/s1600/german+gdp+2.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409124265130772610" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRPx5YjO3nvjFOxvd7PTtSO4hiBuUwtSHapYzu37qgUJElv-_-3e7xnQioJDhibHvFYDH34A7VmG2N-hGswOxdzF6YaXZzW69gGHpQAPRqO0mal12rRHLi7lxydC5lr-6i_aFADDNT4vkY/s400/german+gdp+2.png" /></a> Now, the pile up in inventories in Q3 was not so spectacular as the one seen at the start of 2008, nor is the medium term growth outlook so gloomy as it was back then, but there are certain structural similarities in the situation, and these are worth exploring.</p><p>Basically a build up in inventories may be no bad thing, inventories need to be rebuilt after the massive rundown which followed the failure of Lehman Brothers, and a healthy build-up (and rise in capital investment) would be something we should look forward to. But there are grounds at this point for thinking that things are no so straightforward this time.<br /><br /><strong>The Fourth Quarter Looks Weaker Than The Third One</strong><br /><br />We will now try and take a look at some of the information we have so far on the last quarter of 2009. Sources of information here are really of two kinds, the Purchasing Managers Indexes (PMIs) which are based on surveys, but do give us quite a reliable indication of the state of play well before the official data arrives, and sentiment indexes.<br /><br />Let's start with the PMIs. In the first place consumer demand remains weak. The key points, as identified by Markit, are as follows:<br /><br />- The Retail PMI was at its lowest level for five months.<br />- Actual sales short of targets by greatest degree for five-and-a-half years.<br />- Retail margins fell at fastest rate since January.<br /><br />So the November data suggests that household expenditure in Germany remains relatively weak, with retailers indicating a further month-on-month reduction in sales. The seasonally adjusted Retail PMI fell from 48.8 in October to 46.0 in November, the lowest reading since June and below the neutral 50.0 mark for the eighteenth consecutive month. Anecdotal evidence from survey respondents suggests that a resistance among households to purchasing non-essential items contributed to the lower sales. The end of the scrap bonus was also commonly cited by retailers in the automobiles sector.<br /><br />German retailers indicated that like-for-like sales were considerably lower than one year earlier, with the rate of reduction the sharpest since March. Survey respondents commented that short working hours and weak economic conditions meant that consumers’ purchasing power was much weaker than last November.<br /><br /></p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ5Uhz84gHWXmm1WXClheZ5w2nJvrxlgU8ok9wcPb1OFlQ0KI_5choVuwqiZPC6kUYQwG4IkU4QornkR8IZlHnax_iLbaYHYf_KinO-bz_6EC9wMUGm6dgugfULrHD9YI0jnfTr8HKvNy0/s1600/Germany.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409132771585864466" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ5Uhz84gHWXmm1WXClheZ5w2nJvrxlgU8ok9wcPb1OFlQ0KI_5choVuwqiZPC6kUYQwG4IkU4QornkR8IZlHnax_iLbaYHYf_KinO-bz_6EC9wMUGm6dgugfULrHD9YI0jnfTr8HKvNy0/s400/Germany.png" /></a><br /><br />If we move over now to the relevant sentiment index, we find some confirmation for this weakening, since the GFK forward looking indicator for December fell back again for the second consecutive month, and now stands at 3.7.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMTQDy8_zkBFBMVscaPSwmkkpETMGvr3fQuaFJeBSzXVZtAsBmQ4hldmaL9vcT53mv5HnvS96oEuBh7TEP6FcXJNPZeGGvc1tFEzBJEFS8MwkA-Ju7DTnopG-q46Off0rOwxkxFO33-2ap/s1600/consumer+confidence.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 198px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409137441451016514" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMTQDy8_zkBFBMVscaPSwmkkpETMGvr3fQuaFJeBSzXVZtAsBmQ4hldmaL9vcT53mv5HnvS96oEuBh7TEP6FcXJNPZeGGvc1tFEzBJEFS8MwkA-Ju7DTnopG-q46Off0rOwxkxFO33-2ap/s400/consumer+confidence.png" /></a><br /><br />As Gfk themselves say in their monthly report, even if experts are generally predicting an economic upswing for the coming months, consumers seem to be regarding such statements with caution, at least for the moment, and the economic expectations indicator indicator lost just under 8 points to currently stand at just 0.9 points. To put this in perspective though this is increase of 31 points over the level in November 2008.<br /><br />However, it is apparent that after their continuous upward trend during the past seven months, German economic expectations dropped back again in November, primarily - according to Gfk - as a result of growing public fears of rising unemployment. In the wake of this, income expectations also fell, in particular, given the fact of the reduced effect of the low energy prices, which have been fuelling purchasing power.<br /><br />In fact German unemployment unexpectedly fell in October, with the number of people out of work falling a seasonally adjusted 26,000 to 3.43 million. Frank-Juergen Weise, the head of the Federal Labour Agency attributed the good performance to government measures including the Kurzarbeit short-time work ones which offer incentives to hold on to staff. According to the latest comparable figures published by the Organization for Economic Cooperation and Development, Germany’s jobless rate was at 7.6 percent in September, up from a 2008 average of 7.3 percent. Nonetheless, in the absence of a strong recovery in global demand many German jobs are still at risk, and these are the worries which are reflected in the consumer confidence reading.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEix_JHBoHA6sW06tvzjsdJQIgWAL2Vva_vGoZ7DZzwf3Fq5haBrnah1R4Nus1EqV_0H7_Mh2V-LDIRD7OKP8xV05XMewZ661FfYXtYkd-tiQGEvPVFP9mTSzRTSi3F1U4qpqdSHod914q3W/s1600/unemployment.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 238px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEix_JHBoHA6sW06tvzjsdJQIgWAL2Vva_vGoZ7DZzwf3Fq5haBrnah1R4Nus1EqV_0H7_Mh2V-LDIRD7OKP8xV05XMewZ661FfYXtYkd-tiQGEvPVFP9mTSzRTSi3F1U4qpqdSHod914q3W/s400/unemployment.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5409476440212067410" /></a><br /><br />The picture of a divergent economy with fairly weak domestic consumption and a rather more robust export sector is further reinforced by the flash November PMI data, which while it showed a slight improvement in the level of German economic activity over October, revealed divergent trends between manufacturing and services. According to the Markit report the recovery in service sector activity remained relatively weak, with underlying client demand subdued and new business levels falling for the first time since July. <br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju_zHd8cWtdv-hJE5WVkz0G6hKc6DAQne2M5zRzpbRUlCkpC3UVK52agnOiZFEaYHP_7YQ7GdMhD9bKauo7HJQe-7px0pQMkpmICyr94ltpwjtoi0iseoqgU-s5S6WKSAiWFDCBaiBOufj/s1600/German+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5409139497867162066" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju_zHd8cWtdv-hJE5WVkz0G6hKc6DAQne2M5zRzpbRUlCkpC3UVK52agnOiZFEaYHP_7YQ7GdMhD9bKauo7HJQe-7px0pQMkpmICyr94ltpwjtoi0iseoqgU-s5S6WKSAiWFDCBaiBOufj/s400/German+Services.png" /></a><br /><br />Thus while there was a fairly robust rise in new orders received by the manufacturing sector, with the rate of growth the strongest since August 2007, in the service sector, new work dropped moderately over the month as difficulties in securing new contracts continued. Job shedding remained evident in the German economy in November, with employment numbers falling for the fourteenth successive month. Reduced workforces were seen in both the manufacturing and service sectors, and it is thus not surprising to note in this context that the existing Kurtzarbeit (short time working) schemes <a href="http://www.businessweek.com/ap/financialnews/D9C6IOCG0.htm">were renewed last Wednesday</a>, and will now remain in force until the end of 2010 (at least).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJA9-bLKfubBuGok_1T39GUnm2EVs34pHsbYvnBuvvTLwOLjwXdcM3G5F0mrTef5BESVz9QyffuG2VzXloEeYk0XTxwsSC-75ICRlRJ0hqUTTsE2BZlettuC_IkD7Sf9f2QMgFfDpUKb-2/s1600/German+manufacturing.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 216px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJA9-bLKfubBuGok_1T39GUnm2EVs34pHsbYvnBuvvTLwOLjwXdcM3G5F0mrTef5BESVz9QyffuG2VzXloEeYk0XTxwsSC-75ICRlRJ0hqUTTsE2BZlettuC_IkD7Sf9f2QMgFfDpUKb-2/s400/German+manufacturing.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5409489490151531138" /></a><br /><br />Backlogs data also pointed to divergent trends between the manufacturing and service sectors. Since while the latter saw the fastest drop for four months, partly as a result of lower volumes of new work, levels of unfinished business in the manufacturing sector rose at the sharpest pace since March 2008, suggesting further pressure on firms to increase capacity utilisation at their plants.<br /><br />Interestingly all of this is being now reflected on the price level, since increased demand for raw materials continued to filter through to input prices in the manufacturing sector, with average purchasing costs close to stabilisation in November, and indeed the flash consumer price index for Germany . <br /><br /><br />This contrasted with the record declines in costs seen in the first quarter of 2009. In the service sector, input prices rose for the second month running, contributing to a fractional increase in average costs in the private sector as a whole. Consequently, firms were less able to discount their output prices, with the latest decline the slowest since December 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkCgVDAcl_rgknLQirRAaDM2dYBMV8jiJOp-8JRX00GKObTATFnoMIgVRBylc44sKgvz6xQ7y_w04LhaBYUgfmWZ2U9Zn_gVOvOkSqzA6x5B4bb6_FmjQFDlOqyqdKnL6_F1ggZjdYkUnb/s1600/german+CPI.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 223px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkCgVDAcl_rgknLQirRAaDM2dYBMV8jiJOp-8JRX00GKObTATFnoMIgVRBylc44sKgvz6xQ7y_w04LhaBYUgfmWZ2U9Zn_gVOvOkSqzA6x5B4bb6_FmjQFDlOqyqdKnL6_F1ggZjdYkUnb/s400/german+CPI.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5409144956345630658" /></a><br /><br /><br /><strong>Construction Woes</strong><br /><br />On the other hand if we look at construction, the October construction PMI suggested there had been the sharpest decline in construction output for four months, with new orders and employment levels fell again, and the strongest rate of input cost inflation since September 2008. The PMI report spoke of October data pointing to "another difficult month" for the German construction sector. The headline seasonally adjusted Construction Purchasing Managers’ Index registered 43.4 in October, well below the neutral 50.0 mark and the lowest reading for four months. The latest overall decline in output reflected falling activity in all three broad areas of the construction sector. Commercial activity registered the steepest reduction over the month in October. Data also pointed to the fastest drop in civil engineering activity since February and a further marked fall in housing construction. Anecdotal evidence from survey respondents suggested that weak underlying market conditions and a corresponding lack of incoming new work contributed to falling levels of construction output. Levels of new business have now dropped for twenty consecutive months. So it is hard to anticipate any positive impact on GDP from the construction sector this time round.<br /><br /><strong>Business and Investor Sentiment</strong><br /><br />On the business sentiment front we have two divergent trends, on the one hand German analyst and investor sentiment - as measured by the ZEW index - declined by more than most observers expected in November, falling to its lowest level in four months.The drop is hardly surprising, and suggests somewhat more realistic expectations are being adopted by financial analysts on the economic outlook. In this sense earlier excesses of enthusiasm are now gradually giving way to realism. <br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNUPNMC0uXOF3lwtS9TJXTdQyA3pAsoxjVeKKZ_RbB0TA2vGzWUBwGl1gALtQO6p45sv8QBCfe4nbtxZYCF3H6ke3kIwVjQ2dZrjgPscKhOHVczgU36eavG3JTLEcticc-E_ezqc2lbXZQ/s1600/german+zew.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 210px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNUPNMC0uXOF3lwtS9TJXTdQyA3pAsoxjVeKKZ_RbB0TA2vGzWUBwGl1gALtQO6p45sv8QBCfe4nbtxZYCF3H6ke3kIwVjQ2dZrjgPscKhOHVczgU36eavG3JTLEcticc-E_ezqc2lbXZQ/s400/german+zew.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5409148127305606130" /></a><br /><br />On the other hand German business confidence increased to a 15-month high in November, suggesting that many German managers expect the economic recovery to gather pace next year. The Ifo institute business climate index, based on a survey of 7,000 executives, rose to 93.9 from 92 in October, the highest reading since August last year. The index reached a 26-year low of 82.2 in March.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFUHtodyFqcZQmVNvlzDBsNA2QPidUonm5N7IAri4yEZxuEF7YvQqqlARhR8rlC1k1_zX8HBOexwk3CeNvodb-c3bo9iWggquKTwTfSVO98F68ZqhexVBVVybA_krz9JDLtC4P0OlK_7-R/s1600/German+IFO.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 246px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFUHtodyFqcZQmVNvlzDBsNA2QPidUonm5N7IAri4yEZxuEF7YvQqqlARhR8rlC1k1_zX8HBOexwk3CeNvodb-c3bo9iWggquKTwTfSVO98F68ZqhexVBVVybA_krz9JDLtC4P0OlK_7-R/s400/German+IFO.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5409148057022442498" /></a><br /><br />Which means that in Q4 it is all going to be about trade. Since if German exports hold up, then the run down in inventories need not be that strong, but if exports don't sustain momentum in December - and what just happened in Dubai is making me very nervous on that front - then German GDP will almost certainly fall back into negative territory in the fourth quarter. On the other hand, if I am jumping the gun slightly here, and German economic activity does manage to eke out some small increase at the end of the year, then I think a return to negative growth in the first quarter of 2010 is almost guaranteed. That is to say, we have a double dip on the horizon. At least, that is my call. Now it is over to you.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-33478733467640225922009-10-27T05:14:00.000-07:002009-10-27T05:31:09.479-07:00The French Rebound Continues In October While Germany Moves SidewaysWhoever would have thought that some people once called economics the most dismal of sciences? Certainly, as the current crisis goes on and on, those of us who consider ourselves to be economists scarcely are able to find the time to squeeze in a dull moment, even here and there. But even at a broader level, interest in that most dismal of dismal topics - the theory and practice of central banking - seems now to fire up levels of enthusiasm here in Spain that make even the appetising prospect of a forthcoming Real Madrid-Barça football match pale in intensity. Even if it is the case, I have to admit, that the everyday Johnny (or Jill) come lately sitting in the bar still - truth be told - prefers the sports columns of the daily newspapers, or the lacivious details of the latest romantic adventure of one of the rich and famous to a careful perusal of the detailed minutes of the last policy rate setting meeting over at the central bank.<br /><br /><br />The reason for the sudden and unexpected upsurge in interest should, I would have thought, be obvious - since with 85% of Spanish mortgages being variable (and thus determined by the ECB policy rate), and Spain's economy sinking into an ever deeper pit, the impact of the coming decisions (or even the hints at possible future decisions) have entered peoples lives like never before. And this is doubly the case in an environment where - as <a href="http://www.bloomberg.com/apps/news?pid=20601089&sid=aIYvRd5Zjf2Y">Bloomberg inform us this morning</a> - central bankers from across the global, from Washington, to Sydney, to Oslo are likely to take increasing account of future accelerations in asset prices in an attempt to avoid repeating policy mistakes that are presumed to have inflated two speculative bubbles in a decade, culminating in the worst financial crisis since the Great Depression.<br /><br />By way of illustration for their feature story the Blomberg reporters single out the prime example cases of Norway and Australia, countries whose recent stronger than average inflation and growth performance is now so well known to regular investors for the mention of their name in such reports to have become a mere commonplace, with the respective currencies being eagery purchased to the sound of hearty lipsmaking at the thought of all the juicy carry which lies ahead. Personally though, had I been doing the writing, I would have chosen a rather different example, one much nearer to the heart of Europe (and thus a little closer to my own) - France.<br /><br />And why France you may ask? Well quite simply because the French economy is now plainly and evidently on the mend. That is the big, big news which can be gleaned from last Friday's Flash Markit PMI readings (see detailed breakdown below). Now those who regularly follow this blog will know that this seemingly unexpected leap into poll position hardly comes as a surprise to me, since I have long been arguing that the French economy would emerge as the strongest among the EU economies from the present deep recession, and some of the theoretical justification for this view <a href="http://bonoboathome.blogspot.com/2008/01/french-economy-is-back-at-number-5.html">can be found in this post here</a>, while <a href="http://frencheconomy.blogspot.com/2007/08/france-europes-new-sick-man.html">an earlier piece from Claus Vistesen in 2006 </a>also gives an illustration of how we might conceptualise the problem.<br /><br />So one epoch ends, and another begins, inauspicious as the beginnings may be. To summarise briefly the argument which will be presented below, there is both good and bad news here, since this early and isolated recovery in France is bound to create difficulties of the "exit thinking" kind for policymakers over at the ECB. The most pressing of the problems will concern what to do about containing French inflation if exit dependency in Germany means that a full recovery there remains out of reach, while Italy languishes where it has always languished and Spain's seemingly intractable difficulties only increase. In other words, what will happen if - as seems obvious - the eurozone economies are in fact diverging, and not converging, and the divergence far from reducing is in fact increasing.<br /><br />As we will see in the charts which follow the long term decline in the GDP share of French manufacturing, which is closely associated with the steady opening of a trade deficit there, poses special threats and problems for ECB monetary policy. This long term manufacturing decline and growing external deficit are, in my opinion, the tell tale first signs of larger structural problems to come should inappropriate monetary policy be applied too hard for too long. That is to say France is well positioned to get a distortionary bubble next time round (of the exactly the kind the newly vigilant central banks should be at pains to avoid, and indeed precisely the bubble they successfully avoided last time round) unless the ECB and the French government are very clever and very agile indeed.<br /><br /><strong>Above-par Inflation Looming Just Over The Horizon</strong><br /><br />In essence the return of growth in France will be welcomed with open arms across the euro area, since with it comes the prospect of opening up a larger French current account deficit and this will, of course, clearly help soak up all that newly found need to export which exists elsewhere in Europ (and especially in the South and the East). But if this should be the fate which befalls an unsuspecting French citizenry, and living in a Spain which has already been processed along this very same pipeline, then all I can say is "heaven help them" for what will then follow.<br /><br />Again, all the early warning signs are there, including the prospect that France will begin to sustain above eurozone average inflation starting next year, and this will be the first time - as can be seen in the chart below - this has really happened on any sustained basis since the euro was introduced.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilcXvyrNhuaEYKPBskHNC_LCTaTMePOjaW7Wf5BX9cseLjr1w4l4r6rN-nLpzOQw4448A45hWWm2wu5jF1YkA1EMozg5Ld82jmpLaWe9w2Wv0JUZiaJS1pRmLFhaPddJisNVZ2aBvKwKTZ/s1600-h/france+and+eurozone+cpi+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 219px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396565591667441698" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilcXvyrNhuaEYKPBskHNC_LCTaTMePOjaW7Wf5BX9cseLjr1w4l4r6rN-nLpzOQw4448A45hWWm2wu5jF1YkA1EMozg5Ld82jmpLaWe9w2Wv0JUZiaJS1pRmLFhaPddJisNVZ2aBvKwKTZ/s400/france+and+eurozone+cpi+one.png" /></a><br />In fact, if we look at the second chart, which is only the above one with the reverse overlay, we can see that French inflation really only peaked its head above the average in late 2003/early 2004, and the overshoot was not that substantial.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMTKNy9TXQ2IfmT2TuywqtWdTtjD4tteynfQiqUwLWoAjGRzpESTjoaxs0yAE6ztvVX4JA5OkUIGN9_LO6IU1K9cYey-V81p6PzK_38A9mkahgYdq-vOXXjaw2crrLHFkCogD64boZb66f/s1600-h/france+and+eurozone+cpi+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 221px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396565674683066130" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMTKNy9TXQ2IfmT2TuywqtWdTtjD4tteynfQiqUwLWoAjGRzpESTjoaxs0yAE6ztvVX4JA5OkUIGN9_LO6IU1K9cYey-V81p6PzK_38A9mkahgYdq-vOXXjaw2crrLHFkCogD64boZb66f/s400/france+and+eurozone+cpi+two.png" /></a><br /><br />This time things could well be very, very different, and the big change here is of course a direct result of what has just happened to Spain. Since given that Spain has now been catapulted from a high to a low growth (or even negative growth) mode, France has been ramped up the euro league table, moving from Mr Average to Monsieur Outperform, and this will have the consequence that the ECB policy rate - which will, remember, target eurozone average inflation -will be below the one which the French economy will, in reality, need. What this will mean in practice is that there is a real danger the French inflation rate will be above the policy rate - that is that negative interest rates will be applied. As we can see in the chart below, negative interest rates were applied to the Spanish economy between early 2002 and late 2006, and we all know what happened afterwards. With the return to growth French inflation is likely to rebound, and an annual rate of headline consumer price inflation of between 1.3% and 1.5% seems not unrealistic, which means, should the ECB not start to raise its refi rate early next year then France will be rebounding strongly under the twin tailwind effect of significant fiscal stimulus AND negative interest rates.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghENw4kWEg266OIdI6EwVAknSdqqJfcBxVbbstEXXShneTjCzzY3CG_B4PHkbxOw7a008uoFx4Ov1WVMV_5S4zKbJ7dh7NphgJciFCXnzqsOGYVf1QZxBOzYMOc0vpYGsEt4alCQXfuuPf/s1600-h/CPI+and+ECB+interest+rates.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 255px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5397000347128321746" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEghENw4kWEg266OIdI6EwVAknSdqqJfcBxVbbstEXXShneTjCzzY3CG_B4PHkbxOw7a008uoFx4Ov1WVMV_5S4zKbJ7dh7NphgJciFCXnzqsOGYVf1QZxBOzYMOc0vpYGsEt4alCQXfuuPf/s400/CPI+and+ECB+interest+rates.png" /></a><br /><br />So France is about to become the ECB's stellar pupil, but looking at what actually happened to the previous prize students (Ireland and Spain) somehow I doubt that those responsible for running things at La Banque de France and the Elysee Palace will be jumping up and down with joy at the prospect. The bottom line then is that lots of difficult decisions are now looming for European policymakers - assuming they are sharp enough to spot them at this point. <p></p><br /><br /><p>Note - the next section is essentially a detailed breakdown of this month's Flash PMI data (the flash historically bears a reasonably good resemblance to the final data). If you are not especially interested in such detail you may be well advised to glance at the charts and skip to the section - France, Not Spain, Is Different!.<br /><br /><br /><strong>Eurozone Composite PMI</strong><br /><br />Summary:<br /><br />Flash Eurozone Composite Output Index(1) at 53.0 (51.1 in September). 22-month high.<br /><br />Flash Eurozone Services Business Activity Index(2) at 52.3 (50.9 in September). 20-month high.<br /><br />Flash Eurozone Manufacturing PMI(3) at 50.7 (49.3 in September). 18-month high.<br /><br />Flash Eurozone Manufacturing Output Index(4) at 54.1 (51.7 in September). 23-month high.<br /><br />The Markit Flash Eurozone Composite Output Index, based on around 85% of normal monthly survey replies, rose from 51.1 in September to 53.0 in October, registering an increase in private sector output for the third successive month and the strongest monthly gain since December 2007.<br /><br />Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: </p><br /><br /><br /><br /><blockquote>“The flash PMIs indicate that the Eurozone economy has entered Q4 on a strong note, with growth accelerating in both manufacturing and services. The data are consistent with GDP rising at a quarterly rate of around 0.4% in October. Reassuringly, job losses also slowed, and forward-looking indicators such as service sector confidence and manufacturing order-to-inventory ratios suggest that the labour market could stabilise early next year.”</blockquote><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOoFUVDKu8mGR3BHfyzrlbupUCg0DInEGDBR8SBo7Y9SdM98zsbb0SCnT9dKBWetn-F6ehWO8sviewve2nzNY1S40JSElaljwTtE6lBP8hb17lmzEYL-Nf53qSXeqWpazhbVbLxCAsxF1o/s1600-h/Eurozone+Composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396560862570331714" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOoFUVDKu8mGR3BHfyzrlbupUCg0DInEGDBR8SBo7Y9SdM98zsbb0SCnT9dKBWetn-F6ehWO8sviewve2nzNY1S40JSElaljwTtE6lBP8hb17lmzEYL-Nf53qSXeqWpazhbVbLxCAsxF1o/s400/Eurozone+Composite.png" /></a><br /><br />Employment in the Eurozone fell for the sixteenth successive month, even if the rate of job loss eased compared to September. The rate of decline is much slower than that seen in the spring but remains high by historical standards. Both manufacturing and services saw reduced rates of job losses, though the former continued to see the sharper rate of job shedding, despite seeing the smallest cut in headcounts for a year.<br /><br />Growth was driven primarily by manufacturing, where output rose for the third month running and new orders showed the strongest gain since August 2007. Despite the recent strength of the euro, new export orders showed the largest rise since January 2008, but the rate of growth remained very subdued.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXXFw8jObbj4gYqN2ayn2i6XQU1pix1zOeIW_7prrOY2PPQQ93gNxCZlR1y4lQpXnNahGldWpQ8KFzoHBzxNFiN_zIAjlTKr92Zoit_L9-Id75Gd0ADwXOq76yJ_rvnkj-RCwYphMFkEWd/s1600-h/eurozone+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396560941233701922" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXXFw8jObbj4gYqN2ayn2i6XQU1pix1zOeIW_7prrOY2PPQQ93gNxCZlR1y4lQpXnNahGldWpQ8KFzoHBzxNFiN_zIAjlTKr92Zoit_L9-Id75Gd0ADwXOq76yJ_rvnkj-RCwYphMFkEWd/s400/eurozone+manufacturing.png" /></a><br /><br />Activity in the Eurozone services sector meanwhile rose for the second month, expanding at the sharpest rate since February of last year, though the rate of increase remained modest and continued to trail that of manufacturing.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGuPmimceREjJkM-jHhrToFrrBjexZjdWTQx0JJXj0zA_yHefbPDAw89ba2z2XiE1IuiN7N1NgCrwVW5A2M5xlrtwJcBntTdc6XAmGdSl-MQi8V4aYgwvhzirkPyg5BMOf2dU9nphCRTuQ/s1600-h/eurozone+services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396561011265866322" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGuPmimceREjJkM-jHhrToFrrBjexZjdWTQx0JJXj0zA_yHefbPDAw89ba2z2XiE1IuiN7N1NgCrwVW5A2M5xlrtwJcBntTdc6XAmGdSl-MQi8V4aYgwvhzirkPyg5BMOf2dU9nphCRTuQ/s400/eurozone+services.png" /></a><br /><br /><br /><strong>German PMIs Dissapoint</strong><br /><br />Key points:<br /><br />Flash Germany Composite Output Index(1) at 52.6 (52.4 in September), 2-month high.<br /><br />Flash Germany Services Activity Index(2) at 50.9 (52.1 in September), 3-month low.<br /><br />Flash Germany Manufacturing PMI(3) at 51.1 (49.6 in September), 16-month high.<br /><br />Flash Germany Manufacturing Output Index(4) at 54.9 (52.8 in September), 17-month high.<br /><br />Output levels in the German private sector economy continued to expand in October, led by the strongest rise in manufacturing production for seventeen months. Service sector business activity also increased again, but at the slowest rate in the current three-month period of growth. The seasonally adjusted Markit Flash Germany Composite Output Index, which is based on around 85% of normal monthly survey replies, rose fractionally from 52.4 in September to 52.6. The index has now registered above the 50.0 no-change mark for three consecutive months, yet the rate of expansion has remained extremely modest.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAf8qBhCkNz5J56TSDv3ov7IyMiEZGXSXdGHz0jPNKtfJ5ugjnngL6jzLrSmtE_G9DxYCuGJgiVbc94S_4yyBHcucAJec1gAJU7JTaIaqF5PQFq0NO4PgWLQwYF0ox_OBMFaAz94ksXo7t/s1600-h/german+composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396571261505058114" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAf8qBhCkNz5J56TSDv3ov7IyMiEZGXSXdGHz0jPNKtfJ5ugjnngL6jzLrSmtE_G9DxYCuGJgiVbc94S_4yyBHcucAJec1gAJU7JTaIaqF5PQFq0NO4PgWLQwYF0ox_OBMFaAz94ksXo7t/s400/german+composite.png" /></a><br /><br />Commenting on the Markit Flash Germany PMI survey data, Tim Moore, economist at Markit said:<br /><br /><br /><br /><blockquote>“The German economy started the final quarter of the year in growth territory, with the manufacturing sector the main driver of expansion. Manufacturing firms posted the fastest rise in new orders since August 2007 while employment fell more slowly, contributing to an above-50 Manufacturing PMI reading for the first time in 15 months. Meanwhile, service providers saw only a modest improvement in activity as demand continued to recover only gradually in the sector.”</blockquote><br /><br />Signs of excess capacity in the German economy persisted in October, despite solid rises in output and new business. Latest data indicated a further drop in backlogs of work and continued job shedding among private sector companies. Reduced staffing numbers were recorded in both the manufacturing and service sectors, primarily reflecting workforce restructuring following sharp declines in new work at the start of the year. Some firms also commented on the need to cut costs as margins remained under pressure in October.<br /><br />Average prices charged by private sector firms in Germany were reduced for a twelfth month running and again at a faster pace than input costs. Manufactures and service providers both signalled marked declines in average output charges. Panellists generally attributed this to strong market competition and a resultant lack of pricing power. Meanwhile, input costs dropped only marginally in October and at the slowest rate in the current twelve-month period of decline. Data indicated that lower costs were largely confined to the manufacturing sector. Those reporting a reduction in purchasing costs frequently commented that subdued demand for raw materials had contributed to successful price negotiations with suppliers.<br /><br />In the manufacturing sector, higher levels of private sector business activity were driven by a further solid expansion of incoming new work. The latest increase in new business was the strongest for a year-and-a-half. The manufacturing sector continued to lead the way, as new order volumes rose at the fastest pace since August 2007. This was supported by a robust increase in new export orders, with a number of firms pointing to stronger demand from China and Eastern Europe.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqYEh9z0baFlWoeF0IMmV2eCK4fiPzk2Smg3EjMT-z9FWgj5P046LJTOaSY6i37g2N6Qn4X0UgF5hgFDtkzrvgBMZbew49ZxJej-dkSzddQv79rOb9PgTAex7EEM9yQxMeffBOs6Ah3zoQ/s1600-h/German+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396571179982990050" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqYEh9z0baFlWoeF0IMmV2eCK4fiPzk2Smg3EjMT-z9FWgj5P046LJTOaSY6i37g2N6Qn4X0UgF5hgFDtkzrvgBMZbew49ZxJej-dkSzddQv79rOb9PgTAex7EEM9yQxMeffBOs6Ah3zoQ/s400/German+manufacturing.png" /></a><br /><br />Meanwhile, service providers recorded only a modest improvement in new business levels in October. Anecdotal evidence suggested that clients remained hesitant to commit to new expenditure, leading to only a gradual recovery in demand. Nonetheless, service sector companies were confident regarding the twelve-month outlook for activity at their units, with 32% expecting a rise against just 18% thatforecast a decline.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgAc14jQsYjijGv6XOs8z94zzJBJVxj-hrfNI7KYKI0KGzHNTXxGZA_E1eTiRbn-DyLePd76tdTQIpk4msP9P3S_10U8I_lIgJS0p6jce8BHspsuIWHoTRF-hJtc9uK4vJ9H-cI2l_g-_f/s1600-h/German+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396571095695447602" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgAc14jQsYjijGv6XOs8z94zzJBJVxj-hrfNI7KYKI0KGzHNTXxGZA_E1eTiRbn-DyLePd76tdTQIpk4msP9P3S_10U8I_lIgJS0p6jce8BHspsuIWHoTRF-hJtc9uK4vJ9H-cI2l_g-_f/s400/German+Services.png" /></a><br /><br /><strong>French PMI - Robust Growth Registered</strong><br /><br /><br />What stands out in this months data, however, is the performance of the French economy. The output Index, which is based on around 85% of normal monthly survey replies, indicated that growth of the French private sector was sustained into a third successive month – and at an accelerated rate. Climbing to 58.4, from 54.8 in September, the headline index indicated that growth accelerated markedly to reach its steepest in nearly three years.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2fWdfRtUoBM6GcqVtZJmcDW9QKO-Jz0i9d3ZOC90W23rYy10fnfWF8Me-twsG15wZtddUeKomrs38BDqKOLh_xGytKNmjIdNrP4-LFNGRxww9yTGkTFoJc9neefpZo83pDFjRkcrqI72v/s1600-h/france+composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396574265328800994" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2fWdfRtUoBM6GcqVtZJmcDW9QKO-Jz0i9d3ZOC90W23rYy10fnfWF8Me-twsG15wZtddUeKomrs38BDqKOLh_xGytKNmjIdNrP4-LFNGRxww9yTGkTFoJc9neefpZo83pDFjRkcrqI72v/s400/france+composite.png" /></a><br /><br />Commenting on the Markit/CDAF Flash France PMI data, Paul Smith, Senior Economist at Markit, said:<br /><br /><br /><br /><br /><blockquote>“Expansion of the French private sector continued to gather pace in October, reaching its highest in just shy of three years. Output was sustained through higher gains in new business, particularly from the domestic market, although in part this was driven by continued discounting amid strong competitive pressures. While employment continues to fall, emerging signs of capacity pressures and optimism in the strength of the upturn raise hopes that job losses will dwindle over the coming months.”</blockquote><br /><br /><p>Higher output was again broad-based, with both manufacturing and service sectors registering strong growth. Manufacturing output increased for a fourth successive month and at the steepest pace since May 2006. Outstanding business in the French private sector rose in October for a second successive month. In a sign of emerging capacity pressures – particularly in manufacturing – overall growth was the steepest in 19 months.<br /><br />Despite rising backlogs, French private sector companies continued to reduce employment in October. The rate of contraction remained historically marked, with job losses most acute in services (job losses in manufacturing were the slowest for 14 months). Cost cutting and restructuring were noted by panellists. Input prices continued to fall in October, extending the current period of deflation to 12 months.<br /><br />However, the rate at which costs declined was only modest, with manufacturing registering a net rise in their purchase prices. Inflation here was linked to higher steel and oil-related product prices. Strong competitive pressures led to another reduction in output prices during October, with the rate of decline remaining sharp. Output charges have now fallen throughout the past year.<br /><br /></p><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKkND0_d1OIQly22cKUw9oD4mCLA6o7R5uGK1GXIoQMG4JCNXNqFWpMeGg6X-L9xClqbm-0jW4M2HR9V-8RPnhjxSNGVCexXFpswGJPdQBZXMFNmCtO3W5ZxY0_DhpcNmlX-YtoudETHzx/s1600-h/France+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5397008638864730658" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKkND0_d1OIQly22cKUw9oD4mCLA6o7R5uGK1GXIoQMG4JCNXNqFWpMeGg6X-L9xClqbm-0jW4M2HR9V-8RPnhjxSNGVCexXFpswGJPdQBZXMFNmCtO3W5ZxY0_DhpcNmlX-YtoudETHzx/s400/France+manufacturing.png" /></a><br />Services activity rose at a slower pace than manufacturing output, but still - at a level of 57.8 - registered a strong gain, indeed the rate of expansion was the best since February 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7X-m5Uh41Kgd5QZT8a8V1uJlqZvV01Q4_BRnurbRZ4xnrJhcJcBAx1zcPlNrJWKnDTnSFDVGER3B9DbHkdg6EJsQFZ1LvmrYkMgzOio5ksYr7soWPlhaNBeWmT2bVrt6ChH4xmHuoeZ1-/s1600-h/France+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396574179014905986" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7X-m5Uh41Kgd5QZT8a8V1uJlqZvV01Q4_BRnurbRZ4xnrJhcJcBAx1zcPlNrJWKnDTnSFDVGER3B9DbHkdg6EJsQFZ1LvmrYkMgzOio5ksYr7soWPlhaNBeWmT2bVrt6ChH4xmHuoeZ1-/s400/France+manufacturing.png" /></a></p><br /><p><strong><br />This Time France, Not Spain, Is Different, But Is It Really A Case Of Vive La Difference?</strong><br /><p>So French industrial production has been steadily recovering in recent months and the latest business surveys show this should continue, even if activity is still significantly (12%, much less than many other euro area countries) below its pre-crisis level. Consumer confidence has been steadily rising for over a year - even if, again, it continues to be weak by historic standards. Household consumption has also been rising, and in fact remained positive on an annual basis throughout the crisis (see chart below), and even if the potential for substantial further acceleration seems limited, this is still the key difference between France - where there is sufficient autonomous domestic demand left for the stimulus package to work - and the other euro area economies. </p><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp0gLss4_KUfXZq1bDGx6XwsJyOGB67ab8-QlNf6_2rjxaAtChE6AKT2jl3fDhObgLixDD4nVdA3yBNG-b9ppLg2EaINo_WkeKOAHqQYMJ2MwUo5JxnTeW_Z9PTlxSTJJ5yZIPrZg9JKKz/s1600-h/France+quarterly+private+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5397011003520950258" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp0gLss4_KUfXZq1bDGx6XwsJyOGB67ab8-QlNf6_2rjxaAtChE6AKT2jl3fDhObgLixDD4nVdA3yBNG-b9ppLg2EaINo_WkeKOAHqQYMJ2MwUo5JxnTeW_Z9PTlxSTJJ5yZIPrZg9JKKz/s400/France+quarterly+private+consumption.png" /></a><br /><br />Why should this resilience be? Well in the first place I would single out France's rather favouralable demographics. But this alone cannot explain the situation. In addition I would add France also probably has had:<br /><br />i) much better lending regulation than some of the bubble economies in the key years.<br />ii) no housing BUBBLE (as opposed to boom)<br />iii) a large population on fixed as opposed to variable interest rates for mortgages<br /><br />France was also the only eurozone country who really had a more or less approriate interest rate applied by the ECB during the critical years from 2001 to 2007, so there are less structural distortions in the economy (not NONE, but less). On the other hand, as far as France's fiscal budget trajectory goes there are both long term structural and short term fine-tuning deficit issues to think about. The deficit has nearly doubled during the first eight months of this year (widening from EUR 67.6bn in 2008 to EUR 127.6bn in 2009), and although the French budget normally has a surplus in the last four months of the year, this is unlikely to be the case this year, so the deficit will undoubtedly widen further possibly reaching 7.3% of GDP (or 8.2% including social security).</p><br /><p>The main reason for the increasing deficit is evident - the collapse on the revenue side. VAT income, for example, fell by EUR 10.4bn, or 12.0%, over the first eight months of the year. Overall total income fell 23.1% during the first eight months of the fiscal year, and although the pace of decline may slow over the whole year the government still expect the 2009 deficit to reach EUR 141bn for the central government and EUR 158bn (or 8.2% of GDP) for the government spending in general (including social security).<br /><br />Since the various French stimulus packages only amount to an estimated 1.2% of GDP this means that the so called automatic stabilisers (i.e. the “natural” drift of the deficit on a no policy change assumption) account for 3.6 percentage points of the 4.8% of GDP increase in the general government deficit from 2008.<br /><br />Looking forward, France's 2010 budget is based on a reasonably cautious economic forecast of 0.75% growth, following something like a 2.5% - 2.25% contraction in 2009. Despite this cautious approach there is still a considerable degree of uncertainty about the behaviour of tax income in the wake of the recession, and this is why the budget deficit is also expected to grow. On the inflation side the government forecasts an inflation rate of 1.2% in 2010, following 0.4% in 2009, but since the growth forecast is conservative the inflation outlook will be subject to upside risk, which is why I think 1.3% to 1.5% is a much more likely band.<br /><br />Part of the deficit will naturally disappear as tax revenues recover. However, due to structural biases in the cost components of the budget there is still plenty of upside potential in debt to GDP moving forward - the latest forecast is for around 91% in 2013/14 - and substantial action will still be needed to lower the deficit in the years ahead. The public deficit is currently expected to fall in 2011 (from 8.5% in 2010 to 7.0%), but the numbers involved are still very large, and France is one of the best case scenarios, so this really begin to give us a picture of the severity of the downturn we have just been through. And of course we are by no means out of the woods yet.<br /><br /><br /><strong>French GDP On The Rebound, And Looking Onwards And Upwards</strong><br /><br />French GDP surprised positively with a 0.3% quarterly gain in the second quarter. Given the data we are seeing, a forecast of 0.2% quarterly growth for both the third and final quarters would not seem to be an unreasonable expectation at this point, which would mean the French economy would shrink by something under 2.5% in 2009, well below the average Eurozone contraction rate. </p><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPN1N-LUPkc-1MXTzZnneyH6_oqbDP2OFSpfGATGKZ4zJ1v_79zZzIUIcQ7ecDWWQ74_-ZVOVHit7K_52YcwvN7dBoZE4HOykhqGNSuMAOtLS2chz-UtPl1EiMSb2IcEk-1mx_jg6zvUqZ/s1600-h/gdp+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396874946071863266" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPN1N-LUPkc-1MXTzZnneyH6_oqbDP2OFSpfGATGKZ4zJ1v_79zZzIUIcQ7ecDWWQ74_-ZVOVHit7K_52YcwvN7dBoZE4HOykhqGNSuMAOtLS2chz-UtPl1EiMSb2IcEk-1mx_jg6zvUqZ/s400/gdp+two.png" /></a></p><br /><br />All the data we have seen for August and September confirm the view that the French economic environment is improving considerably, although the presence of continuing weak spots (especially on the employment front) mean real GDP growth will probably remain modest during the rest of this year.<br />The monthly survey of business sentiment was up sharply in September (at 92 against 89 in July). This indicator has moved even further away from its all-time low (68 in February and March), while remaining far below its long-run average.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggkzam6DarANzbw0Zngm28xsV5uP7_Cy6XyJLvgpGyR6fL5mcqmbpOqy_0EQXQIGmTb-UmDy89BcgkoqG-_li3WGagNSREKqmZ3vs-FMG33qlhPYyTffTIdGK63gZFbCmr5ywv7iwZObby/s1600-h/french+business+confidence.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 213px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396884811704080850" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggkzam6DarANzbw0Zngm28xsV5uP7_Cy6XyJLvgpGyR6fL5mcqmbpOqy_0EQXQIGmTb-UmDy89BcgkoqG-_li3WGagNSREKqmZ3vs-FMG33qlhPYyTffTIdGK63gZFbCmr5ywv7iwZObby/s400/french+business+confidence.png" /></a><br /><br />Order books are also picking up -59 showing in September versus -68 in July. Export order books are also looking better too at -65 versus -66 in July. The consumer goods component in industrial goods orders improved markedly in September (-32 versus -37 for total orders, and -39 versus -33 for export orders), which indicates that domestic consumption spending is likely to be less depressed than it was in July and August. Likewise "capital goods" orders showed a slight improvement in September ( -68 for total and -70 for export orders versus -69 and -73 in July). If this improvement continues in October the ongoing deterioration in investment spending (see chart below) might be drawing to a close.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4sttiYCj6En_pz7SarBSSlL0BKsfDV608cFmyGtnOLz_ox9cKzmw7DhM2wZ_9N7z9sooy-1Zc0oyTB3GB_iblet3J-aAyAQzEy77Y2HlRv1rmVvAjaaG5JfjZo4hQpL2g3RSLJYDFKo2R/s1600-h/france+quarterly+fixed+investment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396889263976426210" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg4sttiYCj6En_pz7SarBSSlL0BKsfDV608cFmyGtnOLz_ox9cKzmw7DhM2wZ_9N7z9sooy-1Zc0oyTB3GB_iblet3J-aAyAQzEy77Y2HlRv1rmVvAjaaG5JfjZo4hQpL2g3RSLJYDFKo2R/s400/france+quarterly+fixed+investment.png" /></a><br />This improvement is also corroborated by the surge in the October manufacturing PMI. Activity in services also picked up again sharply in October as did activity in the construction sector - hence the interannual drop in GDP should be significantly under the Q2 level of 2.6% by the time we reach the end of the year.<br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtShtKlLoheLaNiHc_2jDO64r3nh-3PwHSq-9DNQ9AS7u4fEpN8iDteIMtCk5z3qlRIxhzu_JIzKY8cAw6SH_qrrDCv8vl5OxbS_VkbVjbEhXAVeov96nps2MptLpOwmrfJrMdYR_Ep7bH/s1600-h/GDP+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396874845371074834" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtShtKlLoheLaNiHc_2jDO64r3nh-3PwHSq-9DNQ9AS7u4fEpN8iDteIMtCk5z3qlRIxhzu_JIzKY8cAw6SH_qrrDCv8vl5OxbS_VkbVjbEhXAVeov96nps2MptLpOwmrfJrMdYR_Ep7bH/s400/GDP+one.png" /></a><br /><br />It is also worth remembering that long term growth in French GDP has really been remarkably constant in recent times (see ten year moving everage chart below), at just a little over 2%. Previously this might have been considered rather low by many commentators, but in the light of what we have just seen happen to the "out-performers" the French result looks reasonably solid and sustainable, which means we could expect a pretty solid "V" shaped rebound in 2010 (especially during the second half) and the big danger is that excessively loose monetary conditions for the Eurozone as a whole and ongoing fiscal stimulus could send the French economy shooting upwards above its long term sustainable trend.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpWk0HM4NDfg-BbeOztAfmOop9nPzE0xX9xPe5X2stQ-PHh2_2DmFqm4GCBgTzLE4hce7J8JEX2gMlZkA3YajJyk1EZomx7-1bwAGxRP7DDewhc_TV0vHZBej5Sow-I4awLFDtIxRaqNTQ/s1600-h/France+long+term+GDP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396874746957953010" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpWk0HM4NDfg-BbeOztAfmOop9nPzE0xX9xPe5X2stQ-PHh2_2DmFqm4GCBgTzLE4hce7J8JEX2gMlZkA3YajJyk1EZomx7-1bwAGxRP7DDewhc_TV0vHZBej5Sow-I4awLFDtIxRaqNTQ/s400/France+long+term+GDP.png" /></a><br /><br /><br /><strong>Industrial Output</strong><br /><br /><br />French industrial output rose more than expected in August, rising 1.8 per cent from the previous month on the back of a surge in car production, according to new data. The monthly rise contrasted with a forecast rise of 0.5 per cent from economists and was fuelled by an 11 per cent rise in production of transport equipment, including an 18.2 per cent rise in the car component. Nonetheless French industrial output remains down around 12% in comparison with a year earlier, even though - as I keep stressing - this is considerably less than the drop in most other Eurozone economies.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOsvEdmb3q8qrzbVcOfnP6uXgoUtAiHdekzausFa9e1aaHHl15jWzsI0Tz8HQswKvGc8H_9v7wPuXydyXeFKpEjiJLJRoO64T56XFYDa4QEfhuL4-3kv9PT4h_Wf8O4Pb0OBlO9KGlc0Me/s1600-h/ip+yoy.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396577870031259346" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOsvEdmb3q8qrzbVcOfnP6uXgoUtAiHdekzausFa9e1aaHHl15jWzsI0Tz8HQswKvGc8H_9v7wPuXydyXeFKpEjiJLJRoO64T56XFYDa4QEfhuL4-3kv9PT4h_Wf8O4Pb0OBlO9KGlc0Me/s400/ip+yoy.png" /></a><br /><br />Although the industrial output collapse has been a little less dramatic than in other eurozone countries, the rebound in France seems to remain largely in line with its peers. Industrial production in fact outpaced the GDP collapse in late 2008, so that it may now also be overstating the rebound.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAnLS5RhUy5G4qNNiBcUqpWDI-EfC5TnCZJlxpNkDhyiWWNGrRiiZarsmmGPRSohN1tjrGIwkr11YhFKs3gpv7OPlXZz8OogCNd_MpjjvlPiUtZtpryRj1q_BS2d2vpLn6bPP3y4pa-yXN/s1600-h/ip+index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 210px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396577781542551010" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAnLS5RhUy5G4qNNiBcUqpWDI-EfC5TnCZJlxpNkDhyiWWNGrRiiZarsmmGPRSohN1tjrGIwkr11YhFKs3gpv7OPlXZz8OogCNd_MpjjvlPiUtZtpryRj1q_BS2d2vpLn6bPP3y4pa-yXN/s400/ip+index.png" /></a><br /><br />French retail sales have been falling, but not to anything like the extent we have seen elsewhere in Europe. They were down 3.75% year on year in July.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdChyuwLMBFfdiEdYtRck1iUoLCDDqQTG4_c8ToVZ9dxpRvSiFxmZoUtBAa_qB8Cv-exBGY9CSGlrstD5tlY6gRbrfb9Taz4pDXwLOGM3KFqiiGqedDXqRokYTmavbRoQ8o3vBDKc0Ze9o/s1600-h/france+retail+sales.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396578096102175490" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdChyuwLMBFfdiEdYtRck1iUoLCDDqQTG4_c8ToVZ9dxpRvSiFxmZoUtBAa_qB8Cv-exBGY9CSGlrstD5tlY6gRbrfb9Taz4pDXwLOGM3KFqiiGqedDXqRokYTmavbRoQ8o3vBDKc0Ze9o/s400/france+retail+sales.png" /></a><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOtHOtkreMHxwH6Z4bJv6f2028LmPfepTNXiuopYTXVmhOPy65t32mIy9-_xxydCQaLxq0YtgGuRKyKFx2-iUE-lMgy0H4m4rhuMEG4bsH2aUo-BWkMP9imK-pf_7fR6zxddxJkpAAAbkT/s1600-h/france+retail+sales+index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 210px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396578023133464978" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOtHOtkreMHxwH6Z4bJv6f2028LmPfepTNXiuopYTXVmhOPy65t32mIy9-_xxydCQaLxq0YtgGuRKyKFx2-iUE-lMgy0H4m4rhuMEG4bsH2aUo-BWkMP9imK-pf_7fR6zxddxJkpAAAbkT/s400/france+retail+sales+index.png" /></a><br />France's construction sector also seems to be on the long road to recovery, thanks to a correction in the housing sector. A combination of lower prices and very low interest rates have boosted new home sales. Housing investment dropped over the last five quarters, losing an annual 8.7%, making for the worst recession in the sector in the last thirty years. Housing affordability has now rebounded sharply thanks to the interest rate component and a sharp fall in existing home prices (down about 10% year on year) which has allowed a rebound in new home sales and a decline in the stock of new homes for sale. To get some sort of comparison France had approximately 100,000 unsold new housing units at the end of 2008, compared with over a million in Spain. This inventory has now fallen to around 80,000.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifvj3v6pxfJNcUYTNqJHGhcdTFY9jkhJdzegZV5KlU4MAQV5Qit_4kZ7qJpfz6CWjGHrG-Pe8MnIRAqLaDTg57hwCgWrSlXALf9jMD9iEFo0M2vgCjd-lLRrn5d2WiYDmoWvcaiEgHxpUx/s1600-h/france+construction+YoY.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396578394143445762" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifvj3v6pxfJNcUYTNqJHGhcdTFY9jkhJdzegZV5KlU4MAQV5Qit_4kZ7qJpfz6CWjGHrG-Pe8MnIRAqLaDTg57hwCgWrSlXALf9jMD9iEFo0M2vgCjd-lLRrn5d2WiYDmoWvcaiEgHxpUx/s400/france+construction+YoY.png" /></a><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3Hirf3y0sDVmijyZp3p2mf1y6AlBoaqb9zxn_Jq3fFW-02Cuo5G874hsvo_uWuYLV2Moovocw0bdAyJq-onnwTrdwa9eKFszOavD2d7D30E24c3G8WQQrg3M43N3KKnHIec3bHjkLCcyt/s1600-h/France+Construction+Index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 210px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396578314348913378" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3Hirf3y0sDVmijyZp3p2mf1y6AlBoaqb9zxn_Jq3fFW-02Cuo5G874hsvo_uWuYLV2Moovocw0bdAyJq-onnwTrdwa9eKFszOavD2d7D30E24c3G8WQQrg3M43N3KKnHIec3bHjkLCcyt/s400/France+Construction+Index.png" /></a> </p><br /><p>According to the latest provisional INSEE data French household spending decreased slightly in Q3 (-0.2% q/q), despite the end of quarter rebound recorded in September (up a monthly 2.3%). Real spending was up a monthly 2.3% in September, after following a 1.1% fall in July and a 1.0% drop in August - so the long march upwards in consumption is not yet that robust. In fact the stats office data show that this September rise was mainly due to a surge in car sales. In line with a sharp rebound of new vehicles registrations (up 7.3% on the month), car sales were up by 10.2% in September over August, offsetting the falls recorded from the beginning of the quarter. Consequently, car sales were roughly flat in Q3 (down 0.1% over Q2), following a 5.7% quarterly rise in Q2.</p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDRsnDZo6GQ_jxf1fDP6EVjST1twpqDBxbRMcUAt607nyt7Ec62Tg6Hl_rZeo4KITq_oWmlvAD8TNKHVf0VvgU0iNOcl5cFgxKeikJUcQQaOmipK-T5xozvRc9mMV2vNcDBhX8gkdPURDH/s1600-h/France+quarterly+private+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396889070730262658" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDRsnDZo6GQ_jxf1fDP6EVjST1twpqDBxbRMcUAt607nyt7Ec62Tg6Hl_rZeo4KITq_oWmlvAD8TNKHVf0VvgU0iNOcl5cFgxKeikJUcQQaOmipK-T5xozvRc9mMV2vNcDBhX8gkdPURDH/s400/France+quarterly+private+consumption.png" /></a><br /><br />On the other hand, general sales were down by a quarterly 2.5% in Q3, while "other manufactured products" sales, that represent more than 40% of the consumption, remain sluggish, rising by a quarterly 0.1% in Q3 following a drop of 0.1% in Q2. So at the end of the day the data tend to confirm the idea that the evolution of total spending has been largely dependant on car sales and government incentive scheme since the beginning of the year. Despite the rebound recorded in September, the stabilisation of car sales in Q3 resulted in a slight decrease of overall spending, that was down by 0.2% in Q3 when compared with Q2, following a 0.7% rise in Q2. As can be seen in the chart below (which was prepared by Dominique Barbet and Martine Borde for PNB Paribas) even while headline GDP shot down at the end of 2008 Private Consumption Expenditure (PCE) recovered rapidly due to the impact of the stimulus programme.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXuOGu5JRZ_8C282vF1oNaTmpA2wnP-05LYMfr8wCBNZcS18Gtvm-2VW78dbUYATzeT-QEfWAztBcOPkwaJPZm9n8z_hDwgfKJBoNMQHcbV-BlbPCk_JPnQnLt3IP1eIuiMUcRUuYZxJIA/s1600-h/consumption+and+GDP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 287px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396890202742078274" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXuOGu5JRZ_8C282vF1oNaTmpA2wnP-05LYMfr8wCBNZcS18Gtvm-2VW78dbUYATzeT-QEfWAztBcOPkwaJPZm9n8z_hDwgfKJBoNMQHcbV-BlbPCk_JPnQnLt3IP1eIuiMUcRUuYZxJIA/s400/consumption+and+GDP.png" /></a> And as we can see in the following chart, while consumption in France has proved quite robust over the years, the manufacturing share in GDP has been declining steadily. This is, of course, quite a worrying trend. We can also see quite a clear indication of why France doesn't have the kind of problems Ireland and Spain have when we look at the construction share, since while this rose slightly between 2004 and 2007, at around 6% of GDP it was a far cry from the Irish and Spanish levels (which were twice as big at around 12%), and hence the French economy now has far less difficulty sweating down the capacity and inventory overhang.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFtYZ8FZ9EG2mBJJ5AaN3856uXAsD6FZF_1heSMPefZi1EDp8we40T6G1sVk67oVoQBPlXSONgW10963v-oVUocSaFc9AN8tfbABDE-uy2_sz_y9q2h5HWxAYGfXRgJqZCDkzFOFWR_05V/s1600-h/manufacturing+GDP+share.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 269px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396890389271703618" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFtYZ8FZ9EG2mBJJ5AaN3856uXAsD6FZF_1heSMPefZi1EDp8we40T6G1sVk67oVoQBPlXSONgW10963v-oVUocSaFc9AN8tfbABDE-uy2_sz_y9q2h5HWxAYGfXRgJqZCDkzFOFWR_05V/s400/manufacturing+GDP+share.png" /></a> And lastly (in this set of charts) we can see that while the trade share in French GDP has been growing steadily since the early 1990s, this increase in trade openness has also been accompanied by an increase in import penetration, and a steady widening of the trade deficit. It is this problem which could well turn critical during the next upturn if corrective measures are not taken in time.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikRK3mdXb1g1qk1dABV2RTvqH-Z-E_4GWzMir7ou6oVIJnEw9k6RBY-1kdv8sGnFEUhnqsETtVMygAGUKIQWt8TfvSvS-xwfMgvwup8Gh3tvihmgDq3-cIfv1jSBEt0dBbXDnvWbeu0pQ6/s1600-h/trade+gap.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 270px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396890721232053282" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikRK3mdXb1g1qk1dABV2RTvqH-Z-E_4GWzMir7ou6oVIJnEw9k6RBY-1kdv8sGnFEUhnqsETtVMygAGUKIQWt8TfvSvS-xwfMgvwup8Gh3tvihmgDq3-cIfv1jSBEt0dBbXDnvWbeu0pQ6/s400/trade+gap.png" /></a><br />Evidently French exports remain weak, and can in no way explain the recent recovery in industrial pooduction. The export rebound which took place in July was short-lived, and the narrowing of the deficit we have seen between 2008 and 2009 has primarily been due to lower crude oil prices. On the other hand euro appreciation is not the main reason for the poor export performance, as the deficit is wider with eurozone trading partners than with others. The drop in imports is adequately explained by the fall in domestic demand, and is not a sign of improved domestic competitiveness. At the same time the non-goods surplus has narrowed significantly, because of smaller surplus on services and the decline of the surplus on the income account. Thus while the current account deficit has narrowed somewhat, and is expected to stay contained over the next twelve months, the risk of a sharp widening in the years to come is clear enough.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPNbJ-Lg_E5rDxnr8Sntw6aMZCNksBUAWdem8E7DfaafzqY859Y5IdCHcH9jeERf2-EZebGq4M-wZp-RiHlcLHnsWxEMZ73Og4rhqRtmCEs_MgFnRRUhQPfM1UfqEOKGftOisPxhkNpxyx/s1600-h/France+CA+deficit.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 210px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396961810361207042" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPNbJ-Lg_E5rDxnr8Sntw6aMZCNksBUAWdem8E7DfaafzqY859Y5IdCHcH9jeERf2-EZebGq4M-wZp-RiHlcLHnsWxEMZ73Og4rhqRtmCEs_MgFnRRUhQPfM1UfqEOKGftOisPxhkNpxyx/s400/France+CA+deficit.png" /></a><br /><strong>A Tale Of Two Population Pyramids<br /></strong><br />Basically, a large part of the differential performance between France and Germany can be explained by comparing the two population pyramids. France has an annual population growth rate of around 0.5% while Germany has a population SHRINKAGE rate of around 0.1%. France has a total fertility rate of around 2.0, while the German one is around 1.35.<br /><br />Thus the French population pyramid (above) is evidently far more stable than the German one (following), and this means that:<br /><br />a) French domestic consumption is far more stable and dynamic (I would say that this by now should have attained the status of being a "self evident truth").<br /><br />b) the French government debt to GDP problem, while being important, can be corrected over a longer period than the German one, since France is not ageing so rapidly. This does NOT mean that France should not be doing anything to put its house in order, clearly the underlying structural problems in the public deficit situation - health and pensions - need addressing, but France has more margin of manoeuvre to do this. The important thing is that the French administration do not put this off and off until they reach the same state of mess that the Germans are now in. France should, nonetheless be given credit for having done her homework on fertility.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs-svhBEsB8gtB-qoifauvVPZeQG-zkYaf68blAwDEAnOAfdZPBleyvCqCZa_4MmYAFO28pxYIF7EyQrk2E1kdg6WjgYmuCJYjJt8ZpOGUPiq83gZbvinW7LnbBFMM7CQp8FtMdv0i17mB/s1600-h/Population+Pyramid+2009.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 278px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396960962668399746" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgs-svhBEsB8gtB-qoifauvVPZeQG-zkYaf68blAwDEAnOAfdZPBleyvCqCZa_4MmYAFO28pxYIF7EyQrk2E1kdg6WjgYmuCJYjJt8ZpOGUPiq83gZbvinW7LnbBFMM7CQp8FtMdv0i17mB/s400/Population+Pyramid+2009.png" /></a><br /><br />Basically one look at the unstable shape of this pyramid should give us plenty of course for concern about Germany's future.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfJcDB0s6wfj6iTb1gicSBj2Y97PlgWY-LxA7gmjhWpLdshUCdgAptRLbef1NdCHHu2BDuGH7qw_T4mWlP-_N8zffCakTb6UPvdwg-nuGScTX00-8aRDS1N301wQM7xeEOOBpEAsB1K-UY/s1600-h/Germany+Population+Pyramid.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 278px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396961283230993890" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfJcDB0s6wfj6iTb1gicSBj2Y97PlgWY-LxA7gmjhWpLdshUCdgAptRLbef1NdCHHu2BDuGH7qw_T4mWlP-_N8zffCakTb6UPvdwg-nuGScTX00-8aRDS1N301wQM7xeEOOBpEAsB1K-UY/s400/Germany+Population+Pyramid.png" /></a><br /><br />Frankly this differential situation, and its implications, has still failed to sink in in many quarers. The Economist Intelligence Unit, for example, in their recent piece - <a href="http://viewswire.eiu.com/index.asp?layout=VWArticleVW3&article_id=324924617&refm=vwHome&page_title=Latest+analysis&rf=0">France Easy Does It</a> (20th October 2009) - says the following:<br /><br />"However, after several years of budgetary vigour Germany's public finances are now in far better shape than those of France, while the German government has secured approval of a law establishing the principle of a balanced budget in the German constitution. A persistent, large-scale asymmetry in the fiscal policies of the euro area's two largest member states could become a significant source of tension in the period ahead."<br /><br />This is simply nonesense. German finances (despite the sacrifices which ordinary Germans have evidently made) are NOT in better longer term shape than French finances, and this for the reason that:<br /><br />a) German trend growth (under 1%) is now significantly below French trend growth (around 2%).<br /><br />b) German structural deficits related to ageing are going to be much more serious in the coming decade.<br /><br />And signs of the problems this is creating are to be found all over the place. Only last week the two parties in the new German government coalition were toying with the idea of setting up a €60bn fund whose explicit objective was to cover expected welfare-system deficits over the next four years. That would have raised new government borrowing for 2009 from just under €50bn to over €90bn – but would have had the advantage that it would have made it easier for the government to fulfil a constitutional amendment passed this year, which obliges the federal and state governments to reduce their deficits year by year starting in 2011. Basically, what is the value of having a constitutional ammendment to limit the deficit, if the very next minute you start to look for ways to get around it in order to meet the needs of short term expediency?<br /><br />Clemens Fuest, head of the finance ministry’s council of economic advisers, accused the incoming government of “false labelling” in claiming the special fund was just to cover welfare cost overruns. “The real reason is tax cuts,” he told the Financial Times. “The coalition has manoeuvred itself into a kind of cul-de-sac by saying on the one hand we’re going to have broad income-tax cuts, but on the other, we won’t do that by borrowing more. Of course that’s impossible.”<br /><br />Rainer Brüderle, one of the FDP’s economics experts, on the other hand denied the plan was mere "trickery” and noted that special funds had been used before to finance the extraordinary burdens of German unification and the recent bank bail-out fund. The point here is not to get bogged down in the ins and outs of fiscal rectitude, but to see the stark and evident fact that the German government far from having, as the EIU puts it, secured a law which means their fiscal position is in better shape than that of French faces stark and difficult choices in carrying through what will remain a knife edged balancing act over the years to come.<br /><br />The background here is that in June 2009, Germany introduced ammended its constitution by passing a law that will only allow federal deficits of up to 0.35% of GDP during normal times starting in 2016. After 2020, regional state deficits are to be abolished, while parliament can only suspend the rule in the event of “natural catastrophes or other unusual emergency situations."<br /><br />The very presence of this law should give us an indication of just how critical German public finances may become. In order to comply with the law, Germany will have to implement spending cuts or raise taxes starting in 2011 regardless of whether they have weaker tax revenue, rising welfare bills, or need more stimulus measures and spending for bank bailouts.<br /><br />On October 8, 2009, the German newspaper Handelsblatt reported that till 2013 Germany will have to raise taxes or cut spending equivalent to 34.3 billion euros in order to comply with the debt brake. Even if growth should be a full percentage point above the current forecasts the hole in German government finances will still stand at 29 billion euros. Therefore even if the economy improves more than expected the coalition will not enjoy ample scope with regards to public finances. (Handelsblatt; October 8, 2009)<br /><br />In the end the proposal to borrow extra money this year was ditched even though a 24 billion- euro tax cut programme aimed at low and mid-level earners was adopted. Basically the "creative accounting" proposal might well have satisfied the needs of the new constitutional law, but they would not have helped with the excess deficit criteria applied by Eurostat and the EU Commission, since when the German social security system (which - remember - forms part of the government sector according to the Eurostat rules) spent the money and actually ran the deficits in 2011 or 2012, this would have been recorded as a deficit for the German public sector according to the Eurostat rules no matter when the money was borrowed. So the new government now adding tax cuts to the earlier deficits is very likely to put it in breach of the EU's Stability and Growth Pact concept of a 3-percent limit and will in all likelihood put Berlin in conflict with Brussels.<br /><br /><br />According to the most recent government forecast Germany GDP will now contract by 5% in 2009 (as compared to around minus 2.5% in France) and will the grow by about 1.2% next year. As a result net new borrowing is forecast by the latest government budget calculations to almost double next year to 86.1 billion euros from a record 47.6 billion euros this year. In an interview with Financial Times Deutschland, Jurgen von Hagen from the Institute for International Economics put it like this "Germany’s fiscal policy has been totally misguided, as it persistently ignored the inter-relationship between deficits and growth. Debt ceilings, such as the recently agreed constitutional change, do not work as they are too mechanistic, and lead to policy mistakes."<br /><br />Germany's debt to GDP is estimated at 79% for 2009 and 87% for 2010, up from 67% in 2008, according to the IMF (World Economic Outlook) and on October 7, 2009, the European Commission issued a formal warning about Germany's large deficit - normally the initial step before opening an excessive deficit procedure.<br /><br />To return German public debt to a sustainable path, UniCredit have calculated that the primary balance (budget balance minus debt interest payments on debt) would have to be increased by close to a full percentage point. This is equivalent to savings or additional revenues of almost EUR25 billion. To bring the debt ratio back below 60% in the next 20 years, the primary balance would have to be increased by 2 percentage points, and of course stay there (Unicredit research note, 25 June 2009) </p><p><strong>Keeping Credit Growth In France Under Control<br /></strong></p><p>In this post we have covered a lot of ground. We have:</p><p>a) suggested that the whole covergence idea (that all eurozone economies where converging to a common profile) did not offer an adequate description of the actually economic processes we can see on the ground, and that, in fact, the economic profile varies widely from one country to another. It is more a question of "vive la difference"</p><p>b) examined how, in terms of the Eurozone's two largest economies - France and Germany - the paths are very divergent. Germany has an export dependent economy, which has been severely savaged by the present deep recession, and recovery is fragile (Axel Weber's expression) and will remain so until other economies recover and export growth can resume. </p><p>c) seen that while both countries suffer from important structural problems in the public finances, with debt to GDP in both cases being around 90% of GDP in 2011, in fact the country which is likely to face the more extreme difficulties over the coming decade is likely to be Germany due to the more rapid population ageing which is taking place there and the excessive dependency on exports which this produces. </p><p>d) spelt out how the ECB may well now be facing its "finest hour", as it has to rise to the challenge of adapting a one size fits all interest rate policy to a world where one size evidently doesn't fit all, and where the danger of fuelling an excessive consumer boom in one country (France) will have to be set against the risk of sending the banking system of into meltdown in another (Spain). This is clearly the banking equivalent of being stuck between a rock and a hard place new tools and new thinking will need to be developed if we are to finally steer that path between the insatiable appetite of Scylla and the never ending thirst of Charybdis. </p><p>Finally, just to make all of this very concrete, lets take a look at the different rates of new credit creation as between French and Spanish households - courtesy again of one of those very useful charts prepared by Dominique Barbet and Martine Borde for PNB Paribas). As we can see in the following chart, annual growth in total household credit in France never went about around 11% to 12% during the boom, and has now not fallen much below 3% during the slump.<br /></p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfcGL7zJFDVOdVuKtSZ9gTZjp4zP4dT4KoNV8AvH8CHPbs5G51loBq3HkmVyw4UnlAdLAJ36ZnVbvJzb9iwL7Ka7xHi7NBoE84X0Boezo3qfVTzHqtb8sXX9Z65T847n3ZsvtsvLhjZ8lY/s1600-h/Credit+to+households.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 293px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396965310557499042" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfcGL7zJFDVOdVuKtSZ9gTZjp4zP4dT4KoNV8AvH8CHPbs5G51loBq3HkmVyw4UnlAdLAJ36ZnVbvJzb9iwL7Ka7xHi7NBoE84X0Boezo3qfVTzHqtb8sXX9Z65T847n3ZsvtsvLhjZ8lY/s400/Credit+to+households.png" /></a> In Spain in contrast, the annual rate of new household credit creation was more like 20% during the boom years, and this has steadily dropped since the start of 2007, and finally went negative in August (latest data). It is of course still falling. And this is the danger, that consumer borrowing in Spain remains weak (even as exports are lacklustre), while in France the excessively loose monetary conditions send consumers off to the banks to borrow and then on to the shops to spend.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDBNeebbwWPuOL9zP5uhiEFA7gE_z2D6IS58sjGHI0xZiGYATeyPrN-k6TL94fTN9eJ1BvYXKp-tY3sj5q7hqwWvvQB0Wg10b0A2zWvtHwhoKlhPuz3XSOBUZs-XSgcc_IG5nl0OKEQEM0/s1600-h/spain+bank+lending+to+households.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5396965573464041458" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDBNeebbwWPuOL9zP5uhiEFA7gE_z2D6IS58sjGHI0xZiGYATeyPrN-k6TL94fTN9eJ1BvYXKp-tY3sj5q7hqwWvvQB0Wg10b0A2zWvtHwhoKlhPuz3XSOBUZs-XSgcc_IG5nl0OKEQEM0/s400/spain+bank+lending+to+households.png" /></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-45840513428715378342009-09-30T06:21:00.000-07:002009-09-30T14:44:13.300-07:00Germany - The Bitter-Sweet Tears Of Angela von MerkelGerman voters gave Chancellor Angela Merkel the green light for a second term on Sunday, along with a clear mandate to form a new government with the liberal Free Democrat Party (FDP). But just what exactly is the new government likely to do? Merlek has been quick to pour cold water on any idea of early tax cuts, “I expect we’ll agree very quickly on tax policy, especially when you look at the leeway we have with the budget," she is quoted as saying.<br /><br />Angela Merkel's room for maneuver is limited by the fact that Germany has been steadily racking up debt to tackle the crisis. Only today the Federal Statistical Office have said that the deficit in the overall public budget increased to euro 57.2 billion in the first six months of this year from euro 6.9 billion a year earlier as spending rose sharply (8.1%) and revenue declined (1.7%). No figure was given as a proportion of gross domestic product, but it seems to be around 4.89% of the GDP registered in the first six months (unadjusted GDP was reported by the Federal Statistics Office as €1,168 billion over the same period).<br /><br />So, while the mood in Merkel's Berlin headquarters was naturally jubilant, the euphoria will not last too long, especially since things are not going to be anything like as simple as they may seem at first sight. The problem, of course, is an economic and not a political one. Simply put, Germany’s apparent recovery from recession may have come "just in time" to see Angela re- elected, but the good economic news may not last much longer than today.<br /><br /><strong>Europe's Economies Buoyant But Not Ebullient?</strong><br /><br />While talk of a Eurozone recovery continues unabated following a recent heavy slew of data, including the business surveys for September and the summer consumer spending numbers from France, which tend to suggest upside momentum. The data continue to support the idea of continuing recovery in the third quarter of 2009 but a more careful examination suggests that the German economy is not building up as much underlying momentum as was prviously hoped, and that sustaining this timid growth into 2010, especially as government stimulus programmes are pulled back, may prove to be hard work.<br /><br />In France, the latest household consumer data pointed to 1% monthly falls in spending in both July and August as a rebound in inflation and further job losses continued to weigh on consumption. The untick in French inflation while price index numbers remain lodged in negative territory in Spain, Ireland, Finland and even Germany, constitutes just one of the rapidly looming headaches for the ECB.<br /><br />The weaker French consumption trend was, however, offset by a fairly solid performance in both the industrial and service sectors, with the PMIs powering above the critical 50 level. Similar improvements were not, however, matched in Germany, where both the IFO survey, the Retail PMI and the Manufacruring and Serivices PMIs came in below expectations. So France, far from being a harbinger of things to come, may well turn out to be an exception in a region characterised by stagnation (at best) or continuing sharp contraction (Ireland, Finland, Spain).<br /><br />Just this cautiousness about the fagility of the recent stabilisation in the Eurozone was underlined by Bundesbank President, Axel Weber in an interview with Market News. Mr Weber was at pains to stress that he still considers the current level of interest rates to be appropriate and that it is still far too early “to exit the currently extremely loose monetary policy.” He also warned that the recovery will be “very sluggish”. Mr Weber placed considerable emphaisis on the behaviour of bank credit, stating he did not expect any turnround in the present decline before mid-2010. Clearly this is likely to be the decisive indicator for the ECB to begin withdrawing liquidity. “As we come out of this crisis and as the economy recovers and as the credit cycle turns, I think we do have an obligation to decisively counter long term inflation risks,” he said.<br /><br /><br /><strong>Germans Get Ready To Tighten Your Seatbelts<br /></strong><br /><br />If we come to examine the German situation in more detail, then we can see that M. Merkel's room for manoeuvre is going to be extremely limited indeed. Economic growth managed to scrape together a 0.3% increase in the second quarter, but this was driven by exceptional measures of 85 billion euros to lift spending and subsidize jobs, measures which surely helped keep unemployment below levels in many other OECD economies, even while the economy suffered the hammer blows of its worst post-World War II recession. However, the positive feedback impact from so much government spending can't continue like this, and Angela Merkel knows it, and she she also knows that it is either pain now or pain later, then my bet is she will use the political capital accruing from the first post election year to put the German house in order, in the hope of being able to offer some tax-cut based upside in the second half of her mandate.<br /><br />That is to say, if you are hoping for some more German consumer expansion tow to help pull your own local economy out of the mire, then I suggest you forget about it right now.<br /><br /><strong>Q2 GDP Growth A Statistical Quirk?</strong><br /><br />First off, the 0.3% growth obtained in the second quarter was actually the outcome of quite a complicated statistical balancing act. As is illustrated in the chart below the small final balance is actually obtained after cancelling out two much larger elements, the inventory run down (which subtracted 1.9 percentage points from the final total) and net exports which (which added 1.6 percentage points, where the positive balance was produced by a much larger drop in imports than the drop in exports).<br /><br /><br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-CpU5XsJoStYdYREaCxe_OCNZTRowg8ZmyxB-MNfWzSQRczvertJXbNVO38IR_HW9670UTZxtdxx4bNMdmISvspbhe_7ess-h1L_o3biQKdMD8MhTupUs48Mhz5wbEJ4-92OzHxa3peW9/s1600-h/Contributions+To+Growth.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5386560736229154274" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-CpU5XsJoStYdYREaCxe_OCNZTRowg8ZmyxB-MNfWzSQRczvertJXbNVO38IR_HW9670UTZxtdxx4bNMdmISvspbhe_7ess-h1L_o3biQKdMD8MhTupUs48Mhz5wbEJ4-92OzHxa3peW9/s400/Contributions+To+Growth.png" /></a><br /><br />So while it may not be absolutely correct to talk about a statistical "quirk", and while it is obviously true that there was some real growth, there was so much noise going on in the background that it is hard to know what importance to put on the headline numbers. As should be obvious it is very hard to attach too much importance to the ideat that houshold consumption added 0.4 percentage points when there are such large percentage swings impacting other items, and the fact that the trade impact was achieved by having exports down 1.2% on the quarter while imports were down 5.1% only adds to the lack of conviction which can be attached to the idea that "Germany has now returned to growth", even though this headline perhaps has sold more papers in recent weeks than virtually any other.<br /><br />In fact as should also be abundantly clear from the two charts below, the sharp fall in exports was largely halted in the second quarter, while the fall in imports continued, but again, it really is stretching the point a bit to call this a solid return to growth.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh98SxB_by9Z_u9PKmJrQydUyyixImInN6sXDROID0tf4iaxWHvvtvktcvOM-AxW804bqf1TYFoWbNO3KXXaLHNflabRsQ8fEEC2IiLVWT_HHsinQbAP4piXge9oKrLdcpHdjcTsBo-LHgw/s1600-h/German+exports+index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5386611255919852658" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh98SxB_by9Z_u9PKmJrQydUyyixImInN6sXDROID0tf4iaxWHvvtvktcvOM-AxW804bqf1TYFoWbNO3KXXaLHNflabRsQ8fEEC2IiLVWT_HHsinQbAP4piXge9oKrLdcpHdjcTsBo-LHgw/s400/German+exports+index.png" /></a><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2OY3xJIPnxg3DxDse5ZvAsvGeBp8-xap93CIXPKEe815oianrtch0hWbFlRx9k3hiEtG_mXeeptY0p0oxMcSzNdWY02GiW4910RIHvYKuUPUEBSyEQECJ0ujcfqpQ7Jm7nGe2lwJ47cGa/s1600-h/german+imports+index.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 247px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5386611111457554562" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2OY3xJIPnxg3DxDse5ZvAsvGeBp8-xap93CIXPKEe815oianrtch0hWbFlRx9k3hiEtG_mXeeptY0p0oxMcSzNdWY02GiW4910RIHvYKuUPUEBSyEQECJ0ujcfqpQ7Jm7nGe2lwJ47cGa/s400/german+imports+index.png" /></a></p><br /><br />So with the stimulus programme now steadily set to come off from this point on, and unemployment looking certain to jump and consumer spending to drop as we enter 2010, and with many companies continuing to warn of a credit crunch, while debt remains at very high levels, policy makers would seem to be left with few options to counter any eventual double dip should there be no sharp upturn in world trade. In fact the German economy will never recover on the back of domestic demand, which is weak, and tends to lag behind movements in exports and in GDP. So really a full fledged German recovery must await recovery elsewhere, and in the meantime we are left with simply marking time.<br /><br /><br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgT68K0VtQamELDrx2sprKXEc0DXxtRW3DlW1jFOfQjZYX5R0_lv6ynP59ePia9y-S3hH8OrwoCLJvmgKAwOn2OT7y049JyU9wbYTQTJde8cRmsj1xtUSPfaKWf1MhKP8k3Sj9DL9R7bdsw/s1600-h/german+GDP+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387251044623640210" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgT68K0VtQamELDrx2sprKXEc0DXxtRW3DlW1jFOfQjZYX5R0_lv6ynP59ePia9y-S3hH8OrwoCLJvmgKAwOn2OT7y049JyU9wbYTQTJde8cRmsj1xtUSPfaKWf1MhKP8k3Sj9DL9R7bdsw/s400/german+GDP+consumption.png" /></a><br /><br /><br /><strong>Germany's Economy "Returns To Growth" in the Second Quarter</strong><br /><br />German second-quarter real gross domestic product rose 0.3% from the first quarter, when it fell back 3.5% from the previous one.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKLgc1TWgZp_RKu9GHKyXphgle-5lvuNTFdkepSOwO3eaEf1DTitiLEibZisg90QPQ9fe39JMXqcQtpJMevotjgfdWE02xZ0OLEYap7mlae7xwKxeSAOdRYnTwWxU-88P7HJbl_NrJ2efe/s1600-h/german+gdp+2.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387251868358520402" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKLgc1TWgZp_RKu9GHKyXphgle-5lvuNTFdkepSOwO3eaEf1DTitiLEibZisg90QPQ9fe39JMXqcQtpJMevotjgfdWE02xZ0OLEYap7mlae7xwKxeSAOdRYnTwWxU-88P7HJbl_NrJ2efe/s400/german+gdp+2.png" /></a><br /><br />Year on year the economy was down 5.9% in the second quarter. Exceptional stimulus measures amounting to some 85 billion euros have so far helped spending hold up and made it possible to keep people on short time working, but this situation obviously cannot continue much longer and even Germany’s 5 billion-euro “cash-for- clunkers” program has now come to an end. The premium led to a 23 percent increase on spending on vehicles during the first six months of 2009, spending which evidently had a lot to do with the second-quarter rebound. The unemployment rate is set to jump to 10.3 percent in 2010 from 8.1 percent this year, according to the latest IWH institute forecast. The also predict that consumer spending will drop 0.7 percent in 2010 after growing 0.5 percent this year.<br /><br />And the most recent data results are only likely to add to policymakers’ concerns about the sustainability of Germany’s recovery. The country’s economy is still expected to shrink by about 5 per cent this year, with the under-utilisation of capacity bound to feed through into higher unemployment – which in turn will act as a further constraint on growth.<br /><br />And as if to offer yet more evidence that the crisis is far over, the VDMA industry group said this week that orders for German machinery and factory equipment were down 43 percent on the year in August.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNiTzqAMYypKBZMeqGU9YPO-tzCiferm4amDZRdZ1cvGO0S3iELoGhkB8tOrsNLQUgAY4tTUmCTUXm5dueTk9kclj3ygZOu6RagH0ViqdYEKcqdVmSCNqHk9xnFPTiPNVrh_lHKxsLk6RR/s1600-h/german+GDP+1.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 206px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387251794456672290" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNiTzqAMYypKBZMeqGU9YPO-tzCiferm4amDZRdZ1cvGO0S3iELoGhkB8tOrsNLQUgAY4tTUmCTUXm5dueTk9kclj3ygZOu6RagH0ViqdYEKcqdVmSCNqHk9xnFPTiPNVrh_lHKxsLk6RR/s400/german+GDP+1.png" /></a></p><p></p><p><strong>Export Dependent For Growth</strong></p><p>Domestic demand is congenitally weak, and lags behind export and headline GDP gowth. As a result it is not especially surprising to find that retail sales fell for a the third consecutive month in July. Sales, adjusted for inflation and seasonal factors, decreased 0.8 percent from June when they fell 1.8 percent from May. From a year earlier, sales fell 0.7 percent, but this number is not especially significant, since, as can be seen in the chart, German retail sales have now been in decline since 2006. </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCkqeygZnrYG7ovEtyPsOaxQOZ5EHOSROpyVsz1We2O7rXnNe4EbgvMTmQTLVXD8Jedm2xvxa4alYe4qMBBy559RKJ_zEWIrvkNzKzRD4jJYRdJLfV1Leo9WQwl3nrABNKK6HSuHIob_6o/s1600-h/retail+sales.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 231px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387321129184408530" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCkqeygZnrYG7ovEtyPsOaxQOZ5EHOSROpyVsz1We2O7rXnNe4EbgvMTmQTLVXD8Jedm2xvxa4alYe4qMBBy559RKJ_zEWIrvkNzKzRD4jJYRdJLfV1Leo9WQwl3nrABNKK6HSuHIob_6o/s400/retail+sales.png" /></a><br /><br />Spain's retail sales fell again in September, according to the Markit Retail PMI which came in at 47.9, disappointingly weaker that the 49.5 reading registered in August. The index has been below the neutral 50.0 value during every month since June 2008, and the latest reading pointed to the sharpest rate of contraction for three months. Anecdotal evidence attributed the drop in like-for-like sales to weak economic conditions and subdued willingness to spend among consumers. There were also a number of reports in the autos sector that the end of the government’s ‘cash for clunkers’ scheme had contributed to lower sales compared with the previous month.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXrWW5_Vq_eJpUbcQX9upMwYKln8mLxAkOWThyRvOPBq-kfWbR3QaZ2x78aZYPibgOWwHQbEd5n2ik7iB0AmcK_lNrWSjWigCzRSSB1rrbKflK3tFck3e59InqUgWJcn8AlKFmNdJ-JKcc/s1600-h/Germany.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387321949202683170" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXrWW5_Vq_eJpUbcQX9upMwYKln8mLxAkOWThyRvOPBq-kfWbR3QaZ2x78aZYPibgOWwHQbEd5n2ik7iB0AmcK_lNrWSjWigCzRSSB1rrbKflK3tFck3e59InqUgWJcn8AlKFmNdJ-JKcc/s400/Germany.png" /></a></p><p></p><br /><br /><br />Despite some slight uptick in houshold consumption, overall domestic demand, which includes both final consumption expenditure and gross capital formation (including changes in inventories), was down by 2.5% in Q2 over the same period in 2008. A large part of this decrease was due to the performance of gross capital formation, which was down by 16.0% year on year. The massive slump in real capital formation in machinery and equipment therefore continued and even accelerated in Q2, with German enterprises reducing their capital formation in machinery, equipment and vehicles by 23.4% compared with the second quarter of 2008. And the trend looks set to continue, if the latest report from the Frankfurt-based VDMA machine makers associationis anything to go by. VDMA said German plant and machinery orders declined 43 percent in August from a year earlier. Export orders slumped 41 percent and domestic orders dropped 45 percent.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0gsD0hiIvJTcL083gzxHLMC9L3OUS98Vyv-jhcHqnvmUqWX7SjGOMvCMlBntPJ2oGigmcFJLRHtqbXr3mngicxlnI6vHmREpL8ddi8oe9-yPYrh9Ndu2OIiofBeNoqLwYYsJpOikoKYdu/s1600-h/machinery+and+equipment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 250px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387324672533237346" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0gsD0hiIvJTcL083gzxHLMC9L3OUS98Vyv-jhcHqnvmUqWX7SjGOMvCMlBntPJ2oGigmcFJLRHtqbXr3mngicxlnI6vHmREpL8ddi8oe9-yPYrh9Ndu2OIiofBeNoqLwYYsJpOikoKYdu/s400/machinery+and+equipment.png" /></a><br /><br />Looking into the third quarter German exports rose for a third month in July as global trade picked up generally. German sales abroad, adjusted for working days and seasonal changes, increased 2.3 percent from June, when they jumped 6.1 percent. Exports were still down 18.7 percent from a year earlier.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjr5symcphbnayCjmNv8MDBGdMIwHXXfvO8aCzrzKuTuKEpzoFU90otb5BwQnV-aJTpB-g5k2ITUrOsEyE_eP1T9Kb3daHt3nfLrrmk_dOa4vr0wD-7e9t_y3AlWok7abvceMlne_p4t4IY/s1600-h/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 215px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387336650618639122" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjr5symcphbnayCjmNv8MDBGdMIwHXXfvO8aCzrzKuTuKEpzoFU90otb5BwQnV-aJTpB-g5k2ITUrOsEyE_eP1T9Kb3daHt3nfLrrmk_dOa4vr0wD-7e9t_y3AlWok7abvceMlne_p4t4IY/s400/german+exports.png" /></a><br /><br />Imports remained unchanged from June, when they increased 5.9 percent. As a result the trade surplus increased to 13.9 billion euros from 12.1 billion euros in June. The surplus in the current account, the measure of all trade including services, was 11 billion euros, down from 13.5 billion euros in June. But all in all, the balance during the first moth of the third quarter was positive, even if only marginally so.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_y9kPgp-3LgQRkgjgXAqXXNwII4w65pVZqCfpDOUAz86H9ai2wtmPd2ZyJhNAyVbZ-VQmq0JP2_z44ssDyNWvuko_TGXx3zH6uVHigNkemxRNi5YNOArBmusElpHgYDwjQ-sEbT2R8tdj/s1600-h/German+Imports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387337842000416370" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_y9kPgp-3LgQRkgjgXAqXXNwII4w65pVZqCfpDOUAz86H9ai2wtmPd2ZyJhNAyVbZ-VQmq0JP2_z44ssDyNWvuko_TGXx3zH6uVHigNkemxRNi5YNOArBmusElpHgYDwjQ-sEbT2R8tdj/s400/German+Imports.png" /></a><br /><br />On the other hand, industrial production output numbers for Junly tempered hopes for a further rebound, since they fell back a seasonally asjusted 0.76 per cent compared with June’s figures, according to Eurostat. According to the German Technology Ministry the strongest performing sectors in recent months have been those producing investment goods and “intermediate” products, shipped for completion elsewhere.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL-FYe4s_P53VyxRKiAaDxSYdQnxlOhlnDVnveWA3yUz5SUYYuyGDhvMF_O0QpVAChGyAUCizt7nFhgxE19T6gpS7g0BR07iTO_xAS07_4opuyuK2t7R86Qu2ruJXku-vd_imW_8PpxlU-/s1600-h/IP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 235px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387339948824025170" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL-FYe4s_P53VyxRKiAaDxSYdQnxlOhlnDVnveWA3yUz5SUYYuyGDhvMF_O0QpVAChGyAUCizt7nFhgxE19T6gpS7g0BR07iTO_xAS07_4opuyuK2t7R86Qu2ruJXku-vd_imW_8PpxlU-/s400/IP.png" /></a><br /><br /><br /><strong>PMIs Suggest Germany Pulled Back In September</strong><br /><br />Eurozone Flash PMIs generally showed a continued improvement in operating conditions in September, although the rate of improvement slowed somewhat, and indeed the German private sector slipped back even if it continue to maintain a general expansion. France did generally rather better. However, this does start to suggest that the easy part - stopping the slide - may now be over. We have stopped the fall, but restoring growth may well prove to be a very tough nut to crack indeed.<br /><br />The Markit Flash Eurozone Composite Output Index - based on a sample of around 85% of the normal monthly survey - edged up from 50.4 in August to 50.8 in September, signalling a marginal increase in private sector output for the second successive month. The flash German Composite Output Index stood at 52.2 ( following 54.0 in August), a 2-month low.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgm2Ry1YfZvn0O1bH5PreJ5SKrTjZFSBn2rGyvhdvWO03F-89iKLzx1NCvWL-FyTGxNy0XbBILjTgCuZziOfnXH4_bwEu1XxFz8K99uJiRYBINfAWhiUmD7NRSnb2yKEjVDXNZJ3iEwU_R-/s1600-h/german+composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387345100427363378" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgm2Ry1YfZvn0O1bH5PreJ5SKrTjZFSBn2rGyvhdvWO03F-89iKLzx1NCvWL-FyTGxNy0XbBILjTgCuZziOfnXH4_bwEu1XxFz8K99uJiRYBINfAWhiUmD7NRSnb2yKEjVDXNZJ3iEwU_R-/s400/german+composite.png" /></a><br /><br />Manufacturing new export orders weakened slightly in September, but growth on average in the third was the most pronounced since the first quarter of 2008. Anecdotal evidence suggested that overall demand had improved as a result of more favourable economic conditions and a corresponding rise in confidence among clients. Moreover, a number of investment goods producers pointed to increased exports to emerging markets in Asia.<br /><br />The German flash Manufacturing PMI came in at 49.6 (49.2 in August), a 13-month high, but still just shy of the critical frontier separating overall expansion from contraction.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAk3GucMaP3oh64ky1P3ttcY3exdmVX7hI_X8zRG2Mc6bzVn2mMm4iRndgu3PHKBv81Nt-tuau0q5iZG1y6L87o2W6zmAEsjbnV5_79SPn9wssM7hYItjc1VAJAuj9DrKATm98795HPYIM/s1600-h/german+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 218px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387348114664952290" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAk3GucMaP3oh64ky1P3ttcY3exdmVX7hI_X8zRG2Mc6bzVn2mMm4iRndgu3PHKBv81Nt-tuau0q5iZG1y6L87o2W6zmAEsjbnV5_79SPn9wssM7hYItjc1VAJAuj9DrKATm98795HPYIM/s400/german+manufacturing.png" /></a><br /><br />Commenting on the Markit Flash Germany PMI survey data, Tim Moore, economist at Markit said:<br /><br /><blockquote>“The German economy ended the third quarter with output levels still moving in the right direction, supported by the fastest rise in new business since June 2008 and a rebound in business sentiment. PMI data suggest that the economy continued to expand in Q3, but the latest figures point to below-trend growth and only a gradual recovery. Job shedding and cost cutting measures were prevalent in September, while firms were forced to reduce their charges further, suggesting that the outlook for private sector demand remains subdued.”</blockquote><br /><br /><br />The German Flash Services Activity Index came in at 52.2 (53.8 in August), again a 2-month low. And the weakening in German activity seems to have been concentrated in the services sector. Service providers were again upbeat about the outlook for the next twelve months. The balance of firms expecting a rise in business activity was the highest since January 2006, largely reflecting optimism that economic conditions will gradually improve in the year ahead.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjO4bmzX6gUftMHnJmWQgBfscOLwYZQZCyie3U0PfFIjAWRXqsqXQ9peumVjWwLssoGAk0QeILw5VTv2b-3e0_lbtf8kuYB1JtUgdlP51AZOMT3ZJgCIf10iF6Mrax88j1rzuE-YZLqMDx3/s1600-h/German+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387350495426397074" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjO4bmzX6gUftMHnJmWQgBfscOLwYZQZCyie3U0PfFIjAWRXqsqXQ9peumVjWwLssoGAk0QeILw5VTv2b-3e0_lbtf8kuYB1JtUgdlP51AZOMT3ZJgCIf10iF6Mrax88j1rzuE-YZLqMDx3/s400/German+Services.png" /></a><br /><br />Nonetheless, private sector companies remained cautious in their staff hiring decisions in September. Overall employment levels fell for the twelfth successive month, largely reflecting a marked decline in the manufacturing sector. Job cuts were linked to output and demand remaining at relatively low levels, with the recent change of direction not yet sufficient to prevent staff restructuring. Furthermore, backlogs of work decreased for the seventeenth month running, suggesting that firms had adequate staffing levels for existing workloads.<br /><br /><strong>Plenty Of Confidence Around Though</strong><br /><br />German investor confidence jumped again in September,to hit yet another three year high as stocks surged and election day approached. The ZEW Center for European Economic Research said its index of investor and analyst expectations rose to 57.7 from 56.1 in August. The benchmark DAX index has now rebounded 52 percent from its March trough and reached the highest level in almost a year last week. At roughly the same moment the survey result was released the European Commission forecast that the German economy woul barely grow in the fourth quarter after expanding an anticipated 0.7 percent in the third one. My feeling is the Q3 estimate is too high, but the fourth quarter prognosis seems very realistic.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqYy_DCQeDiIE4mqRR6d1f6nvaO4LBXLIBD9LeB1kySiviFJTgp6CAcdvgvVBMKzhBmY9QXwcqbT9ekmMKEr5cn6iMMXXE86Bzh3iSp1DDamhuyjTpBI47SkN1coaiveKdeBlVhsajtQcb/s1600-h/german+zew.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387356165424857026" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqYy_DCQeDiIE4mqRR6d1f6nvaO4LBXLIBD9LeB1kySiviFJTgp6CAcdvgvVBMKzhBmY9QXwcqbT9ekmMKEr5cn6iMMXXE86Bzh3iSp1DDamhuyjTpBI47SkN1coaiveKdeBlVhsajtQcb/s400/german+zew.png" /></a><br /><br />German consumer confidence rose to a 16-month high as the economic recovery boosted households’ income expectations and willingness to spend. GfK AG’s sentiment index for October, based on a survey of about 2,000 people, increased to 4.3 from a revised 3.8 in September, the Nuremberg-based market-research company said in a statement today. That’s the highest reading since June 2008. GfK’s measure of economic expectations turned positive for the first time since June 2008 and jumped to 3.4 from minus 7.5. A gauge of income expectations rose to 16 from 8.8 and an index of consumers’ propensity to spend increased to 36.5 from 31.1.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj83rXVVVcApc7vMroIoCY3C3PWR48EVMAgzY0-5furAvC4JcskQ-VVpiM-p3QfPLUAP6xEJQkIh0u4ZH2w7g0cFaRfIrR6IJKZVf_5IyoHf40fBfWY5VJPvBqZ9QqRGnBnbwV2bqJz7oNf/s1600-h/consumer+confidence.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 198px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387360192537604802" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj83rXVVVcApc7vMroIoCY3C3PWR48EVMAgzY0-5furAvC4JcskQ-VVpiM-p3QfPLUAP6xEJQkIh0u4ZH2w7g0cFaRfIrR6IJKZVf_5IyoHf40fBfWY5VJPvBqZ9QqRGnBnbwV2bqJz7oNf/s400/consumer+confidence.png" /></a><br /><br />However it is possible to detect signals thatGermany’s economic recovery is losing momentum to some extent since business confidence rose less than expected in September, and this on the back of the weaker than expected PMI readings certainly serves to highlight the fragility of the growth recovery in Europe’s largest economy.<br /><br />The Munich-based Ifo institute reported its business climate index rose from 90.5 in August to 91.3 in September. That was the highest reading since September last year, when Lehman Brothers collapsed in the US. But it fell short of many economists’ expectations, suggesting that at least some of the recent optimism about Europe’s largest economy may have been overdone.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMzDtmjug4ZOZFv0sAXeypT5tzNMkLkR68hdK8tC-dKsw0gGVjbrzRQR2STaH-avfwcuFuyRfj63keK8ryLRfgqFoMLvEePDZk_53xzS1MRAnSeQtAGz5266pWJ4NuW5n64dhkNi9Mvzdu/s1600-h/German+IFO.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 246px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387360966057797986" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMzDtmjug4ZOZFv0sAXeypT5tzNMkLkR68hdK8tC-dKsw0gGVjbrzRQR2STaH-avfwcuFuyRfj63keK8ryLRfgqFoMLvEePDZk_53xzS1MRAnSeQtAGz5266pWJ4NuW5n64dhkNi9Mvzdu/s400/German+IFO.png" /></a><br /><br />The rate of increase in the Ifo index certainly slowed markedly in September. Hans Werner Sinn, Ifo president, pointed out that most companies still regarded current business conditions as poor, and that the rise in the index had been driven largely by the component covering businesses’ expectations for the next six months – which has risen for nine consecutive months to the highest level since May 2008.<br /><br /><br /><strong>Employment Falling As Unemployment Slowly Ticks Up</strong><br /><br />German unemployment declined in September, but the fall was due to a seasonal upturn and statistical effects rather than any fundamental economic improvement.<br /><br />The unadjusted jobless rate was 8 percent, down from 8.3 percent in August.<br /><br />A total of 3.346 million people were registered as unemployed — 125,000 fewer than the previous month but 266,000 more than in September 2008.<br /><br />In seasonally adjusted terms, the unemployment rate dipped to 8.2 percent from 8.3 percent, with 12,000 fewer people out of work than in August. Economists had forecast an increase of 20,000. The labor agency drew attention to the fact that the number would have risen by 10,000 but for a change made earlier this year under which those being trained by private job agencies were removed from the jobless figures.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPKGw8Vw4taBl7yk91G0x-zrcZT6X5W4QdW_PF6qcNqtk7NF0vfcCYACUVk9dqLIzJ-JZZdhQvMlqN1KRw-XzkTYLiVTEwrW9l8xDc671_JPCRCsNbGkRWtQY43zP3PUTqFVbpeUmgvEXp/s1600-h/unemployment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 239px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387362227554356130" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPKGw8Vw4taBl7yk91G0x-zrcZT6X5W4QdW_PF6qcNqtk7NF0vfcCYACUVk9dqLIzJ-JZZdhQvMlqN1KRw-XzkTYLiVTEwrW9l8xDc671_JPCRCsNbGkRWtQY43zP3PUTqFVbpeUmgvEXp/s400/unemployment.png" /></a><br /><br />At the same time the number of those employed is falling, and there were 40.01 million people in employment in Germany in August 2009. Compared with the previous year, this was a decrease of 216,000, or 0.5%. In fact the German job machine ran out of steam last autumn, and since that time has been adding jobs at an ever slower pace. Now it has turned negative, and less Germans are employed every month than they were a year earlier.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCfg_1Yt1797ctfRgRRsjGmRMuIRW9wq0nW5_2qLcj6Va8WQ-8FUjrOr3eD9LIJwg8woD0ZjmeGvAGvhpWDwr8JJjmfnOOzfCcrIZKrS8VvpRD9k6L_-zwVUrTIz2xaSY_BimwyzlpHm31/s1600-h/employment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 241px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387362835992594306" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCfg_1Yt1797ctfRgRRsjGmRMuIRW9wq0nW5_2qLcj6Va8WQ-8FUjrOr3eD9LIJwg8woD0ZjmeGvAGvhpWDwr8JJjmfnOOzfCcrIZKrS8VvpRD9k6L_-zwVUrTIz2xaSY_BimwyzlpHm31/s400/employment.png" /></a><br /><br />Jobs have been subsidized by the Federal Labor Agency, which pays 60 percent of the net wage that’s lost due to reduced working hours. The program, extended to 24 months in May from 18 months, supported about 1.4 million employees at some 50,000 companies as of June.<br /><br />As compared with July 2009, there was hardly any change, with the number in employment even rising slightly - by 11,000 (0.0%). But after seasonal adjustment the number in employment dropped by 57,000 (–0.1%) from July to August 2009. In July 2009, the seasonally adjusted number of persons in employment declined by 30,000 (–0.1%) on June.<br /><br />Given the scale of the current economic crisis, the decline in the employment observed in Germany over the last year has been quite moderate. As the statistics office point out the fact that many employees were placed on short-time working significantly reduced the negative effects of the fall in output on employment.<br /><br />So far, unemployment has been kept in check because many employers have used government-supported short-time working arrangements - Kurzarbeit - rather than laying off workers. However, this is now widely expected to be gradually wound down and hence the number of unemployed will rise significantly over the next year.<br /><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixpkVtI1pij-VGC2mgIXnvpUoiyp5Oz0mIS80g_7QtXT_ufsWLDHgizTJz9hB1_zpeJbk3-lhCsdzFI0gw6SKp0mBlJzItCr47wdWBZJ6KA2hhN3zkn-AA38c1R4ShWDFg11vLpZjDp-re/s1600-h/employment+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 231px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387363128283763570" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixpkVtI1pij-VGC2mgIXnvpUoiyp5Oz0mIS80g_7QtXT_ufsWLDHgizTJz9hB1_zpeJbk3-lhCsdzFI0gw6SKp0mBlJzItCr47wdWBZJ6KA2hhN3zkn-AA38c1R4ShWDFg11vLpZjDp-re/s400/employment+two.png" /></a><br /><br /><br /><strong>So How Long Can Kurzarbeit Continue To Run?</strong><br /><br />Well the good news, at least according to analysts at Societe Generale is a good deal longer than many seem to think. The analysts examined the working of the German employment protection programme, and show clearly that while official unemployment in Germany has in fact only risen moderately in the current recession the underlying real effective rate is much higher. The unemployment rate (using the ILO measure) has risen by just 0.6ppt - to 7.7% from its 7.1% low in Q4 2008, while in the euro area as a whole, the rate is up by 2.4ppt to 9.6% from its March 2008 low of 7.2%. As they say, it is also quite clear that this relative stability owes much to the widely-used practice of so called short-time working (Kurzarbeit).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmhWGlhXes0GFFGSv3WrzgWLydGNjbqajXtI2jisAvOQPVsSgE9ipsP99BUGtMXUzLDgnuAzcOhoRndASA7hnXKN_c0PXLaZaDZfvp3b9o9Yp6iWrIzITuq528hvUSmOGWJsDjz-dcgRik/s1600-h/short+time+working+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 280px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387363717360240034" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmhWGlhXes0GFFGSv3WrzgWLydGNjbqajXtI2jisAvOQPVsSgE9ipsP99BUGtMXUzLDgnuAzcOhoRndASA7hnXKN_c0PXLaZaDZfvp3b9o9Yp6iWrIzITuq528hvUSmOGWJsDjz-dcgRik/s400/short+time+working+two.png" /></a><br /><br />As the SocGen analysts point out, this relatively benign situation could easily turn nasty if company employment intentions deteriorate significantly and growth expectations get revised down. However they are not that convinced by this line of argument, since they think that since German legislation has already extended the period for which companies can run short-time working from 18 to 24 months the programme is pretty firmly supported.<br /><br />Examining in detail the evolution of the numbers on short-time working they find that the vast majority of companies only resorted to the programme in the spring, so that the 24 month limit will not bite until late-2010. Until the turn of the year 2008/09, the recourse to short-time working was very small indeed. Aside from the seasonal increases in the first quarters of 2007 and 2008, the numbers were small at around 50,000. To put the number in context, they point out that this represents 0.1% of the labour force and is equivalent to the monthly gains in unemployment that were recorded this year. Since then, the numbers resorting to the programme have indeed exploded and by March of this year (the latest available data), there were 1.3 million workers with shortened hours, and this number has probably now risen to around 1.4 million. These are clearly big numbers, amounting to about 3% of the labour force. If they were added to unemployment figures, total unemployment would rise to the previous historic peaks of around 5 million.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8ZiwWAFfmnV2er0eqmmOvsjr0fUqZhpoK87nzWdWKx9yXeb62X0CprCEWN0KYyHwGtlC5Xa8lVjkSxdfllJYVbqpkNPRdbaXRWZhUKsnU6g2sVftzYKRJDiHTTZ4OJnHhScgsE5v7K0xp/s1600-h/short+time+working.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 285px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387363577444248914" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8ZiwWAFfmnV2er0eqmmOvsjr0fUqZhpoK87nzWdWKx9yXeb62X0CprCEWN0KYyHwGtlC5Xa8lVjkSxdfllJYVbqpkNPRdbaXRWZhUKsnU6g2sVftzYKRJDiHTTZ4OJnHhScgsE5v7K0xp/s400/short+time+working.png" /></a><br /><br /><br /><strong>Deflationary Winds Blowing?</strong><br /><br />The German consumer price index declined by 0.4% in September 2009 over september 2008, maintaining pressure on existing deflation concerns. Germany as a whole has never seen such a low inflation rate since German reunification.<br /><br />The harmonised consumer price index for Germany, which is calculated for European purposes, is expected to decrease by 0.4% in September 2009 on September 2008 (August 2009 on August 2008: –0.1%). Compared with the Augus the index is expected to be down by 0.4% in September.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXXMeTwLWqPhY6NPpCnn3ftLRdq6ZpvMNHDkFO97LaWhKcKYEa_1aZv3zu3nKiuKcIjvmav2mA1-HgL3l1KsZTcgJfvzPOlYJFGVbFmrk65Gb_VaGdlQsBaLBqVNAg42DjkoWhWXvTRSeh/s1600-h/german+CPI.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 225px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387366663502344610" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXXMeTwLWqPhY6NPpCnn3ftLRdq6ZpvMNHDkFO97LaWhKcKYEa_1aZv3zu3nKiuKcIjvmav2mA1-HgL3l1KsZTcgJfvzPOlYJFGVbFmrk65Gb_VaGdlQsBaLBqVNAg42DjkoWhWXvTRSeh/s400/german+CPI.png" /></a><br /><br />And producer prices are also falling, with the index of producer prices for industrial products falling by 6.9% in August from August 2008. In July 2009, the annual rate of change was –7.8%. Compared with the preceding month, the index rose by 0.5% (as compared with –1.5% in July 2009).<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-BceZhexmJr_JSlJDaLjyOAoc01BXrDXjZNXJjL-3yOkaQtHmEV8bP48UxqQypmhe-HUYQQMFCXl-lYwIMnUvyT6Nda0X5oynxTIokm6GW26oIKt8fsucvcPlSsfInQGo6wyo2AKKNGGL/s1600-h/german+producer+prices.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 219px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5387366869420789106" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-BceZhexmJr_JSlJDaLjyOAoc01BXrDXjZNXJjL-3yOkaQtHmEV8bP48UxqQypmhe-HUYQQMFCXl-lYwIMnUvyT6Nda0X5oynxTIokm6GW26oIKt8fsucvcPlSsfInQGo6wyo2AKKNGGL/s400/german+producer+prices.png" /></a><br /><br />Meantime the ECB continues to try to offer abundant liquidity to get credit and economic activity moving again, though there seem to be few takers.<br /><br />The European Central Bank is lending banks less money than economists forecast in its second 12-month auction of unlimited funds, held on September 30, suggesting banks’ need for cash has eased for now.<br /><br />Banks bid for 75.2 billion euros at the current benchmark interest rate of 1 percent. The ECB loaned a record 442 billion euros at the first auction in June and economists had forecast demand for 137.5 billion euros this month.<br /><br />The ECB, which will offer banks 12-month loans for a third time on Dec. 15, is trying to flood the system with money in the hope it will be lent on to companies and households. Liquidity, liquidity everywhere, but not a drop of inflation in sight.<br /><br /><strong>In A Tight, And Embarassing Corner?</strong><br /><br />Angela Merkel did not mince words at last weekends G20, warning fellow world leaders not to make the fight against global imbalances the central issue of the meeting. With Sunday's election looming she came close to accusing the US and Britain of backtracking on the issues of financial market regulation and global limits on bonuses for bankers by shining the spotlight on the export-oriented economic policies of Germany and China.<br /><br /><br />“We should not start looking for ersatz issues and forget the topic of financial market regulation,” she said in one of her speeches, “We cannot afford to neglect this issue now....Imbalances are an issue, but we must look at all the factors . . . We must talk about imbalances and name the reasons why they came into being.”<br /><br />“We should also look at imbalances between currency regions and not pick on specific countries within the eurozone,” she added, referring to criticism from the US that Germany is not doing enough to support its domestic demand.”<br /><br />"In terms of handling the aftermath effects of the financial crisis, the biggest problems and the deepest pitfalls are yet to materialize," according to Munich-based Unicredit economists Alexander Koch and Andreas Rees "It is very likely that typical lagging indicators like the labor market and the public deficit will still deteriorate markedly next year," and "big question marks" remain over the sustainability of the recent upswing.<br /><br />A fiscal "exit strategy" is needed to avoid ballooning public debt, set to pass 5% of GDP this year, and even more during 2010. At the same time Merkel want to create a growth-friendly environment for consumers and companies by lowering the tax and social security burden. This balancing act is going to be hard, very hard, in a worl dwhich may just not allow Germany to run up the sort of trade surpluses she has been living from.<br /><br />The German deficit is forecast to rise to 6% of gross domestic product next year, double the amount allowed under normal circumstances under European Union rules. Germany is still expected to see full-year gross domestic product shrink by around 5% in 2009.<br /><br />One of the main acts of the outgoing government was the introduction of a debt ceiling, under which the German constitution now limits federal government borrowing to 0.35% of GDP by the time we reach 2016. What this means is that the new government will really have its work cut out if it wants to reduce the budget deficit and cut taxes at the same time. The only way will likely be via serious spending cuts. Some of these cuts may well come in the area of social benefits, possibly in health care, where the FDP is proposing a basic private insurance, with subsidies for those who cannot meet the costs. On the other hand, the CDU/CSU is essentially committed to maintaining the status quo, having already abandoned its more radical health care reform ideas. This more or less guarantess that a sizeable chunk in savings will have to come in the area of pension benefits, where the CDU/CSU is committed to the planned gradual increase in the pension age to 67.<br /><br />Angela Merkel faces no easy task. She has to manage the exit from the massive fiscal stimulus and financial rescue packages,she has to ensure that the post-crisis economy is a more resilient and more balanced one, she has to address the long-standing issue of an ageing German society where generational inequality is on the rise and where younger generations are now burdened with an even higher debt level. And she has to do all this while keeping alive a coalition with a Free Democrat Party whose proposals on pension reform while certainly far reaching, still raise serious doubts about whether they will be sufficient to address the pension time bomb that is ticking away under an elderly export dependent society whose generous entitlements to pension benefits, healthcare and long-term care are becoming harder and harder to square with the long run growth performance of the German economy.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-47603079907036192582009-08-30T08:37:00.000-07:002009-08-30T08:39:50.718-07:00What Is The Real Level Of Unemployment In Germany And Japan?With Japan having general elections today and Germany facing them next month, I though now might be as good a time as any to have a look at a topic which could turn out to be very important in the months to come: the real underlying rate of unemployment in both these countries.<br /><br />While the present focus of most press attention is on the fact that GDP in Germany and Japan nudged upwards between April and June (over Q1), we should never forget that this increase follows substantial falls in output. Japan’s real GDP fell at a record pace in Q4 2008 and Q1 2009 (annualized declines of 13.5% and 14.2%, respectively), and German GDP fell by a quarterly 3.5 percent in Q1 and an annual 6.7% - making for the fourth consecutive quarter of negative growth. In both cases the fall in output was accompanied by only a much more moderate decline in employment.<br /><br />Part of the explanation for this recent return of both economies to growth lies in the fact that both countries have very substantial stimulus and employment protection programmes in place, and these to some extent mask the extent of the output slump. At the same time both countries have been in run up periods to national elections, while both of them have rapidly ageing populations, rising health and welfare costs and steadily deteriorating gross debt to GDP positions. It is therefore highly likely that the positive stimulus programmes will wane somewhat after October as both governments are forced to move from very expansionary fiscal positions, to more or less "belt tightening" ones, and the big issue which lies in front is estimating just how far the respective labour markets can deteriorate in the two countries as a result. Fortunately analysts at Nomura (for Japan) and Societe Generale (for Germany) have recently produced what are very timely studies which help us get a better appreciation of the true underlying situation.<br /><br /><br /><strong>Japan's Sruggles To Raise Exports In The Face Of Tepid Domestic Demand</strong><br /><br />Apart from the temporary relief which came from a headline GDP growth reading in the second quarter, the news coming out of Japan at the moment is almost uniformly bad. The unemployment rate is now at a record high, raising even more doubts about the real sustainability of the recent economic recovery. The jobless rate rose to a worse than expected 5.7 per cent in July, up from 5.4 per cent in June. By Spanish or Latvian standards this may seem very tame, but if you take into account the extent of government subsidised "hidden unemployment" the true underlying rate may be nearer 12 or 13%, or at least this is what analysts at Nomura (see below) have recently been arguing.<br /><br />In addition, Japanese core consumer prices fell at the fastest annual pace on record in again in July, potentially putting pressure on a reluctant Bank of Japan to rein in deepening deflation. Core consumer prices - the bank of Japan's preferred measure - which exclude volatile fresh food prices but include oil costs, fell 2.2% in the year to July.<br /><br />Average monthly Japanese household spending fell in July by a price adjusted 2.0 percent from a year earlier to 285,078 yen, down for the first time in three months, while Japan’s July exports fell 1.3 per cent on a seasonally adjusted basis from June, a real big deal this in a country whose economy is almost entirely dependent on exports. Shipments in July fell 36.5 per cent by value year on year, outpacing the 35.7 per cent decline in June.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuYe_hR-hHmHO_rOGwHWteIoxFdGuSTMal4pcO8GFwWeVCzMXSPqRcXMRmCjV4Rgqp_Z0XZKW1M9cIGAzIfQqQOj6hiejcih3PLg1TEt-DAFbikDq0ua20knpFyjMgkQAy0QI3sZDfdh_s/s1600-h/GDP+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 196px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375765258703311218" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuYe_hR-hHmHO_rOGwHWteIoxFdGuSTMal4pcO8GFwWeVCzMXSPqRcXMRmCjV4Rgqp_Z0XZKW1M9cIGAzIfQqQOj6hiejcih3PLg1TEt-DAFbikDq0ua20knpFyjMgkQAy0QI3sZDfdh_s/s400/GDP+one.png" /></a><br /><br />Under the Japanese employment protection scheme, the government pays two thirds of the wages of workers in certain specified situations. As of June 2009, some 2.383mn workers had applied for employment adjustment subsidies for 2009 onward (see chart). Although only 1.891mn had been approved as of June, Nomura expect this figure to eventually rise closer to the number of applicants.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdjdc7uK6jTl61p04cAtYZA04o86LhpK7tfF3uuEa-agHvGeARdf239-ish9A7p2YNCb-TGYQtY_gshd3aWIGoZPeaH6dSFwKvl7vpgHqKKKT6lZjMFw_H8Gvbtd5quv7UlzjZTlbyoiqw/s1600-h/hidden+three.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 306px; DISPLAY: block; HEIGHT: 264px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375766047902436274" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdjdc7uK6jTl61p04cAtYZA04o86LhpK7tfF3uuEa-agHvGeARdf239-ish9A7p2YNCb-TGYQtY_gshd3aWIGoZPeaH6dSFwKvl7vpgHqKKKT6lZjMFw_H8Gvbtd5quv7UlzjZTlbyoiqw/s400/hidden+three.png" /></a><br /><br />In order to try to get a measure of the impact of this scheme on the unemployment level the Nomura analysts did a number of tests, and found that when indexing the number of those employed and real GDP to the output peak of Q4 2007 there was a considerable gap between the output adjustment and the employment one. Based on a simple calculation which assumed this "gap" to offer a good proxy for the amount of “hidden underemployment”, they arrived at a figure for “hidden jobless” in Q1 2009 of 4.7m. This number is far higher than the June unemployment figure of 3.48m. If the hidden jobless are included together with the registered “unemployed”, they calculate that the unemployment rate would have leapt from 5.4% to 12.2%.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXR-6WEIbct7WRqR7pOcR52DHVyGXzHDD274sTKcwIIGxG2QThmfqrmGnE2qxCCQTKxc__7NT5v4Ffm1DxQ7Xh3MTVAcyzAenUqiTCSQJKemF6uBdGwK54P3rMKddz-ojc1gg4NiD-KR99/s1600-h/Hidden+Jobless+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 289px; DISPLAY: block; HEIGHT: 299px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375766295791285538" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXR-6WEIbct7WRqR7pOcR52DHVyGXzHDD274sTKcwIIGxG2QThmfqrmGnE2qxCCQTKxc__7NT5v4Ffm1DxQ7Xh3MTVAcyzAenUqiTCSQJKemF6uBdGwK54P3rMKddz-ojc1gg4NiD-KR99/s400/Hidden+Jobless+one.png" /></a><br /><br />This chart below shows estimates made by the Nomura analysts of the extent of hidden joblessness during previous economic downturns. In the majority of cases the number of hidden jobless did not rise at all, or employment fell by more than GDP did, suggesting that employment adjustments were quite swift. They did find, however that there was a comparatively large rise in the numbers of hidden jobless in Q4 1973, triggered by the first oil shock and in Q2 1997, following the Asian currency crisis, problems in the Japanese financial system and a consumption tax hike. The number of hidden jobless, estimated at about 4.7m in Q1 2009, seems to be well above the figures associated with these two earier downturns.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPdK2KOtHbCrnaZMii0uGLTMKUMI6y5vle8MqrEavG8h3GelH7s6RvTuE5KRzt2-dijR0Pfidmonb4KBKksc2cJTYb00uzfpIgKp-jmyRK-cMU1Wyd9fUvjq2rHJ2qGyAjPWxzpI9NJuOJ/s1600-h/hidden+jobless+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 303px; DISPLAY: block; HEIGHT: 315px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375766929323873330" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPdK2KOtHbCrnaZMii0uGLTMKUMI6y5vle8MqrEavG8h3GelH7s6RvTuE5KRzt2-dijR0Pfidmonb4KBKksc2cJTYb00uzfpIgKp-jmyRK-cMU1Wyd9fUvjq2rHJ2qGyAjPWxzpI9NJuOJ/s400/hidden+jobless+two.png" /></a><br /><br />However, as the Nomura analysts point out, even if the difficult labour market conditions are not fully reflected in the unemployment figures, a deterioration in adjusted labor supply-demand could easily lead to major declines in wages even while companies keep the number of hidden jobless down by means of government support. In fact, according to Nomura it would be hard to explain the fact that the decline in wages (total cash earnings of full-time employees) in H1 2009, at 4.7% y-o-y, was far bigger than the equivalent declines in annual average wages of 2.3% in 2002 and 0.4% in 2003, when unemployment also reached new highs, if you don't take the hidden jobless factor into account (see chart). Thus the resulting pressure on wages and household income could easily become a serious impediment to any genuine fully fledged economic recovery.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAyBT9cb0L5AzfvSIUnO7YzBb-YLuNKl6_TQd8UGmhTuWbmWOhnk987UqnqVtjuT_bffcH6fuKVoWZb2wFGjsNo4cfDLlyQMjSNXgTWC5G-f8vsp5jlp4DQVIjpmAl7apfdi4UJWaNgDNr/s1600-h/hidden+four.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 301px; DISPLAY: block; HEIGHT: 265px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375767377785881538" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAyBT9cb0L5AzfvSIUnO7YzBb-YLuNKl6_TQd8UGmhTuWbmWOhnk987UqnqVtjuT_bffcH6fuKVoWZb2wFGjsNo4cfDLlyQMjSNXgTWC5G-f8vsp5jlp4DQVIjpmAl7apfdi4UJWaNgDNr/s400/hidden+four.png" /></a><br /><br />As of June 2009, payments under the government's subsidy scheme for employment adjustment totalled ¥101.14bn. If the number of approvals grows to meet the number of applicants, Nomura estimate total payments will increase to ¥127.42bn, placing additional strain on fiscal finances. The Nomura analysts argue that dividing the cost of the hidden jobless and in-house unemployed between companies, households and government could well represent a major policy challenge for the new Japanese administration when it assumes office. Given the seriousness of the social and political problems that result from sharp rises in unemployment, it is quite possible the next Japanese government will strengthen the employment adjustment subsidy scheme by, for example, further relaxing its terms and conditions, and it is rather unlikely to try to limit the number of eligible cases by tightening conditions. The net upshot of this, will, of course, be a further deterioration in Japan's gross debt to GDP position.<br /><br />Given this, and despite the distortions being produced by the huge number of hidden jobless, Nomura think the unemployment rate is unlikely to be allowed to rise too far beyond 6.0%. We will see.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY1_suZQK4rqdYs7hznvWwzmLi-vub56xX9ci3VRX4wTrwL1mIcjBfNLGG1p8IoEu4XNG3zsmJddSYq9e-riNzOydzE35LBhjCp67dIQ824Jo8YU7AIkBAnaD-pVQ5b2CPH0pYfl1WEpZh/s1600-h/japan+unemployment.jpg"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 223px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375765650895187266" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY1_suZQK4rqdYs7hznvWwzmLi-vub56xX9ci3VRX4wTrwL1mIcjBfNLGG1p8IoEu4XNG3zsmJddSYq9e-riNzOydzE35LBhjCp67dIQ824Jo8YU7AIkBAnaD-pVQ5b2CPH0pYfl1WEpZh/s400/japan+unemployment.jpg" /></a><br /><br /><strong>And Germany Does The Same</strong><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1Qo7Ae90_MgnRR_H1BxIS_QHt54_bnsLOz7cn4rkB3zWeuQMjbAuaD0ZzrMXhi_ytFOpXPNkygdpIV1IxH2tOzoz8jlqlGC-CarY-xIJZm_T4UT-QLrMuwZKmQ_ibNvu9pcW5SkYbPQMJ/s1600-h/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375764859444677602" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1Qo7Ae90_MgnRR_H1BxIS_QHt54_bnsLOz7cn4rkB3zWeuQMjbAuaD0ZzrMXhi_ytFOpXPNkygdpIV1IxH2tOzoz8jlqlGC-CarY-xIJZm_T4UT-QLrMuwZKmQ_ibNvu9pcW5SkYbPQMJ/s400/german+exports.png" /></a><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfeTnNItbCkEVwNK0sb8XSW8dYxkj2fS6iO_jb17C520oUGuk9my_pK6vHAiP0Nm4n_830DW-7WzTeqeaRnPj3clHtV0sV5pCl9nxAbaGCJexg2IuXY1PuI4xhtbmHCuPgRuP3YaoKCxS4/s1600-h/german+GDP+1.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 206px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375764479655653458" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfeTnNItbCkEVwNK0sb8XSW8dYxkj2fS6iO_jb17C520oUGuk9my_pK6vHAiP0Nm4n_830DW-7WzTeqeaRnPj3clHtV0sV5pCl9nxAbaGCJexg2IuXY1PuI4xhtbmHCuPgRuP3YaoKCxS4/s400/german+GDP+1.png" /></a><br /><br />Despite some small improvement in headline GDP numbers, the great German job machine effectively ran out of steam last autumn, and since that time the German economy has been adding jobs at an ever slower pace. Now the rate of job creation has turned negative, and less Germans are employed every month than they were a year earlier.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoumhp0wl3gZxvfx4wautfHi0Vz1P6PaSTZTopZIoLrE76BNmsTbIHJR4FKbY4636jvRJuRAPZnBc8DNHArszYK9BQz8vhOX-AxR1pLQb4j4Zmb5kqY8zxQSP6hGr2-6dhG8FoTduBENuz/s1600-h/german+employment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375762194333645090" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoumhp0wl3gZxvfx4wautfHi0Vz1P6PaSTZTopZIoLrE76BNmsTbIHJR4FKbY4636jvRJuRAPZnBc8DNHArszYK9BQz8vhOX-AxR1pLQb4j4Zmb5kqY8zxQSP6hGr2-6dhG8FoTduBENuz/s400/german+employment.png" /></a><br /><br />German unemployment rose again in July. The number of people out of work increased 52,000 to 3.46 million on an unadjusted basis. The seasonally adjusted total actually fell by 6,000, according to the statistics office due to statistical changes. Without the impact of the changes, the office estimates unemployment rose by 30,000. German unemployment began to increase in November after falling steadily for more than three years. The seasonally adjusted jobless rate was unchanged at 8.3 percent in July.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgd80RxUKXDhrlwQ49aQjfBRF5zNObeBf0KUA97meyngPooe-eDlvIhRvhmZHOP6uPZbpxQZXsWCgYbbPB0x_XGn0RqcxsgGmmGV4PKBEal7aerGyol6yLgvdTcmzg1nFfJl5NQV1ur494e/s1600-h/unemployment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 238px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375762513074023762" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgd80RxUKXDhrlwQ49aQjfBRF5zNObeBf0KUA97meyngPooe-eDlvIhRvhmZHOP6uPZbpxQZXsWCgYbbPB0x_XGn0RqcxsgGmmGV4PKBEal7aerGyol6yLgvdTcmzg1nFfJl5NQV1ur494e/s400/unemployment.png" /></a><br /><br />Analysts at Societe Generale, have examined the case of the German employment protection programme, and point out that while official unemployment in Germany has in fact only risen moderately in the current recession the underlying real effective rate is much higher. The unemployment rate (using the ILO measure) has risen by just 0.6ppt from its 7.1% low in Q4 2008, while in the euro area as a whole, the rate is up by 2.2ppt to 9.4% from its March 2008 low of 7.2%. As they say, it is also quite clear that this relative stability owes much to the widely-used practice of so called short-time working (Kurzarbeit).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAZs7Ijd-M4WP6JxiwgNzXa8LgRW287HrlwuvScYRvUU9cvqmjNXbBTHkRWHFEokiVcL7K8YqYJaDjU1Z6UeA4RtA6C6h6RAhoNMYvMHC5zdZZm_XmLhlxxJXV82iuI8Gvbw-fiW4r88sI/s1600-h/short+time+working.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 285px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375763104705707634" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiAZs7Ijd-M4WP6JxiwgNzXa8LgRW287HrlwuvScYRvUU9cvqmjNXbBTHkRWHFEokiVcL7K8YqYJaDjU1Z6UeA4RtA6C6h6RAhoNMYvMHC5zdZZm_XmLhlxxJXV82iuI8Gvbw-fiW4r88sI/s400/short+time+working.png" /></a><br /><br />The Societe Generale interpretation is broadly supported by survey evidence which suggests that the rate of contraction in employment has eased, suggesting there will be an even slower increase in unemployment in coming months. For example, the employment component of the PMI survey in manufacturing industry rose to 37.9 in July from a low of 32.9 in April, and in the services sector to 49.0 from a low of 45.2 in May. Employment intentions (in the European Commission survey) have also come off the lows in all sectors, but still remain in negative territory, implying further job losses. This evidence tallies with other recent evidence from official unemployment data, which show unemployment up by an average of 8,000 per month in May-July, a big shift downward from the average monthly increases of nearly 60,000 in Q1. This level of improvement will, according to Societe Generale not be sustained, although they do not expect to see a return to the pace of unemployment gains witnessed earlier this year. Of course, as SocGen point out, company employment intentions could easily deteriorate again if growth expectations get revised down, but for the nearer term, the evidence suggests that unemployment in Germany will rise at slower rates than observed earlier this year.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw_8aMQrSFz1bGs5D9-D3oNHW-HmaoE8p_ILGEIh0H9vJtTXeigiVMg8CPhpkLa0n7f4VpqpNOAGh26r7r6OtbbnRgvQrl0dD7DXrWzcZpmhgc0xBAgGvnHbiCrk1V_2fCu-8e0Uieu0ov/s1600-h/short+time+working+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 280px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5375764071078885538" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw_8aMQrSFz1bGs5D9-D3oNHW-HmaoE8p_ILGEIh0H9vJtTXeigiVMg8CPhpkLa0n7f4VpqpNOAGh26r7r6OtbbnRgvQrl0dD7DXrWzcZpmhgc0xBAgGvnHbiCrk1V_2fCu-8e0Uieu0ov/s400/short+time+working+two.png" /></a><br /><br />On the other hand they also underline that such short-time working arrangements evidently have a "sell by" date, and can't run forever. As a result there is some concern that a major increase in unemployment in Germany is merely a matter of time. <br /><br />In fact the Societe Generale analysts are not that convinced by this line of argument, since they think that German legislation has already extended the period for which companies can run short-time working from 18 to 24 months. Examining in detail the evolution of the numbers on short-time working they find that the vast majority of companies only resorted to the programme in the very recent past, so that the 24 month limit will not bite until late-2010. Until the turn of the year 2008/09, the recourse to short-time working was very small indeed. Aside from the seasonal increases in the first quarters of 2007 and 2008, the numbers were small at around 50,000. To put the number in context, they point out that this represents 0.1% of the labour force and is equivalent to the monthly gains in unemployment that were recorded this year. Since then, the numbers resorting to the programme have indeed exploded and by March of this year (the latest available data), there were 1.3 million workers with shortened hours, and this number has probably now risen to around 1.4 million. These are clearly big numbers, amounting to about 3% of the labour force. If they were added to unemployment figures, total unemployment would rise to the previous historic peaks of around 5 million. <br /><br />However, given that this increase only began in the final two months of 2008, these schemes could easily run for another 18 months, at least as far as the administrative rules are concerned. Whether the German fiscal position will allow this once the new government is installed is another question entirely. Indeed, <a href="http://www.ft.com/cms/s/0/acfafde0-9045-11de-bc59-00144feabdc0.html">according to an article in the Financial Times last week</a>, Germany faces a potential wave of corporate restructurings just after the elections, restructurings which will involve substantial job losses and which have not been announced previously due to the existence of an implicit "pact" not to announce big job cuts ahead of the September 27 ballot. We will, as they say, see the proof of the pudding here in the ultimate eating, but levels of German fiscal support at the present level cannot run for that long unchecked after the election results are announced.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-29048774592107505162009-08-22T04:33:00.000-07:002009-08-22T06:27:40.944-07:00Is Germany's Economy Really Powering Ahead?Well, euphoria in Germany is certainly on the rebound, with a sudden surge in the ZEW investor confidence index and newspaper articles all over the place predicting the imminent renaissance of European economic growth, despite the fact that in 3 of the 5 big European economies - the UK, Italy and Spain - there is little in the way of evidence to back this view up.<br /><br />The French economy is certainly holding up reasonably well, but the situation in Germany still remains deeply problematic due to the complete dependence of the economy on exports. Despite this we have a shower of articles (Below I present an extract from <a href="http://www.ft.com/cms/s/0/ab84cf5a-8e2d-11de-87d0-00144feabdc0.html">Frank Atkins writing in the Financial Times</a>) explaining how "Europe's Economic Recovery is Gaining Steam" and the "German economic recovery powers ahead". I have already written up a <a href="http://globaleconomydoesmatter.blogspot.com/2009/08/germanys-economy-returns-to-timid.html">an extensive summary of the actual state of play in the German economy</a>, which is largely supported by a strong government stimulus programme, and a recovery in industrial output for export to levels which are more in line with the actual current level of demand than were the extremely low levels seen at the turn of the year (which were the product of demand being met from inventory run downs).<br /><br /><blockquote><a href="http://www.ft.com/cms/s/0/ab84cf5a-8e2d-11de-87d0-00144feabdc0.html">German economic recovery powers ahead</a><br />By Ralph Atkins in Frankfurt<br /><br />Germany’s economic recovery has leapt into a higher gear, according to a closely watched survey that showed private sector activity expanding this month at the fastest rate for 15 months and lifting the overall eurozone economy’s performance<br /><br />The purchasing managers’ index for Europe’s largest economy jumped to 54.2 in August, from 49.0 in July, signalling an unexpectedly brisk pace of expansion. The growth was driven by the service sector, where employment actually rose, but manufacturing also showed a further rebound.<br /><br />The figures were the latest economic data from continental Europe to surprise on the upside and suggested the region had overtaken the US and UK in the pace of its recovery. France’s economy is also now expanding clearly, according to a separate purchasing managers’ index for the eurozone’s second largest economy.<br /><br />The euro gained 0.5 per cent on the dollar to $1.43 and 0.2 per cent on the pound to £0.86<br /><br />Germany’s rebound appears to have been powered by the country’s pioneering “cash-for-clunkers” incentives for new cars purchases and a pick-up in global demand for its exports. Earlier this week, the Bundesbank reported that consumer spending was likely to have risen further in the second quarter and described German shoppers as “remarkable in continuing to defy the negative effects of the global economic and financial crisis”.<br /><br />The Bundesbank argued that a “further marked pick-up in overall economic output is possible in the third quarter”.<br /><br />However, Axel Weber, Bundesbank president, has sought to rein in expectations, warning in a German newspaper interview this week that “the economy is not yet standing on its own feet, and the financial markets are still reliant on central bank help”. Other European Central Bank policymakers have also warned that a self-sustaining recovery may take longer to emerge – which also suggested the ECB will be in no rush to reverse the exceptional steps it took to combat the eurozone’s recession.</blockquote><br /><br />Evidently Frank Atkins is right up to a point (and his position may indeed even seem more extreme than it is due to poor headline writing). It is certainly the case Europe's economies continued to show signs of improvement in August - following a better than anticipated perforemance in Q2 - with the Markit Flash Eurozone Composite Output Index rising to 50 from 47 in July, thus ending a fourteen-month sequence below the no-change mark of 50. The Flash Purchasing Managers Index for the manufacturing sector stood at a 14-month high of 47.9 in August compared to 46.3 in July, while the services PMI rose to a 15-month high of 49.5 versus 45.7 in July. Markit only publishes flash readings for two eurozone economies, France and Germany. PMI readings give us the best up to the moment snapshot of where activity is at at any given point.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWtqE2MyCxKz4H6UM3qu1NvWFsXOO0RYOv0o9wlNk7Vh7aDfMIJDYTBtk7K0Nf3djTriRzlvRNzxQc8JxkdQXhcUJ_r_XVZEOduDH-V9NopEEOAbS5LPUH30DBhuNNbdDgJo2-fi6q_HsP/s1600-h/Eurozone+Composite.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 225px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5372751461503258002" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWtqE2MyCxKz4H6UM3qu1NvWFsXOO0RYOv0o9wlNk7Vh7aDfMIJDYTBtk7K0Nf3djTriRzlvRNzxQc8JxkdQXhcUJ_r_XVZEOduDH-V9NopEEOAbS5LPUH30DBhuNNbdDgJo2-fi6q_HsP/s400/Eurozone+Composite.png" /></a><br /><br />The Markit Flash Germany Composite Output Index stood at 54.2 in August, which was the highest reading for fifteen months, following an index reading of 49 for July. The German Flash services PMI rose to 54.1 in August from 48.1 last month. A very strong rebound for a single month, but do watch out, since elections are coming, and beyond that tricky little data point there is no evident explanation for this impressive rebound. It is suspicious for its strength, in what is an otherwise tepid environment.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9I23_gjFSinfNCSM1VxNtbvpFrlSj3-imLBNeLRFNsWqoxRmwR0tb05yWpk106C7LMRQvwkBGQxcQBrXFQkSWXvOMFB0PG7o9Jpfri5JsXiJZuhIBAyF1WJ0P95ZAeHIBALrehdmIksWJ/s1600-h/German+Services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5372751656439101346" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9I23_gjFSinfNCSM1VxNtbvpFrlSj3-imLBNeLRFNsWqoxRmwR0tb05yWpk106C7LMRQvwkBGQxcQBrXFQkSWXvOMFB0PG7o9Jpfri5JsXiJZuhIBAyF1WJ0P95ZAeHIBALrehdmIksWJ/s400/German+Services.png" /></a><br /><br />Whilet he Flash Manufacturing PMI moved up to 49 from 45.7. A solid improvement, but we are still just short of expansion.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRK_pdqdF3Jdd_Ve0UYmTP21y1_7jFrOATTXNY5_xlTWmsnaFBtCVfQS0aZ2kflhLIFwmL3JaQtqDSKNtUgEt3TEAxrvftGze1KpGP23-V_TN4I7k-XXvPZ9FHk39yNmaVe5XAsuk4dJhZ/s1600-h/German+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 217px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5372751583515136338" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRK_pdqdF3Jdd_Ve0UYmTP21y1_7jFrOATTXNY5_xlTWmsnaFBtCVfQS0aZ2kflhLIFwmL3JaQtqDSKNtUgEt3TEAxrvftGze1KpGP23-V_TN4I7k-XXvPZ9FHk39yNmaVe5XAsuk4dJhZ/s400/German+manufacturing.png" /></a><br /><br />So obviously we should also take into account the latest PMI readings for the Eurozone, which were certainly positive, but hardly sufficient to start uncorking the champagne bottles. Basically, I would note two more things about the recent German performance.<br /><br />i) We are in the direct run up to an election. This phenomenon has well known side effects for public spending etc. Certainly every project which can be will be being brought forward at this point. We need to wait and see what things look like in October before drawing too many conclusions.<br /><br />Indeed, on this point, note what the Federal Statistics Office said <a href="http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2009/08/PE09__307__71131,templateId=renderPrint.psml">in their latest press release on German public debt</a>:<br /><br /><blockquote>"As reported by the Federal Statistical Office (Destatis), the core budgets of the Federation and the Länder – as defined in public finance statistics – recorded a considerable financial deficit in cash terms in the first half of 2009. For the Länder, the financial deficit totalled EUR 15.4 billion, while in the first half of 2008 a financial surplus of EUR 3.1 billion was recorded. In the core budget of the Federation, the financial deficit rose to EUR 14.7 billion compared to EUR 13.1 billion in the first half of 2008. It should be noted, however, that the financial burdens of the Federation caused by the financial and economic crisis become obvious mainly in its extra budgets “Financial Market Stabilisation Fund” and “Investment and Redemption Fund”. Relevant statistical data will not be available until the end of September." </blockquote><br /><br />Please note that last little line - "Relevant statistical data will not be available until the end of September." - ie after the elections which will be held on 27 September.<br /><br /><br />ii) Bundesbank president Axel Weber may be over optimistic when it comes to the deflation threat, but he is far from being full of "irrational exhuberance" about the present timid bout of growth. This kind of view, however, is seldom reflected in those attention grabbing headlines. It would be a pity if all this new found German growth, like those famous wave of babies who were supposed to have been being born in Dussledorf last year, should turn out just to be a blip, undetectable when the annual figures are counted up.<br /><br />Indeed the present situation (even down to the headlines) is very reminiscent of the reaction after the first quarter of 2008, when that famous decoupling thesis was first launched in all its splendour, which is why I am reproducing extracts from an article by Karl Zawadzky written at the time. He said then "the indicators suggest that the German government is on the safe side with its growth prediction of 1.7 percent. Some economic experts are already speaking of 2 percent or more." In fact German GDP started shrinking almost immediately after the words were written and 2008 whole year growth came in at only 1.3% according to the Federal Statistics Office (and more like 1% on a calendar adjusted basis, allowing for the extra day in February) as I was <a href="http://www.rgemonitor.com/euro-monitor/252923/what_is_the_recession_risk_for_the_german_economy">already more or less forecasting in July 2008 </a>(just for those of you who think economists never get anything right).<br /><br />My feeling is that by the time we get to the end of the third quarter of 2009 we will all be back to reality, including those among us who write newspaper headlines.<br /><br /><br /><blockquote><a href="http://www.dw-world.de/dw/article/0,,3341518,00.html">Opinion: German Economy Powers Ahead</a><br />by Karl Zawadzky: business editor Deutsche Welt Radio<br /><br />The German economy surged in the first quarter of this year, defying a global slowdown. DW's Karl Zawadzky remains optimistic about Germany's ability of maintaining its current financial boom.<br /><br />Experts are predicting that economic growth will slip this year. They cite the financial crisis, high oil and gas prices and the expensive euro.<br /><br />But the German economy is currently quite robust -- perhaps even more robust than many experts think. The surprisingly strong jump in economic activity during the first quarter is evidence of this. While gross domestic product increased by only 0.3 percent in October, November and December, it rose by 1.5 percent in the first three months of 2008.<br /><br />Domestic markets get attention<br /><br />For years, business activity has been fuelled by ever increasing export records. But now, focus has shifted to domestic markets. There were few impulses from abroad that spurred the German economy during the first quarter. The rising prices of key imports crude oil and gas, but also the expensive euro, which put the breaks on German exports, played a decisive role.<br /><br />Little reason for pessimism<br /><br />But the German economy is still on track for growth. Even in the first quarter, personal consumption rose after many weak years. Employment was up 1.8 percent compared to spring 2007 and the rise in wages in some sectors promises the biggest increase in buying power in years. That will boost consumption. The German economy is powering ahead, propelled by its own strength.<br /><br />The indicators suggest that the German government is on the safe side with its growth prediction of 1.7 percent. Some economic experts are already speaking of 2 percent or more.<br /><br />Compared to other countries in the EU, Germany is proving to be the bloc's economic engine and is powering through the current financial crisis quite well. While the German economy grew by 1.5 percent in the first quarter, the EU reported an average growth rate of only 0.7 percent.</blockquote><br /><br />Certainly German analyst and investor sentiment rose sharply in August to its highest level in over three years. The ZEW economic think tank's closely-watched monthly survey, said rising industrial orders and a pick-up in exports had brightened the outlook for Germany. The Mannheim-based institute's economic expectations index for Germany rose to 56.1 in August from 39.5 in July, taking the indicator to its highest level since April 2006.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh14zvMCo58vICwjU7z1oLKXiO8kO7LTw4ZJATn9ryOkcyiVuI0zY1Bx9ClGEeZVUjQkBm7QfftUudGJCYz-06xWVCUUFG4e48me_Yv8XGObbhzLgxcwKeelayH63NKjwi0WOf_IW39XWv2/s1600-h/german+zew.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 212px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh14zvMCo58vICwjU7z1oLKXiO8kO7LTw4ZJATn9ryOkcyiVuI0zY1Bx9ClGEeZVUjQkBm7QfftUudGJCYz-06xWVCUUFG4e48me_Yv8XGObbhzLgxcwKeelayH63NKjwi0WOf_IW39XWv2/s400/german+zew.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5372762579567708498" /></a><br /><br />But we should never forget that while German exports swang back to solid growth in June, surging by 7 per cent in June, optimism was also boosted by a 4.5 per cent rise in industrial orders in June - powered almost entirely by export orders - they are still significantly down on the level they attained one year ago.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd2HVtspHhrasJY2dsdQX9OaIyVbcKVuQQznXqL6YDrP-deMiWjSsmuw1nRqJXFeaT-0heIYZINR5moXv9OvfoWZZ5Spej6aceh6QdtNNA7bXA786jlSJqX_T2AkKAW9cys6ZRKi3_FLv4/s1600-h/german+exports.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 214px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd2HVtspHhrasJY2dsdQX9OaIyVbcKVuQQznXqL6YDrP-deMiWjSsmuw1nRqJXFeaT-0heIYZINR5moXv9OvfoWZZ5Spej6aceh6QdtNNA7bXA786jlSJqX_T2AkKAW9cys6ZRKi3_FLv4/s400/german+exports.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5372762876218364610" /></a><br /><br />While industrial production output numbers for June, tempered hopes for a further rebound, since they fell back 0.1 per cent compared with the May’s figures which showed a 4.3 per cent rise over April. <br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9iNYJW7C8CmBsRFd8qHqUWMlc4kwgJUvTEUdbf0zoRD56MYWkZLxVKmdiA9tUZ7vj5HfBSdao-28wvzWrR13xtzPkP2UHD4Xk55MHiI4fUq5dYPOrWZ68AjwPVapYkAgdsY_o3etPFIcp/s1600-h/IP.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 233px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh9iNYJW7C8CmBsRFd8qHqUWMlc4kwgJUvTEUdbf0zoRD56MYWkZLxVKmdiA9tUZ7vj5HfBSdao-28wvzWrR13xtzPkP2UHD4Xk55MHiI4fUq5dYPOrWZ68AjwPVapYkAgdsY_o3etPFIcp/s400/IP.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5372763395189475522" /></a><br /><br />And in terms of domestic consumption it really is difficult to see any powering ahead in German retail sales, since while the rate of decline may have eased somewhat in July as only a marginal drop was shown in month-on-month sales (the index rose from 46.0 in June to 49.8) the index has now been registering contraction since sales began falling in June of last year. And I doubt things are going to get much better on this front anytime soon.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglvCzT5InDyFKliQIcYaVn0VL7R8B6-6YJcOABK4mIGeO2nXZrd6OvKupVurlyuT-8XtVexVmZEQN1oCAaMn2y5qwXOm5kVgL2_YNIZmns5MQNBzGlSjD8pyJG6R_KvapEbUW8MNmT-X4V/s1600-h/german+retail.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 216px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEglvCzT5InDyFKliQIcYaVn0VL7R8B6-6YJcOABK4mIGeO2nXZrd6OvKupVurlyuT-8XtVexVmZEQN1oCAaMn2y5qwXOm5kVgL2_YNIZmns5MQNBzGlSjD8pyJG6R_KvapEbUW8MNmT-X4V/s400/german+retail.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5372766115814751234" /></a><br /><br />Oh, and one last little detail. Germany's economy is not - as <a href="http://www.ft.com/cms/s/0/b6b68b00-8bdc-11de-b14f-00144feabdc0.html">Frank Atkins again had it in last Friday's FT</a> - offering a ray of hope for the global economy, since Germany is running a current account and trade surplus, which is to say that, on aggregate it is actually draining demand from the rest of the world, rather like those famous energy inefficient solar panels, it uses up more energy producing itself than it actually supplies.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-85824191597282185372009-08-13T04:18:00.000-07:002009-08-13T04:40:12.077-07:00Germany's Economy Returns To (Timid) Growth In Q2The German economy, Europe’s largest, unexpectedly returned to growth in the second quarter, technically bringing an end to its worst recession since World War II. The euro climbed 0.2 percent to $1.4248 on release of the report.<br /><br />But don't get carried away just yet, since while gross domestic product rose a seasonally adjusted 0.3 percent from the first quarter, when it plunged 3.5 percent, the most since quarterly data were first compiled in 1970, compared with Q1 2008 Compared with the second quarter of 2008, the price-adjusted GDP product was down 7.1%, while after adjustment for calendar variations, economic performance decreased 5.9% on a year earlier as the quarter had three working days less than the same period of the previous year.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidKmYVeLxIYI_Xy2fGMVT-TOJ_YSh3sCwhvWXD_T176ufBqRshR9_Gq9Gk3KjrTiy326aKMfr-7rDSoEchVHChiDuVoly_G0uuQtR1r5lSvgzhbAuK4ovM1uvUt7XdfKainOLhzZe5Bw-g/s1600-h/german+GDP+1.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 206px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369406676274225986" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidKmYVeLxIYI_Xy2fGMVT-TOJ_YSh3sCwhvWXD_T176ufBqRshR9_Gq9Gk3KjrTiy326aKMfr-7rDSoEchVHChiDuVoly_G0uuQtR1r5lSvgzhbAuK4ovM1uvUt7XdfKainOLhzZe5Bw-g/s400/german+GDP+1.png" /></a><br /><br />Household and government final consumption together with capital formation in construction (government infrastructure spending) all exerted a positive impact compared with the previous quarter. As price-adjusted imports declined far more sharply than exports (that is the trade surplus rose), the balance of exports and imports also had a positive effect on GDP growth. However, declining inventories continued a negative effect on growth, and this suggests that optimism is not that ebullient, since otherwise people would be stocking up getting ready to sell.<br /><br />Employment continued to fall, and there were 40.2 million people in employment in Q2, which was a decrease of 25,000 persons or 0.1% on a year earlier.<br /><br />The Federal Statistical Office will release detailed results for the second quarter of 2009 on 25 August 2009, and we will be able to see the complete picture a little better then.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1gp_OZR9yBPcgpA3MwbeAdFBHzUrovFjbDBsET6aYjfO_RwUE3xxlApPl7CtCaQmV5w1-PPj10nYmjBJrefpo2yGAstBciQ67mTqWoA73TpqHn2H-0WhKeTXODIgY0s3xwcy6FEOXpwDM/s1600-h/german+gdp+2.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369406816247155314" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1gp_OZR9yBPcgpA3MwbeAdFBHzUrovFjbDBsET6aYjfO_RwUE3xxlApPl7CtCaQmV5w1-PPj10nYmjBJrefpo2yGAstBciQ67mTqWoA73TpqHn2H-0WhKeTXODIgY0s3xwcy6FEOXpwDM/s400/german+gdp+2.png" /></a><br /><br /><br /><strong>PMIs Still Show Contraction</strong><br /><br />Germany's private sector contracted at its slowest pace in 11 months in July and was close to breaking through into growth.<br /><br />Final figures for the Markit purchasing managers index (PMI) showed the headline composite measure of business activity rising five index points to 49.0 in July from 44.0 in June -- closing in on the 50 level that separates contraction from expansion.<br /><br />The composite index covers both Germany's manufacturing and service sectors. The headline PMI for the service sector rose to 48.1 in July from 45.2, just below the flash estimate of 48.4.<br /><br />However, it is clear there will be a before and after the German elections (next month) here, and my forecast is for a further contraction, possibly 0.5% q-o-q in Q3 (looking at the PMIs) as the impact of the stimulus wanes, and exports get stuck more or less around the present level. A long hard road lies ahead.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv3NhyphenhyphenG4NEPjjlQxWiLp7VPZbuZbcjXQiN-XMOnwOgyUSOmNATFicG6bn9BitRak0Gh09jxsr6sKU8wJu979158MhfAHQyqVWmOu7MnwvjZQff-yXmhNY2dCp89uVlroOopTGtX-pVKlgd/s1600-h/german+services+PMI.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 215px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369407229844409922" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv3NhyphenhyphenG4NEPjjlQxWiLp7VPZbuZbcjXQiN-XMOnwOgyUSOmNATFicG6bn9BitRak0Gh09jxsr6sKU8wJu979158MhfAHQyqVWmOu7MnwvjZQff-yXmhNY2dCp89uVlroOopTGtX-pVKlgd/s400/german+services+PMI.png" /></a><br /><br />Germany's battered industrial sector contracted at its slowest pace in 10 months in July, and orders and output grew for the first time since last summer. The Markit purchasing managers' index (PMI) of activity in the German manufacturing sector rose for a sixth month running and by the biggest amount in the survey's history to hit 45.7. This is still, however some considerable distance from the 50 expansion threshold.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4Ce_wMPVvVg7StF_6Q0N9sID0tEi-pvXS0U26FU0O80mvcJ4QKck0XdyU4MudqBCZub0TDowoZT3Hqv1N9-S68k0C5seYQjuD0a5NOFAneGSSYjWqdbhZp9AVQxr9pSrAtVwNZBfIb9-f/s1600-h/Germany+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 217px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369410322801925362" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4Ce_wMPVvVg7StF_6Q0N9sID0tEi-pvXS0U26FU0O80mvcJ4QKck0XdyU4MudqBCZub0TDowoZT3Hqv1N9-S68k0C5seYQjuD0a5NOFAneGSSYjWqdbhZp9AVQxr9pSrAtVwNZBfIb9-f/s400/Germany+manufacturing.png" /></a><br /><br /><strong>Exports Rebound</strong><br /><br />German exports swang backin to solid growth in June, surging by 7 per cent in June, optimism was also boosted by a 4.5 per cent rise in industrial orders in June - powered almost entirely by export orders.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqhBmB3ON3UyrEBNL4KWvQ-4c6tcdZzRmpb-uC0Y0-Z3CKs_Tzgi9puGbOwU9F2xY_7hxsXA1qs_8Mq_ls218qmA4KbxEN8NPKIcFTqWlLq1jFyWItFcbzotz_qHfCnjeKpwbtvx0TIjhh/s1600-h/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369407591793773282" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqhBmB3ON3UyrEBNL4KWvQ-4c6tcdZzRmpb-uC0Y0-Z3CKs_Tzgi9puGbOwU9F2xY_7hxsXA1qs_8Mq_ls218qmA4KbxEN8NPKIcFTqWlLq1jFyWItFcbzotz_qHfCnjeKpwbtvx0TIjhh/s400/german+exports.png" /></a><br /><br />On the other hand, industrial production output numbers for June, tempered hopes for a further rebound, since they fell back 0.1 per cent compared with the May’s figures which were revised up to show a 4.3 per cent rise in production over April. The strongest performing sectors in recent months have been those producing investment goods and “intermediate” products, shipped for completion elsewhere.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBBTGMLaDV3LMRQTpfL8oXZ7K_DktSPq05JXCChCbFGdw1gA1sYfo8LFS5Qxvl0oPpiZsVfCf3OVnSKiggg34xNoZXitCLZf6ynemkBbkkSSHqdj6ImNkE1rehyphenhypheniNTzGKjAGuHXDn1SO7F/s1600-h/IP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 233px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369407829098541474" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBBTGMLaDV3LMRQTpfL8oXZ7K_DktSPq05JXCChCbFGdw1gA1sYfo8LFS5Qxvl0oPpiZsVfCf3OVnSKiggg34xNoZXitCLZf6ynemkBbkkSSHqdj6ImNkE1rehyphenhypheniNTzGKjAGuHXDn1SO7F/s400/IP.png" /></a><br /><br /><strong>Consumer and Business Confidence On The Rise</strong><br /><br /><br />German IFO business climate came in at 87.3, higher than the 86.6 expected and the 85.9 reading in June. IFO economists continue to be optimistic as the economy is gradually stabilizing. The expectations component rose for the eighth consecutive month to 90.4 from 89.5 in June. The current assessment component also increased to 84.3 from 82.4 and above market forecast of 82.8.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIMoAcPBpNNbPaHG1TWvkQqb1OnD5kKVc5n1Tukc7cxRzH7ikOQ2YwTcNtkOxy8VOzbqczaiAL7r-yJ7IiHhqJWW-fEfvR2PCI_dh-fXnlAwbUlZhQ5SOT9uXK43llUiOKO-CK0Ea98xp2/s1600-h/German+IFO.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 246px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369408190692013090" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIMoAcPBpNNbPaHG1TWvkQqb1OnD5kKVc5n1Tukc7cxRzH7ikOQ2YwTcNtkOxy8VOzbqczaiAL7r-yJ7IiHhqJWW-fEfvR2PCI_dh-fXnlAwbUlZhQ5SOT9uXK43llUiOKO-CK0Ea98xp2/s400/German+IFO.png" /></a><br /><br />Consumer confidence also continued it upward trend in August with the GFK forward looking indicator forecasting a value of 3.5 points for August 2009, following a revised value of 3.0 points in July. Over a longer term comparison however, the consumer climate is still at a very low level.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhP_Ubwo8eKB_H3u0EuVt4GnKw4OG_ivpvecGPRD-TVsEspeMyqDRwWAhJti7GndGnTx976YqzVKQ4WFXV-x6cM_stGQftB6gAHUL8lvQNHicjekZWKdFlk-5Bh1KWyEwDvmlhO9eKCb8P6/s1600-h/consumer+confidence.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 200px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369408401153908882" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhP_Ubwo8eKB_H3u0EuVt4GnKw4OG_ivpvecGPRD-TVsEspeMyqDRwWAhJti7GndGnTx976YqzVKQ4WFXV-x6cM_stGQftB6gAHUL8lvQNHicjekZWKdFlk-5Bh1KWyEwDvmlhO9eKCb8P6/s400/consumer+confidence.png" /></a><br /><br />German investor confidence on the other hand fell back in July, although since the impression has been that investors may have been getting ahead of themselves, then this correction is not entirely unexpected. The ZEW index of investor and analyst expectations, which aims to predict economic activity six months ahead, declined to 39.5 from 44.8 in June.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDj1l5KpoQNKjeyn9ii1MCUZdx3BWcvIwrBUtyP0n0yczq3Kaa0F7RiZuZUVQbzQOq8yT9j0XH2C6blRfIfCHJfURjQbnzJS0OcaJrpcxegZw7V8HPY8bkJqwgvbDU87agWsLvY16hTJuy/s1600-h/german+zew.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369408633113788530" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDj1l5KpoQNKjeyn9ii1MCUZdx3BWcvIwrBUtyP0n0yczq3Kaa0F7RiZuZUVQbzQOq8yT9j0XH2C6blRfIfCHJfURjQbnzJS0OcaJrpcxegZw7V8HPY8bkJqwgvbDU87agWsLvY16hTJuy/s400/german+zew.png" /></a><br /><br /><strong>As Retail Sales Continue To Fall Domestic Demand Remains Weak</strong><br /><br /><br />Domestic demand remains very weak, and retail sales dropped for a secondconsecutive month in June as rising unemployment prompted consumers to cut back their spending. Sales, adjusted for inflation and seasonal factors, decreased 1.8 percent from May when they fell 1.3 percent. From a year earlier, sales decreased 1.6 percent. As can be seen in the chart, German retail sales have been in decline since 2006.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbnfv4Wdr-KwaNMeKZFE_nJYifY1eqoxJ-Zv1y_-4kWqZPG-Umg3WHSqFvwFaOwoPQxg111niDHPW_hxkjXbNn6CUpAS-DkUIIz6Azrmm3HBVm6bQOP55wfjAhZEjWfxi2i56kpMmFLniD/s1600-h/retail+sales.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 236px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369408953992699010" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbnfv4Wdr-KwaNMeKZFE_nJYifY1eqoxJ-Zv1y_-4kWqZPG-Umg3WHSqFvwFaOwoPQxg111niDHPW_hxkjXbNn6CUpAS-DkUIIz6Azrmm3HBVm6bQOP55wfjAhZEjWfxi2i56kpMmFLniD/s400/retail+sales.png" /></a><br /><br /><br /><strong>Employment Falls And Unemployment On The Rise</strong><br /><br />The German job machine ran out of steam last autumn, and since that time has been adding jobs at an ever slower pace. Now it has turned negative, and less Germans are employed every month than they were a year earlier.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitnC4s4HWufDaB8_zSAE6Ws9zw-qjFsVsW58bCQ5QGZn5nz46YKxhaGuG9w7Zzsvoc5SL4RS-DLlXWUPYAPm6jyq1dHZnv3Ahk6GmlJ46L0Of2Kk_oFcTUZZe-OJe2Ubouqp82RPgA66n1/s1600-h/german+employment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369409243257211394" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitnC4s4HWufDaB8_zSAE6Ws9zw-qjFsVsW58bCQ5QGZn5nz46YKxhaGuG9w7Zzsvoc5SL4RS-DLlXWUPYAPm6jyq1dHZnv3Ahk6GmlJ46L0Of2Kk_oFcTUZZe-OJe2Ubouqp82RPgA66n1/s400/german+employment.png" /></a><br /><br />German unemployment rose again in July. The number of people out of work increased 52,000 to 3.46 million on an unadjusted basis. The seasonally adjusted total actually fell by 6,000, according to the statistics office due to statistical changes. Without the impact of the changes, the office estimates unemployment rose by 30,000. German unemployment began to increase in November after falling steadily for more than three years. The seasonally adjusted jobless rate was unchanged at 8.3 percent in July.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9YxP8hEXOyxRVp67X0nbXPLTIx2EUOW4910JhP36zEg-WvKLdw8OOXkjhmxR5lLJ00j0B0Ht_Qtmwr0HZytGbgnyuNz879rUezyai0vv6W2CYCsf7yjFk-SibSRulz65pDyM_N2FCIOiW/s1600-h/unemployment.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 238px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369409493499018466" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9YxP8hEXOyxRVp67X0nbXPLTIx2EUOW4910JhP36zEg-WvKLdw8OOXkjhmxR5lLJ00j0B0Ht_Qtmwr0HZytGbgnyuNz879rUezyai0vv6W2CYCsf7yjFk-SibSRulz65pDyM_N2FCIOiW/s400/unemployment.png" /></a><br /><br /><strong>And Deflationary Pressures Mount</strong><br /><br />The German consumer price index declined by 0.5% in July 2009 over July 2008, raising new deflation concerns. Germany as a whole has never seen such a low inflation rate has not been seen since German reunification, while for the former territory of the Federal Republic, a similar rate was registered in spring 1987. In the preceding months of June and May 2009, the rates of price increase were +0.1% and ± 0.0%, respectively. Compared to June 2009, the consumer price index remained unchanged (±0.0%).<br /><br />The harmonised consumer price index (HICP) for Germany, which is calculated for European purposes, declined 0.7% in July 2009 over July 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQV_w7hZWJdk0QBIYwidP2Gt22q8XDnFKsdQuXSttAXWyNEwJF9shkPqVmdY8cCizkF-nRhVzR29KDTO2q8lBdq23N1S45egJ7MhcTNm-0GPhcwAPsskkS1_-2x4E-DjMVrHoFCj6MBgzJ/s1600-h/german+CPI.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 223px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369409780523668690" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQV_w7hZWJdk0QBIYwidP2Gt22q8XDnFKsdQuXSttAXWyNEwJF9shkPqVmdY8cCizkF-nRhVzR29KDTO2q8lBdq23N1S45egJ7MhcTNm-0GPhcwAPsskkS1_-2x4E-DjMVrHoFCj6MBgzJ/s400/german+CPI.png" /></a><br /><br />The index of producer prices for industrial products (domestic sales) for Germany fell by 4.6% in June 2009 from the corresponding month of the preceding year. This was the lowest year-on-year-rate since December 1968 (–5.0%). In May 2009, the annual rate of change was –3.6%. Despite the fact that much of this fall in prices is due to falling food and energy costs, the ongoing excess capacity in the economy, and the mounting unemployment will maintain the deflationary pressure. My view: Germany has entered deflation, and it is far from clear when she will leave.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFI6AN4pc6hWEsKmKzPp4ipztnc4wJDPh4jnawlPuL7e6yfcGn6yd7lPhnZTN4KFIidNwntW_tG5_E00mHLuCia6IN43wCabjFfbHs0RqHTLtt4dhFqZ3UoacLYQBFAfCkr69VmmseTo8G/s1600-h/german+producer+prices.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 219px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369409989563396370" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFI6AN4pc6hWEsKmKzPp4ipztnc4wJDPh4jnawlPuL7e6yfcGn6yd7lPhnZTN4KFIidNwntW_tG5_E00mHLuCia6IN43wCabjFfbHs0RqHTLtt4dhFqZ3UoacLYQBFAfCkr69VmmseTo8G/s400/german+producer+prices.png" /></a><br /><br />In fact the German economy will never recover on the back of domestic demand, which is weak, and tends to lag behind movements in exports and in GDP. So really a full fledged German recovery must await recovery elsewhere, and in the meantime we are left with simply marking time.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEig4rJ8oXYB0wS8N1HoHSbM8QBPJD01TUfjbNeNCbq959sIlwYIx43MATjZPCEpTNxrMpnIRukOD5VGwABkdCWlFZESRbb1QuhKGZF3S1p9KFUBFeykiZm0pebW7l_YX5CJjoS0OTt0WXZk/s1600-h/german+GDP+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5369410177771095586" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEig4rJ8oXYB0wS8N1HoHSbM8QBPJD01TUfjbNeNCbq959sIlwYIx43MATjZPCEpTNxrMpnIRukOD5VGwABkdCWlFZESRbb1QuhKGZF3S1p9KFUBFeykiZm0pebW7l_YX5CJjoS0OTt0WXZk/s400/german+GDP+consumption.png" /></a><br /><br /><br />Bottom line, this is as much of a statistical recovery as anything else at this point. After the election the new German government will need to address fiscal deficit concerns, undermining the fragile growth, and my current forecast is for a further 0.5% contraction in the third quarter, and a 7% fall in 2009 as compared with 2008.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-51103140146389867202009-06-23T05:09:00.001-07:002009-06-23T06:46:56.655-07:00Europe's Economies Move Sideways In JuneThe eurozone economies moved sideways in June, with the flash reading on the composite purchasing managers index (which covers both industry and services) for the 16 nation euro area rising to 44.4, fractionally above the 44 registered in May. So we are just where we were before, contracting more slowly than in Q1, but still contracting, and the fiscal bullet is now almost spent.<br /><br />Not without importance was that the reading came in significantly weaker than the consensus expectation for a sharp increase to 45.3. So the market *has* been getting ahead of itself.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJuMyZou1k-bihuE6L8jQMnki6SVAFzq2OmvKpvZT9w-1JdRvwi8RJKCXGLmZ4VJRCHK3gwdsiOxIgvGcAKDn11ELMptxQR9PEpnn5mTQntdPlLhbNglO5NFNJG3GVrAs2mzQhKBPFv96s/s1600-h/eurozone+pmi.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350494116466903874" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJuMyZou1k-bihuE6L8jQMnki6SVAFzq2OmvKpvZT9w-1JdRvwi8RJKCXGLmZ4VJRCHK3gwdsiOxIgvGcAKDn11ELMptxQR9PEpnn5mTQntdPlLhbNglO5NFNJG3GVrAs2mzQhKBPFv96s/s400/eurozone+pmi.png" /></a><br /><br />On the face of it, the index is now consistent with a quarterly drop in GDP of around 0.5 percent, well below the 2.5 percent fall registered in the first quarter. However - as Capital Economic's Ben May notes - "the index has recently been a poor predictor of growth and the hard data have painted a less upbeat picture."<br /><br />The situation was broadly as expected on the manufacturing front - with a rise to 42.4 from 40.7, but this is still quite a strong contraction. On the one hand the improvement in the factory index is pretty generalized and so, with the new orders-stock ratio rising further, there should be further improvement in the coming months. On the other, given that this upward trend in the factory index is mostly inventory-driven, caution needs to be exercised in extrapolating the tendency to the whole economy.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1vBbbA2SFZI5FusIrCJYCnrpaCWbG463kYs2bTil7j6lEtdUXBNZVM4OQX5ION3GRkVPpy1iIVBz9d7T_3WEj8GSzakEl8OKArYNRFyxh0HTTVlfdPhTRwFokIqqxx6JOLIQF7BSCWdfh/s1600-h/eurozone+three.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350498312566226354" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1vBbbA2SFZI5FusIrCJYCnrpaCWbG463kYs2bTil7j6lEtdUXBNZVM4OQX5ION3GRkVPpy1iIVBz9d7T_3WEj8GSzakEl8OKArYNRFyxh0HTTVlfdPhTRwFokIqqxx6JOLIQF7BSCWdfh/s400/eurozone+three.png" /></a><br /><br />Ben May also points out that the drop in the services PMI from 44.8 to 44.5 suggests that fiscal and monetary stimulus measures "are yet to have a significant impact on domestic demand." Maybe we could rephrase that slightly, their bolt seems to have been shot without result, and the fiscal element, at least in Germany, Spain and Italy will now increasingly have a constraining impact.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3IyqroPscqmrktuwMM8gHv12lr_priB1V31ID9d5N6wg1_D0ijlbTsj5B7pi6j6lxLMx2g5FIRSMfxDgK4P7IbcEPi7Dp5gvKo-6PoEIWpRL4bjiK49TvY5GBnTUZs0EJweAH-p7-xfwu/s1600-h/eurozone+pmi+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 227px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350497524820219362" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3IyqroPscqmrktuwMM8gHv12lr_priB1V31ID9d5N6wg1_D0ijlbTsj5B7pi6j6lxLMx2g5FIRSMfxDgK4P7IbcEPi7Dp5gvKo-6PoEIWpRL4bjiK49TvY5GBnTUZs0EJweAH-p7-xfwu/s400/eurozone+pmi+two.png" /></a><br /><br /><strong>German Contraction Worsens</strong><br /><br />More worryingly, the rate of contraction in Germany's private sector accelerated slightly this month, with flash estimate of the Markit composite PMI falling to 43.4 from the seven-month high of 44.0 in May.The flash estimate for the manufacturing PMI index rose to 40.5 from 39.6 in May, but the flash services PMI reading fell to 44.3 from 45.2 last month. And in the manufacturing sector the ratio of new orders to stocks of finished goods fell back to 1.12 after rising to 1.18 in May. Which effectively means inventories started to rise again.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3ACO4alnJk4yTLfCIh_qWcNXtfgd05_ih2I628D8meigNRYWcDl1AVvv9ZAMA6X9eXHWLenkRuV0sSHSdJ_xov1bRmXnCy8ANrTY_40kpAfDWyqmlWMH1lokYAT-8dMkMhZUyBknbXVjF/s1600-h/german+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 217px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350510660886952866" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3ACO4alnJk4yTLfCIh_qWcNXtfgd05_ih2I628D8meigNRYWcDl1AVvv9ZAMA6X9eXHWLenkRuV0sSHSdJ_xov1bRmXnCy8ANrTY_40kpAfDWyqmlWMH1lokYAT-8dMkMhZUyBknbXVjF/s400/german+manufacturing.png" /></a><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIQttOogpVCjqIGBPATEpw-hL3FI0o2zJFaM73DhZmbBASg2Ztxwsiv-T2mfNuWvwXaXQ0RAxiAnAAAIec5vIUxzyqa3abOhQBM5x8AXFzkOdTITLidzowxOW9xX-JBPyKrjfH0kKceAoc/s1600-h/german+services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350510238679268706" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIQttOogpVCjqIGBPATEpw-hL3FI0o2zJFaM73DhZmbBASg2Ztxwsiv-T2mfNuWvwXaXQ0RAxiAnAAAIec5vIUxzyqa3abOhQBM5x8AXFzkOdTITLidzowxOW9xX-JBPyKrjfH0kKceAoc/s400/german+services.png" /></a><br /><br /><strong>French Economy On The Mend</strong><br /><br />On the other hand, conditions in the French improved for the fourth straight month in June, helped by much slower falls in the level of new orders. The flash estimate for the Markit/CDAF PMI rose to 47.7 in June compared with 46.6 in May.<br /><br />The key to the improvement - according to Markit - was a sharp jump in the composite new orders index, which hit 48.3 compared to May's reading of 45.3, suggesting that demand in the euro zone's second largest economy is steadily on the mend. "The composite new orders index is getting close to stabilisation. We're still very much on course for a strong easing and it does suggest that by the end of the year we could be seeing growth again in France," according to Chris Williamson, chief economist at Markit.<br /><br />The June manufacturing PMI rose to 45.5 from 43.3, the slowest pace of contraction in activity since August last year. However, Markit cautioned against taking an overly optimistic view of the data, stressing that conditions in the French economy remain fragile, and recovery is likely to be unstable.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjt9W5G8CLWnpj_rb86H_CEU0zmU8rNSLGBnieQpZkgQTHwfiyfxH33Z-c5YbLeqcARlcQeTAdqJuF_pbruY0_7r08TbwpWWOf_sG2-H90vOLeRoYOn-ap_MfSxT8J0k2YodM5h03BAh4hz/s1600-h/french+manufacturing.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350513150435213346" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjt9W5G8CLWnpj_rb86H_CEU0zmU8rNSLGBnieQpZkgQTHwfiyfxH33Z-c5YbLeqcARlcQeTAdqJuF_pbruY0_7r08TbwpWWOf_sG2-H90vOLeRoYOn-ap_MfSxT8J0k2YodM5h03BAh4hz/s400/french+manufacturing.png" /></a><br />Just how fragile was emphasised by the fact that the services sector PMI slipped back to 47.5 from 48.3 in May, following three consecutive monthly increases.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1P7G8ixK1Hm_EJU_GKFEbuKkcBL_GPAfB86hP7eDmGJw3rSKrtZjpHSFOCPx3G4AgdvfM_Be99fbKM6Bf2I8Fjug-b0U-VnLHs2E5LN1EtCjYjSBgOdmQqY59uEzsQ2nfiZvTxaQJUx5H/s1600-h/french+services.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350512702529493218" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1P7G8ixK1Hm_EJU_GKFEbuKkcBL_GPAfB86hP7eDmGJw3rSKrtZjpHSFOCPx3G4AgdvfM_Be99fbKM6Bf2I8Fjug-b0U-VnLHs2E5LN1EtCjYjSBgOdmQqY59uEzsQ2nfiZvTxaQJUx5H/s400/french+services.png" /></a><br /><br />And just to underline the fragility part, we learnt today that spending by French consumers on manufactured goods fell in May, led by a sharp drop in purchases of clothing and household goods, according to the statistics office INSEE today (Tuesday). Consumer spending fell 0.2 percent month-on-month in May, well below a consensus forecast for a rise of 0.2 percent. Total consumption in May was down 1.6 percent compared to May 2008.<br /><br />That having been said, I have no doubt, and unequivocally, to say that as far as I am concerned France is the strongest (or least weak) economy among the EU big five (France, Germany, the UK, Italy and Spain) at the moment.Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-8529397808101838812.post-2802943347453555032009-06-23T04:41:00.000-07:002009-06-23T04:56:38.912-07:00Consumer Sentiment Also Stable In JuneGfK AG’s forward looking German consumer sentiment index for July increased to 2.9 from a revised 2.6 in June. But sentiment is still on a very low level, and in general the story is the same as the IFO one yesterday, it's all about expectations. But are these expectations well founded?<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYSof8svfbyB5wDbubZX3Cl-dD6wTG6C3uUpk4931Vg781CZxItRFd5Xb0rHmjtMdWV1BIFlQgLwpceTNjFuROJIwMg03c8zIliRUo4F8fqg1cQPpTJ6CMAlCBZtFLsnIQrwBgsbPuKs49/s1600-h/gfk+one.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 199px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYSof8svfbyB5wDbubZX3Cl-dD6wTG6C3uUpk4931Vg781CZxItRFd5Xb0rHmjtMdWV1BIFlQgLwpceTNjFuROJIwMg03c8zIliRUo4F8fqg1cQPpTJ6CMAlCBZtFLsnIQrwBgsbPuKs49/s400/gfk+one.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5350487178839775794" /></a><br /><br />With all the talk in the press and by politicians that the economic downturn may be coming to an end, consumer hopes of economic stabilization are intensifying and accordingly, economic expectations are increasing moderately. The fact that the employment market has remained fairly robust is likely to be one reason for this. Reports that the inflation rate stood at 0% in May are having a positive effect on income expectations and the propensity to buy. <br /><br />Economic expectations increased for the third month in a row. The increase of 5.7 points is even more pronounced than in the two preceding months. The indicator currently stands at -22.6 points.<br /><br /><br />Economic pessimism is declining somewhat and consumers seem to be expecting that the steep economic decline can gradually be halted. Certainly, this increase in the indicator has been supported by the fact that the expected slump on the unemployment market has so far not materialized, and has been deferred by improved short-time working regulations. However, the indicator is still far too low to warrant talk of an incipient recovery from the perspective of consumers. <br /><br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKK5flKMDsAgqxmcmI7gdb_0KmMNzMC8ve3NWeII2zPaKZEVwH8wDYsO9XNVs1gIg88S7S7WHWz8mBesOLuzwmonJ9ktmiy3HmIRNQ_ormX296jk5GntgkllN-usKA9jlQLhDzCrSAiGsN/s1600-h/gfk+two.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 241px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKK5flKMDsAgqxmcmI7gdb_0KmMNzMC8ve3NWeII2zPaKZEVwH8wDYsO9XNVs1gIg88S7S7WHWz8mBesOLuzwmonJ9ktmiy3HmIRNQ_ormX296jk5GntgkllN-usKA9jlQLhDzCrSAiGsN/s400/gfk+two.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5350487098599867442" /></a><br /><br />Following the slight drop last month, income expectations have once again recorded increases in June. The indicator has climbed 6 points to stand at -3.3, which is the highest value since April last year. The decrease in inflation and the prospects for pensioners of a significant boost to their received pension payments as of July 1, 2009 are certainly the important factors buoying up income expectations at present. These factors are counteracting creeping redundancy fears and have held at bay the negative effects on the indicator up to now. However, it is to be expected that the forecasted deterioration on the jobs market will increase these unemployment fears, and will place a great amount of strain on income expectations.<br /><br /><br />The propensity to buy not only retained its current level in June, but even improved slightly. Following an increase of 2 points this month, the indicator now stands at 14.5 points, which means that there has even been a considerable improvement of 38 points in comparison with the prior year. According to GfK the large decrease in inflation is currently stimulating the propensity to consume. Falling prices, for example as a result of the scrappage bonus, act as incentives to buy. Other industries are also implementing this type of price reduction, in order to encourage consumers to make further purchases.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-24304501224192236672009-06-22T02:29:00.001-07:002009-06-22T02:38:23.437-07:00German Business Confidence Up (Slightly)German business confidence rose for the third month in a row in June. The Ifo institute in Munich reported that its business climate index, based on a survey of 7,000 executives, increased to 85.9 from 84.3 in May. The index reached a 26-year low of 82.2 in March. As far as I can see, this isn't exactly a whole big deal. Just more of the same for now.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYO7uTQm0cdbRy6-zBxdPXgcm6vOtN8JqMpqngBMP1I2kpdgKr6OF7bmkO9sjkSi4lBxJza5FNjAEENqp-O5cKGk3N3usd9Wjdjo5k693m7tFfNR8q9c7R9ABWMCSbJWMGPQcSkLoOiQEB/s1600-h/German+IFO.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 246px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYO7uTQm0cdbRy6-zBxdPXgcm6vOtN8JqMpqngBMP1I2kpdgKr6OF7bmkO9sjkSi4lBxJza5FNjAEENqp-O5cKGk3N3usd9Wjdjo5k693m7tFfNR8q9c7R9ABWMCSbJWMGPQcSkLoOiQEB/s400/German+IFO.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5350082374020320210" /></a><br /><br />In terms of areas of activity, retail sales show no improvement, construction is up slightly, and manufacturing keeps hovering near the bottom.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCCRMqzZ3QKD6ZECYLj5oEfef73X0tCP9k0zyhYdo3t6FNLC3jgbFcL7QGgnPqpJCIXHW_FTb8YuOCnup0Sc6Pr2PrTMb6UFBw-AREVZwbEnrVoxncevPbLzdPpTu2z9rJMxy_VzG6Eshz/s1600-h/german+ifo+2.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 238px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5350082048950706930" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCCRMqzZ3QKD6ZECYLj5oEfef73X0tCP9k0zyhYdo3t6FNLC3jgbFcL7QGgnPqpJCIXHW_FTb8YuOCnup0Sc6Pr2PrTMb6UFBw-AREVZwbEnrVoxncevPbLzdPpTu2z9rJMxy_VzG6Eshz/s400/german+ifo+2.png" /></a><br /><br />Ifo’s measure of expectations increased to 89.5 from 86 while a gauge of current conditions eased to 82.4 from 82.5. It is obvious that the current situation in June is no better than March - in fact the conditions are still the worst to date, and all the work is being done by "expectations". It would be really, really interesting to understand just what is driving those expectations.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibnL2d4Pl3L0EKQrNM_yR5xz4rTDUcnByXHsr0puN7FlLeigxbQEbLWuL0YkTkpdNvz4sfqvnWRHYwy_Z1z3hmGBOB1CN0oUmkUtSCsKtN8iFY1CZsKLWjSGNJ4NVaenqmbhZluLo21Usp/s1600-h/german+IFO+three.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 245px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibnL2d4Pl3L0EKQrNM_yR5xz4rTDUcnByXHsr0puN7FlLeigxbQEbLWuL0YkTkpdNvz4sfqvnWRHYwy_Z1z3hmGBOB1CN0oUmkUtSCsKtN8iFY1CZsKLWjSGNJ4NVaenqmbhZluLo21Usp/s400/german+IFO+three.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5350082304882192194" /></a>Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-8529397808101838812.post-48428373849400235492009-06-20T02:48:00.000-07:002009-06-20T03:27:45.895-07:00Facebook LinksQuietly clicking my way through Bloomberg last Sunday afternoon, <a href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aC4zbsgMD6x8">I came across this</a>:<br /><br /><br /><blockquote><strong>Facebook Members Register Names at 550 a Second</strong><br /><br />Facebook Inc., the world’s largest social-networking site, said members registered new user names at a rate of more than 550 a second after the company offered people the chance to claim a personalized Web address.<br /><br />Facebook started accepted registrations at midnight New York time on a first-come, first-served basis. Within the first seven minutes, 345,000 people had claimed user names, said Larry Yu, a spokesman for Palo Alto, California-based Facebook. Within 15 minutes, 500,000 users had grabbed a name. </blockquote><br /><br />Mein Gott, I thought to myself, if 550 people a second are doing something, they can't all be wrong. So I immediately signed up. Actually, this isn't my first experience with social networking since I did try Orkut out some years back, but somehow I didn't quite get the point. Either I was missing something, or Orkut was. Now I think I've finally got it. Perhaps the technology has improved, or perhaps I have. As I said in one of my first postings:<br /><br /><blockquote>Ok. This is just what I've always wanted really. A quick'n dirty personal blog. Here we go. Boy am I going to enjoy this.</blockquote>Daniel Dresner once broke bloggers down into two groups, the "thinkers" and the "linkers". I probably would be immodest enough to suggest that most of my material falls into the first category (my postings are lo-o-o-ng, horribly long), but since I don't really fit any mould, and I am hard to typecast, I also have that hidden "linker" part, struggling within and desperate to come out. Which is why Facebook is just great.<br /><br />In addition, on blogs like this I can probably only manage to post something worthwhile perhaps once or twice a month, and there is news everyday.<br /><br />So, if you want some of that up to the minute "breaking" stuff, and are willing to submit yourself to a good dose of link spam, why not come on in and subscribe to my new state-of-the-art blog? You can either send me a friend request via FB, or mail me direct (you can find the mail on my Roubini Global page). Let's all go and take a long hard look at the future, you never know, it might just work.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-66592576351712283912009-06-16T06:20:00.000-07:002009-06-16T13:30:13.104-07:00Everything In Germany Is Going Up....Everything in Germany is going up, except it seems the real economy - and except of course prices, which were stationary in May (that is a change of 0% year on year - the lowest inflation rate for over 20 years). Anyway, today it was the turn of investor confidence to put in another good reading. In fact German investor confidence rose to what is effectively a three-year high in June. Aparently investors feel the recession in Europe’s largest economy is bottoming out.<br /><br />The ZEW Center for European Economic Research said its index of investor and analyst expectations increased to 44.8 from 31.1 in May - the highest reading since May 2006.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzxGpfUabUss2-jVLA-Re3DflGdCWgGvOvhwWu8H80VpGLmxdDYwS2Ecbpg1kQhxo-yRvJg6ucSn67RYXtcYR-K_ajzeOTy5WObKl-KWuefnQj3dtM68bf3c7s4jVCTN2aI5Z1urIuYegP/s1600-h/german+zew.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 212px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5347915163232860610" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzxGpfUabUss2-jVLA-Re3DflGdCWgGvOvhwWu8H80VpGLmxdDYwS2Ecbpg1kQhxo-yRvJg6ucSn67RYXtcYR-K_ajzeOTy5WObKl-KWuefnQj3dtM68bf3c7s4jVCTN2aI5Z1urIuYegP/s400/german+zew.png" /></a><br /><br />Unfortunately, there is little real evidence to support this highly optimistic view of the future.<a name='more'></a><br /><br />True German retail sales were also up in April - for the first time in four months - as warmer weather, falling prices and the late Easter holiday seem to have encouraged consumers to spend more. Seasonally adjusted rose 0.5 percent from March, according to the Federal Statistics Office. Nonetheless, year on year sales were still down 0.8 percent.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG31pKyavWi3YMGmBzPI8GSB_iYtIg_DApyawnuO8K0t4zZGr8MIoWUxlB6f8PrlpbeTlH-9bj8KsRtEpY5rykrO9EXcn5AXUcRXwM8vpvp84SCacheuQi_Rw1F5RVwEkiDrDY00qVOQ7T/s1600-h/german+retail+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341176559706887474" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG31pKyavWi3YMGmBzPI8GSB_iYtIg_DApyawnuO8K0t4zZGr8MIoWUxlB6f8PrlpbeTlH-9bj8KsRtEpY5rykrO9EXcn5AXUcRXwM8vpvp84SCacheuQi_Rw1F5RVwEkiDrDY00qVOQ7T/s400/german+retail+two.png" /></a><br /><br />And in the longer run German retail sales are declining steadily.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD4ju3QqrpGjdqT8dJxz6xm3oOjm7r49NbPEsMbBxywcWs2E8iTtTfbHwXQx9CVbIdl1tkM6G19RNhLQOq2WWx_x4lnOFV6XD17Da5aQBBqEPPkc44jZdKbL9_-pjXfG90pMXUcXtiW2Z6/s1600-h/german+retail+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341176684511077874" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD4ju3QqrpGjdqT8dJxz6xm3oOjm7r49NbPEsMbBxywcWs2E8iTtTfbHwXQx9CVbIdl1tkM6G19RNhLQOq2WWx_x4lnOFV6XD17Da5aQBBqEPPkc44jZdKbL9_-pjXfG90pMXUcXtiW2Z6/s400/german+retail+one.png" /></a><br /><br />Indeed according to the May retail sales PMI Germany posted the steepest fall in monthly sales among the "big three", replacing Italy poll position. The German PMI fell to 46.3, the twelfth successive month the measure has shown a negative reading. Interestingly, the PMI more or less accurately picked up the improved position in April.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNvigGiMLy4oCGS0Txwt7pgKNnGNcWo5IWGB-0El9svVoPkC7OO28sf2VC_os66aHc3DIFZife-oCoDD_bAg6lh9YAQYO8rhwnrnEeqXpkXg6FCrTmOPFcHyl2I5xyGwqkQc5dXufLxp4L/s1600-h/germany+PMI.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 218px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341171211944362754" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNvigGiMLy4oCGS0Txwt7pgKNnGNcWo5IWGB-0El9svVoPkC7OO28sf2VC_os66aHc3DIFZife-oCoDD_bAg6lh9YAQYO8rhwnrnEeqXpkXg6FCrTmOPFcHyl2I5xyGwqkQc5dXufLxp4L/s400/germany+PMI.png" /></a><br /><strong>Exports Still Stuck At A Very Low Level - And Falling<br /></strong><br /><br />Both exports and investment spending plunged in Germany during the first quarter, dragging the economy down into its deepest economic slump on record. </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDM7mNHomALb0BqKtlfgrBXvczxtdir-YJXT2llBfPiOuozLqTaeeVb_vHNeOTWhhA4asmk0hc7DvyRloB3IjrmwcHvr1pV476g5U6OJU5nRPvgx7B9U7Tc5id3FcGzhF_z0q2JPjfIKeZ/s1600-h/german+exports.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 246px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340165719325016402" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDM7mNHomALb0BqKtlfgrBXvczxtdir-YJXT2llBfPiOuozLqTaeeVb_vHNeOTWhhA4asmk0hc7DvyRloB3IjrmwcHvr1pV476g5U6OJU5nRPvgx7B9U7Tc5id3FcGzhF_z0q2JPjfIKeZ/s400/german+exports.png" /></a><br /><br />Exports were down 9.7 percent from the fourth quarter of last year and company investment declined 7.9 percent, according to the detailed report from the Federal Statistics Office. The Office reported that GDP fell a seasonally adjusted 3.8 percent from the previous three months, confirming the initial estimate from May 15. That’s the largest drop since quarterly data were first compiled in 1970.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOrLRpep6uyArprM8hDuBmGfh6rvJZS_hrUqxmvgMXybywk7xi2lqklcdeMdCz71Mnc_csK6GOCE5sJhLmABoAC0EgDGUXEafkrIfdafe7fSFyguc25CBRcLDS_BUBlOcIgaLGiE9BcL-5/s1600-h/german+GDP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 226px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340165600989906290" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOrLRpep6uyArprM8hDuBmGfh6rvJZS_hrUqxmvgMXybywk7xi2lqklcdeMdCz71Mnc_csK6GOCE5sJhLmABoAC0EgDGUXEafkrIfdafe7fSFyguc25CBRcLDS_BUBlOcIgaLGiE9BcL-5/s400/german+GDP.png" /></a><br /><br />German exports have not touched bottom yet, and they are still falling, with seasonally and working day adjusted exports dropping 4.8 percent in April from March, when they rose a revised 0.3 percent. Since the German economy is completely export dependent, this implies the obvious, that the German economy is still contracting. I don't think anyone ever doubted this, but looking at the way the investor confidence reading is being presented today, you could be forgiven if you had gained the opposite impression.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQfFvC8BrPgINWnzKKAaSvjvf6PpR3sOBnWIUOVo_NcjTVfWto_DRpCNE0Ci-cYeADG86XSywVDdaF3x0WO0mtZ2AxQ5oRP4eHa_c-Z91Yq2Ao5NbaKKT55CHgKcbId6NtnLISQrmAY5pq/s1600-h/germany+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345246039702951602" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQfFvC8BrPgINWnzKKAaSvjvf6PpR3sOBnWIUOVo_NcjTVfWto_DRpCNE0Ci-cYeADG86XSywVDdaF3x0WO0mtZ2AxQ5oRP4eHa_c-Z91Yq2Ao5NbaKKT55CHgKcbId6NtnLISQrmAY5pq/s400/germany+two.png" /></a><br /><br />Indeed on a year on year basis, exports were down by 22.9%, the fastest rate of decline registered so far, although since such annual stats are not working day corrected I wouldn't read too much into that just yet, since you really do need to average across March and April due to the Easter impact.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOmVwVEurjwM2cQREjIfZlB49srCbFa6doG07ATpHzchqaeNkvGiIcQozn7CYOVr8LJL3BT8FjyD-TJjs47SZwbAa3Iu7jxJxNwOHIIP0iC6cY6rcTMA3OPspUy0_n2M31KSzXp6fr1JcO/s1600-h/germany+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345245970712068994" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOmVwVEurjwM2cQREjIfZlB49srCbFa6doG07ATpHzchqaeNkvGiIcQozn7CYOVr8LJL3BT8FjyD-TJjs47SZwbAa3Iu7jxJxNwOHIIP0iC6cY6rcTMA3OPspUy0_n2M31KSzXp6fr1JcO/s400/germany+one.png" /></a><br /><strong>Both Trade And Investment Drive The Economy Downwards </strong><br /><br />Looked at between quarters the German economy contracted by 2.2% (or at an 8.8% annualised rate) over the last three months of 2008, following a 0.5% drop in both the second and third quarters of last year.<br /><br />According to the statistics office, the decline was mainly due to movements in the balance between exports and imports (goods and services combined). As in the fourth quarter of 2008, German exports fell much more than imports. The negative first quarter performance was also associated with a notable decline in investments (down 7.9%, quarter on quarter). Capital formation in machinery and equipment, in particular, was much lower. Companies invested 16.2% less in machinery, equipment and vehicles than in the last quarter of 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s1600-h/german+macin+euip.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 248px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340168124660685586" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s400/german+macin+euip.png" /></a><br /><br />Inventories were allowed to deplete during the quarter, which reduced growth by 0.5 percentage points. The only really positive elements were household and government consumption, which were up by 0.5% and 0.3% respectively.<br /><br />In contrast to the bleak picture for investment, fixed capital formation and German exports, final consumption expenditure was ever so slightly up quarter on quarter - by 0.1% - and even did slightly better than in the last quarter of 2008 (– 0.0%). <br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIP7M3QOpKubV4LEtkvOkmad01eYacmc9TonXkyGgPeEioFjjrC2IJqoG_LSR1_C-uAPUWwemrCbvu3zBjtV3wNY-P6ewgt65n2IDqMgldOtqZ71ex_rjF9mUb7t1hG1zpfNL5Rk_pn572/s1600-h/german+household+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 249px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340168956509831394" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIP7M3QOpKubV4LEtkvOkmad01eYacmc9TonXkyGgPeEioFjjrC2IJqoG_LSR1_C-uAPUWwemrCbvu3zBjtV3wNY-P6ewgt65n2IDqMgldOtqZ71ex_rjF9mUb7t1hG1zpfNL5Rk_pn572/s400/german+household+consumption.png" /></a><br /><br />On a year on year basis, household consumption was marginally down though - by 0.1% (following a 0.5% drop in the fourth quarter of 2008), general government consumption expenditure, however, was up by 0.8%.<br /><br /><strong>The Long Term Outlook</strong><br /><br />The first-quarter GDP performance has thus completed an unprecedented four quarters of continuous contraction for the Germany economy. The German government has said it now expects the economy to contract by 6 percent over the year as a whole, and even optimist ECB council member Axel Weber has admitted that while he can see some positive “rays of light”, there’s still “no reliable indication that the global economy is past the worst.” The euro-region economy may only “gradually stabilize during the latter part of 2009.” </p><p>The longer term decline in German GDP performance is now pretty clear (see chart below).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnBFgPUgcU_cNu6zjSZZd4wt4ZLW8J2gEavtvXaSd7QaOZotU7p_MRiF_qUWtdgm_D8H_vstL2nmiDqpAME35gcEdvpqEhcPknGleBQoScZcl6HZrV4SdR2s18GteAgM5NSh_TNc722sp2/s1600-h/german+long+term+GDP.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 237px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340166272940891746" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnBFgPUgcU_cNu6zjSZZd4wt4ZLW8J2gEavtvXaSd7QaOZotU7p_MRiF_qUWtdgm_D8H_vstL2nmiDqpAME35gcEdvpqEhcPknGleBQoScZcl6HZrV4SdR2s18GteAgM5NSh_TNc722sp2/s400/german+long+term+GDP.png" /></a> </p><p></p><p>According <a href="http://www.destatis.de/presse/englisch/pm2002/p2560121.htm">to the Federal Statistics Office</a>: </p><br /><br /><blockquote><em>Measured in terms of gross domestic product changes at 1995 prices, the rates of economic growth in the former territory of the Federal Republic of Germany and - since 1991 - in Germany have continuously declined since 1970. While the average annual change was 2.8% between 1970 and 1980, it amounted to 2.6% between 1980 and 1991 and to 1.5% between 1991 and 2001.</em> </blockquote><br /><br /><p>Since 2001 the performance of the German economy has in fact been worse rather than better, much to the consternation of those who hoped that many years of sacrifice in the form of wage deflation and structural reform would lead to a rebirth of the country's former economic prowess. In reality the German economy shrank (0.2%) in 2003, and grew by only around 1% in both 2004 and 2005. And while the German economy picked up notably in 2006 and 2007 (with growth rates of 3.2% and 2.6% respectively) and many talking in terms of such grandiose notions as global uncoupling and "Goldilocks" type sustainable recoveries, the most striking feature of the recent German dynamic has been the way that internal demand failed to respond to the externally driven export stimulus. Of course, all the speculation came to an abrupt end in 2008 when the German economy once more entered recession as world trade expansion slowed and exports collapsed (with GDP only growing by 1% over the year), while 2009 looks set to be a lot worse (with the IMF currently forecasting a contraction somewhere in the region of 5%, and forecasts of up to minus 7% not seeming exaggerated).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-9MIG5ic24i2_47T2LsUs7CZaC5yCn0dId00lnsaItnD_JoS_jbMtjDTkFP4QODqqb_5qXDrcWQ4yJbKDXsX37Xdo38i5WiMfeg4dB4L3l_MruXTHxutQxZKin9DLnhBdGNYHt7FPzUzN/s1600-h/german+gdp+consumption.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 249px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340168283741062034" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-9MIG5ic24i2_47T2LsUs7CZaC5yCn0dId00lnsaItnD_JoS_jbMtjDTkFP4QODqqb_5qXDrcWQ4yJbKDXsX37Xdo38i5WiMfeg4dB4L3l_MruXTHxutQxZKin9DLnhBdGNYHt7FPzUzN/s400/german+gdp+consumption.png" /></a></p>What we seem to have here is "<a href="http://globaleconomydoesmatter.blogspot.com/2009/03/japan-engine-failure.html">engine faliure</a>" rather than mere "magneto problems" (using Claus Vistesen's memorable phrase for a very similar situation in the Japanese economy, and it would be nice if the current crisis could serve as the stimulus for an open, and "in the real world" debate about why this is. So some part of the traditional mechanism of economic transmission seems to have been broken, and the "second leg" of the economic cycle, the domestic consumtion driven one, seems no longer to work. Long term GDP growth rates in the German economy are clearly falling, and the decline looks clearly set to continue.<br /><br />And as <a href="http://www.guardian.co.uk/business/2009/jun/14/economics-globalrecession">Will Hutton points out to Paul Krugman </a>- on top of the massive drop in economic activity there is a huge potential banking crisis looming over the horizon. The IMF have warned that Germany could be looking at over $500bn of writedowns. German banks - according to Hutton - hold a trillion dollars - maybe more - of maturing collateralised debt obligations. And as Krugman says:<br /><blockquote>It’s Germany on a global scale that is the concern. We worry about the drag on world demand from the global savings coming out of east Asia and the Middle East, but within Europe there’s a European savings glut which is coming out of Germany. And it’s much bigger relative to the size of the economy.</blockquote><br />So we know that the German economy (like its Swedish counterpart) is now by and large a very unstable cocktail of accumulating surpluses and using them to finance risky lending elsewhere. But why and how exactly has Germany gotten into this mess. On this there is largely silence. The falling and ageing population issue couldn't have anything to do with it, now could it?<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmGHZ3cE-SwL-wZhjN-p-TwdXnTuotB9XIWPvqm3HycukCdooFKzjA8uBwFmzNEWjRTqTLmvM_WsaBLpCrD90j-eufwRMxsJ5Q_6q6Das3GFuLwrLeW-XgjD4OX_PXNszf_ZqvUOiZu5G5/s1600-h/german+population.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5340847253090241970" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmGHZ3cE-SwL-wZhjN-p-TwdXnTuotB9XIWPvqm3HycukCdooFKzjA8uBwFmzNEWjRTqTLmvM_WsaBLpCrD90j-eufwRMxsJ5Q_6q6Das3GFuLwrLeW-XgjD4OX_PXNszf_ZqvUOiZu5G5/s400/german+population.png" /></a>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8529397808101838812.post-40937317359176357082009-06-09T10:00:00.000-07:002009-06-09T10:02:09.684-07:00Green Shoots In Germany and Estonia?Well, I am busying myself this morning <a href="http://turkeyeconomy.blogspot.com/2009/06/green-sprouts-in-turkey.html">scratching around looking for green shoots in Turkey</a>. But even as I was digging for these I couldn't help notice this coming in over the radar from Germany, <a href="http://www.bloomberg.com/apps/news?pid=20601100&sid=atXNxvbig9wg&refer=germany">courtesy of Bloomberg</a>:<br /><br /><blockquote>German exports fell more than economists forecast in April as the global crisis restrained demand, keeping Europe’s largest economy mired in a recession. Sales abroad, adjusted for working days and seasonal changes, fell 4.8 percent from March, when they rose a revised 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a 0.1 percent decline in April, according to the median of 10 estimates in a Bloomberg News survey. </blockquote>So German exports have not touched bottom yet - they are still falling. Since the German economy is export dependent, then this implies the obvious, the German economy is still contracting. I don't think anyone ever doubted this, but looking at the way some of the material has been presented recently, it wasn't always clear.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQfFvC8BrPgINWnzKKAaSvjvf6PpR3sOBnWIUOVo_NcjTVfWto_DRpCNE0Ci-cYeADG86XSywVDdaF3x0WO0mtZ2AxQ5oRP4eHa_c-Z91Yq2Ao5NbaKKT55CHgKcbId6NtnLISQrmAY5pq/s1600-h/germany+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345246039702951602" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQfFvC8BrPgINWnzKKAaSvjvf6PpR3sOBnWIUOVo_NcjTVfWto_DRpCNE0Ci-cYeADG86XSywVDdaF3x0WO0mtZ2AxQ5oRP4eHa_c-Z91Yq2Ao5NbaKKT55CHgKcbId6NtnLISQrmAY5pq/s400/germany+two.png" /></a><br /><br />Indeed year on year, exports fell by 22.9%, the fastest rate so far, although since these annual stats are not working day corrected I wouldn't read too much into that just yet, since you really do need to average across March and April due to the Easter impact.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOmVwVEurjwM2cQREjIfZlB49srCbFa6doG07ATpHzchqaeNkvGiIcQozn7CYOVr8LJL3BT8FjyD-TJjs47SZwbAa3Iu7jxJxNwOHIIP0iC6cY6rcTMA3OPspUy0_n2M31KSzXp6fr1JcO/s1600-h/germany+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 216px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345245970712068994" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOmVwVEurjwM2cQREjIfZlB49srCbFa6doG07ATpHzchqaeNkvGiIcQozn7CYOVr8LJL3BT8FjyD-TJjs47SZwbAa3Iu7jxJxNwOHIIP0iC6cY6rcTMA3OPspUy0_n2M31KSzXp6fr1JcO/s400/germany+one.png" /></a><br />Another country where rather unsurprisingly we aren't seeing too many green shoots at the moment is Estonia, and only today <a href="http://www.stat.ee/33908"> the statistics office reported</a> that exports decreased by 38% and imports by 41% (year on year) in April.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNMDm4rs6pABBjggTQzt2VYoE60uP17RpYAdqMqaaUpI122JwrsV7dnUFoSeZ13F1XfOU90liu_-PDwB6I7WVavW9mlxER7V_wm4rCZ5qtumRWJxAebjU5jr0B04uRsJNzrqUDYOjOjZDQ/s1600-h/estonia+three.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 211px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345231379594623922" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNMDm4rs6pABBjggTQzt2VYoE60uP17RpYAdqMqaaUpI122JwrsV7dnUFoSeZ13F1XfOU90liu_-PDwB6I7WVavW9mlxER7V_wm4rCZ5qtumRWJxAebjU5jr0B04uRsJNzrqUDYOjOjZDQ/s400/estonia+three.png" /></a><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidDUzfqO0Up7gnpJjGubY0x9pbriEUwPKxCP5sj1ruKO-oOAF-8PbtIekH2QzWKsloxM8D_gm5lMvL6fmTbENfG0xd6OQFxW9K1-1eEmxpYJBZR8pYNYYzdZdnno-IcuNlavKLZ3zDqJBP/"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 210px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345231247481198306" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidDUzfqO0Up7gnpJjGubY0x9pbriEUwPKxCP5sj1ruKO-oOAF-8PbtIekH2QzWKsloxM8D_gm5lMvL6fmTbENfG0xd6OQFxW9K1-1eEmxpYJBZR8pYNYYzdZdnno-IcuNlavKLZ3zDqJBP/s400/estonia+one.png" /></a><br /><br />As a result the Estonian trade deficit rose for the second month running, and hit 1.8 billion kroons. So what we are seeing here is a distinct move in the <strong>wrong</strong> direction, on both counts.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinnUH-tfwWC7A95D-7XMgKKtF2hsaRleD7ziLy65RrVJ0PHCgS_B6y63qR7E1lsgaQHPhBn1XBwck5eOym9W4sGVNcVHCF6TsLhyjYPwrBb3GxVQVcEoWRw8BrvSrfDeGEYzNAInSID82S/s1600-h/estonia+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 214px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345231315818111250" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinnUH-tfwWC7A95D-7XMgKKtF2hsaRleD7ziLy65RrVJ0PHCgS_B6y63qR7E1lsgaQHPhBn1XBwck5eOym9W4sGVNcVHCF6TsLhyjYPwrBb3GxVQVcEoWRw8BrvSrfDeGEYzNAInSID82S/s400/estonia+two.png" /></a><br /><br />We also learnt <a href="http://www.stat.ee/31162">from the Estonian stats office today</a> that GDP contracted by 15.1% (year on year) in the first three months of this year - a figure which was revised down from the earlier flash estimate of 15.6%.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqzsoCz6dewAzK05igMWCLUafyN7IcDzY_jnQh7ksvFCAjPE-QUO6_GmbPsHZzuHLs-v9tDlm0FPllD2o09awUakg3WcyGqRhCMmjbnu0oN_crXXdpojOUmcoC8VYpeKlLFI0oPdNEgSD2/s1600-h/estonia+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 215px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345251009444959922" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqzsoCz6dewAzK05igMWCLUafyN7IcDzY_jnQh7ksvFCAjPE-QUO6_GmbPsHZzuHLs-v9tDlm0FPllD2o09awUakg3WcyGqRhCMmjbnu0oN_crXXdpojOUmcoC8VYpeKlLFI0oPdNEgSD2/s400/estonia+one.png" /></a><br /><br />Compared to the 4th quarter of last year, seasonally and working-day adjusted GDP decreased by 6.1% (more on all this in another post).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcXV4MBRfFh7sYBIcwaxZBql228b-H1djWTlVZq4pwgbbD6tZ61jpYjYnDO2hk-AvUBzljp_ejD22_6AyK5nn8NGaeYdg1g8VDsvJ2rgAu5FthhHsZsms7J_fc80v41tzDmunffePSUIBc/s1600-h/estonia+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 228px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5345250953214321186" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcXV4MBRfFh7sYBIcwaxZBql228b-H1djWTlVZq4pwgbbD6tZ61jpYjYnDO2hk-AvUBzljp_ejD22_6AyK5nn8NGaeYdg1g8VDsvJ2rgAu5FthhHsZsms7J_fc80v41tzDmunffePSUIBc/s400/estonia+two.png" /></a><br /><br /><br />Finally on the green shoots front for today, we could note that Hungary's industrial production plummeted in April by 25.3% (year on year) according to working day adjusted data released by the stats office. This compares with a year on year contraction of 19.6% in March.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFoD1-6A59dxSQqyvBe3heD-1b3CNcXPCT0uXNnrtBKiTxcjePKw_Q4C2wHhdZgCel5MIkAcdWrY6yBgwiIblTYK2_CSqKyJEMym2Suf-T_ozJ43eJggSlpdZ_EKml2-3On0p7exytOTD7/s1600-h/hungary+IP+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 238px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5343928238423531826" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFoD1-6A59dxSQqyvBe3heD-1b3CNcXPCT0uXNnrtBKiTxcjePKw_Q4C2wHhdZgCel5MIkAcdWrY6yBgwiIblTYK2_CSqKyJEMym2Suf-T_ozJ43eJggSlpdZ_EKml2-3On0p7exytOTD7/s400/hungary+IP+one.png" /></a><br /><br />Month on month there was seasonally and working day adjusted drop of 5.1% in April, following 4.5% growth in March. So again, output is still falling, and no bottom has been reached.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXJfMOW3hEG2AfkNxDMY4IA05mnc3kzroVWplUmpQIc4Swg_cuqDsb2keuoh19lTgikx9RQnBxi9-GMuaD1nPyUYTSpmYVrShEqlc3A2SzylVzjzAgRpzbfTamNo41bHw58c9DqDVpqSvW/s1600-h/hungary+IP+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5343928336027072258" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXJfMOW3hEG2AfkNxDMY4IA05mnc3kzroVWplUmpQIc4Swg_cuqDsb2keuoh19lTgikx9RQnBxi9-GMuaD1nPyUYTSpmYVrShEqlc3A2SzylVzjzAgRpzbfTamNo41bHw58c9DqDVpqSvW/s400/hungary+IP+two.png" /></a><br /><br />This latest Hungarian data is particularly unpalatable following a number of reports which had been left open the possibility that the downturn in the Hungarian economy had ground to a halt, or at least staretd to decelerate. If industrial output shows similar weakness in other East European countries then this does not augur well for future German and eurozone output, since Hungary plays a significant role in the early stages of the European manufacturing production chain.Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-8529397808101838812.post-24358940683999986982009-05-29T02:29:00.000-07:002009-06-16T09:02:15.114-07:00German Retail Sales Up Slightly In AprilGerman retail sales were up in April for the first time in four months as warmer weather and the late Easter seem to have encouraged consumers to spend more. Sales, adjusted for inflation and seasonal swings, rose 0.5 percent from March, the Federal Statistics Office in Wiesbaden said today. Nonetheless, year on year sales were still down 0.8 percent.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG31pKyavWi3YMGmBzPI8GSB_iYtIg_DApyawnuO8K0t4zZGr8MIoWUxlB6f8PrlpbeTlH-9bj8KsRtEpY5rykrO9EXcn5AXUcRXwM8vpvp84SCacheuQi_Rw1F5RVwEkiDrDY00qVOQ7T/s1600-h/german+retail+two.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341176559706887474" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhG31pKyavWi3YMGmBzPI8GSB_iYtIg_DApyawnuO8K0t4zZGr8MIoWUxlB6f8PrlpbeTlH-9bj8KsRtEpY5rykrO9EXcn5AXUcRXwM8vpvp84SCacheuQi_Rw1F5RVwEkiDrDY00qVOQ7T/s400/german+retail+two.png" /></a><br /><br />And in the longer run German retail sales are declining steadily.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD4ju3QqrpGjdqT8dJxz6xm3oOjm7r49NbPEsMbBxywcWs2E8iTtTfbHwXQx9CVbIdl1tkM6G19RNhLQOq2WWx_x4lnOFV6XD17Da5aQBBqEPPkc44jZdKbL9_-pjXfG90pMXUcXtiW2Z6/s1600-h/german+retail+one.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 230px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341176684511077874" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgD4ju3QqrpGjdqT8dJxz6xm3oOjm7r49NbPEsMbBxywcWs2E8iTtTfbHwXQx9CVbIdl1tkM6G19RNhLQOq2WWx_x4lnOFV6XD17Da5aQBBqEPPkc44jZdKbL9_-pjXfG90pMXUcXtiW2Z6/s400/german+retail+one.png" /></a><br /><br />Indeed according to the May retail sales PMI, Germany posted the steepest fall in monthly sales among the "big three", replacing Italy in poll position. The German PMI fell to 46.3, the twelfth successive month the measure has shown a negative reading.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNvigGiMLy4oCGS0Txwt7pgKNnGNcWo5IWGB-0El9svVoPkC7OO28sf2VC_os66aHc3DIFZife-oCoDD_bAg6lh9YAQYO8rhwnrnEeqXpkXg6FCrTmOPFcHyl2I5xyGwqkQc5dXufLxp4L/s1600-h/germany+PMI.png"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 218px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5341171211944362754" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhNvigGiMLy4oCGS0Txwt7pgKNnGNcWo5IWGB-0El9svVoPkC7OO28sf2VC_os66aHc3DIFZife-oCoDD_bAg6lh9YAQYO8rhwnrnEeqXpkXg6FCrTmOPFcHyl2I5xyGwqkQc5dXufLxp4L/s400/germany+PMI.png" /></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-68771287280584291802009-05-28T09:06:00.000-07:002009-05-28T09:06:00.337-07:00Exports And Investment Drag German GDP Down In First QuarterGerman exports and investment spending plunged in the first quarter, dragging Europe’s largest economy into its deepest economic slump on record.<br /><br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDM7mNHomALb0BqKtlfgrBXvczxtdir-YJXT2llBfPiOuozLqTaeeVb_vHNeOTWhhA4asmk0hc7DvyRloB3IjrmwcHvr1pV476g5U6OJU5nRPvgx7B9U7Tc5id3FcGzhF_z0q2JPjfIKeZ/s1600-h/german+exports.png"><img id="BLOGGER_PHOTO_ID_5340165719325016402" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 246px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDM7mNHomALb0BqKtlfgrBXvczxtdir-YJXT2llBfPiOuozLqTaeeVb_vHNeOTWhhA4asmk0hc7DvyRloB3IjrmwcHvr1pV476g5U6OJU5nRPvgx7B9U7Tc5id3FcGzhF_z0q2JPjfIKeZ/s400/german+exports.png" border="0" /></a><br /><br />Exports were down 9.7 percent from the fourth quarter and company investment declined 7.9 percent, according to the Federal Statistics Office. The Office reported that gross domestic product fell a seasonally adjusted 3.8 percent from the previous three months, confirming an initial estimate from May 15. That’s the largest drop since quarterly data were first compiled in 1970.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOrLRpep6uyArprM8hDuBmGfh6rvJZS_hrUqxmvgMXybywk7xi2lqklcdeMdCz71Mnc_csK6GOCE5sJhLmABoAC0EgDGUXEafkrIfdafe7fSFyguc25CBRcLDS_BUBlOcIgaLGiE9BcL-5/s1600-h/german+GDP.png"><img id="BLOGGER_PHOTO_ID_5340165600989906290" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 226px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOrLRpep6uyArprM8hDuBmGfh6rvJZS_hrUqxmvgMXybywk7xi2lqklcdeMdCz71Mnc_csK6GOCE5sJhLmABoAC0EgDGUXEafkrIfdafe7fSFyguc25CBRcLDS_BUBlOcIgaLGiE9BcL-5/s400/german+GDP.png" border="0" /></a><br /><br />From October to December 2008, the German economy had already contracted by 2.2%, and by 0.5% in each of the the second and third quarters.<br /><br />According to the statistics office, the decline in economic performance was mainly due to movements in the balance between exports and imports of both goods and services. As in the fourth quarter of 2008, German exports fell much more than German imports in the first three months of this year. While exports declined 9.7 % year on year, imports were down 5.4%, so that the chnaged balance of exports and imports contributed minus 2.2 percentage points to the decline of GDP.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW4SWzls6UlYy1ZbuD5UfR0Tm7mgyYteo8qe483NNMd93JfnFFPUmH4GTrkXSp2JVptC5TvvSgU2TlDvBqlozXjg-8RSCeqtR2KxG9CSHkT5rVdA2gmwStTtMNhWpHO8d1XV3y2G0qLg7R/s1600-h/german+imports.png"><img id="BLOGGER_PHOTO_ID_5340165832211496850" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 247px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW4SWzls6UlYy1ZbuD5UfR0Tm7mgyYteo8qe483NNMd93JfnFFPUmH4GTrkXSp2JVptC5TvvSgU2TlDvBqlozXjg-8RSCeqtR2KxG9CSHkT5rVdA2gmwStTtMNhWpHO8d1XV3y2G0qLg7R/s400/german+imports.png" border="0" /></a><br /><br />The negative first quarter evolution was also characterised by a notable decline in investments (– 7.9%, quarter on quarter). Capital formation in machinery and equipment, in particular, was much lower than in the last quarter of 2008. Companies invested 16.2% less in machinery, equipment and vehicles than in the last quarter of 2008.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s1600-h/german+macin+euip.png"><img id="BLOGGER_PHOTO_ID_5340168124660685586" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 248px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s400/german+macin+euip.png" border="0" /></a><br />The decline in capital formation in construction was small in comparison with a drop of 2.6% on the quarter. Inventories were also run down considerably during the quarter, thus reducing growth by 0.5 percentage points. Growth was positive only only for household consumption and government consumption, which up by 0.5% and 0.3% respectively.<br /><br /><br />Year on year, German GDP was down by 6.7% in the first quarter of 2009. After calendar-adjusted, the figure is 6.9% , since there was half a working day more in the first quarter of 2009 than there was in 2008 (easter impact minus the leap year effect).<br /><br />39.9 million people were employed in Germany during the first quarter, an increase by 48 000 persons (or 0.1%) on a year earlier. The number of unemployed (ILO definition) was just under 3.4 million, 7.8% of the entire economically active population. </p><p><br />The recession in Germany has hit industrial activity (including energy) particularly hard, and output was down 20.2% over the first quarter of 2008. Marked declines in real gross value added were recorded also by construction (– 8.9%) and by trade, transport and communications (– 6.4%). Financial, real estate, renting and business activities fell much less - by 0.9% compared with the first quarter of 2008. </p><p><br />In contrast to the bleak picture for investment, fixed capital formation and German exports, final consumption expenditure was ever so slightly up quarter on quarter - by 0.1% - and even did slightly better than in the last quarter of 2008 (– 0.0%). </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIP7M3QOpKubV4LEtkvOkmad01eYacmc9TonXkyGgPeEioFjjrC2IJqoG_LSR1_C-uAPUWwemrCbvu3zBjtV3wNY-P6ewgt65n2IDqMgldOtqZ71ex_rjF9mUb7t1hG1zpfNL5Rk_pn572/s1600-h/german+household+consumption.png"><img id="BLOGGER_PHOTO_ID_5340168956509831394" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 249px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIP7M3QOpKubV4LEtkvOkmad01eYacmc9TonXkyGgPeEioFjjrC2IJqoG_LSR1_C-uAPUWwemrCbvu3zBjtV3wNY-P6ewgt65n2IDqMgldOtqZ71ex_rjF9mUb7t1hG1zpfNL5Rk_pn572/s400/german+household+consumption.png" border="0" /></a><br /><br />On a year on year basis, household consumption was marginally down though - by 0.1% (following a 0.5% drop in the fourth quarter of 2008), but general government consumption expenditure was up by 0.8%.<br /><br /><strong>The Long Term Outlook</strong><br /><br />The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction for Germany’s economy. The government expects the economy to contract 6 percent this year, while ECB council member Axel Weber said earlier that while “rays of light” are positive, there’s “no reliable indication that the global economy is past the worst.” The euro-region economy may only “gradually stabilize during the latter part of 2009.” </p><p>The longer term decline in German GDP performance is now pretty clear (see chart below).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnBFgPUgcU_cNu6zjSZZd4wt4ZLW8J2gEavtvXaSd7QaOZotU7p_MRiF_qUWtdgm_D8H_vstL2nmiDqpAME35gcEdvpqEhcPknGleBQoScZcl6HZrV4SdR2s18GteAgM5NSh_TNc722sp2/s1600-h/german+long+term+GDP.png"><img id="BLOGGER_PHOTO_ID_5340166272940891746" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 237px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnBFgPUgcU_cNu6zjSZZd4wt4ZLW8J2gEavtvXaSd7QaOZotU7p_MRiF_qUWtdgm_D8H_vstL2nmiDqpAME35gcEdvpqEhcPknGleBQoScZcl6HZrV4SdR2s18GteAgM5NSh_TNc722sp2/s400/german+long+term+GDP.png" border="0" /></a> </p><p></p><p>According <a href="http://www.destatis.de/presse/englisch/pm2002/p2560121.htm">to the Federal Statistics Office</a>: </p><em><br /><blockquote><em>Measured in terms of gross domestic product changes at 1995 prices, the rates of economic growth in the former territory of the Federal Republic of Germany and - since 1991 - in Germany have continuously declined since 1970. While the average annual change was 2.8% between 1970 and 1980, it amounted to 2.6% between 1980 and 1991 and to 1.5% between 1991 and 2001.</em> </blockquote></em><br /><p>Since 2001 the performance of the German economy has in fact been worse rather than better, much to the consternation of those who hoped that many years of sacrifice in the form of wage deflation and structural reform would lead to a rebirth of the country's former economic prowess. In reality the German economy shrank (0.2%) in 2003, and grew by only around 1% in both 2004 and 2005. And while the German economy picked up notably in 2006 and 2007 (with growth rates of 3.2% and 2.6% respectively) and many talking in terms of such grandiose notions as global uncoupling and "Goldilocks" type sustainable recoveries, the most striking feature of the recent German dynamic has been the way that internal demand failed to respond to the externally driven export stimulus. Of course, all the speculation came to an abrupt end in 2008 when the German economy once more entered recession as world trade expansion slowed and exports collapsed (with GDP only growing by 1% over the year), while 2009 looks set to be a lot worse (with the IMF currently forecasting a contraction somewhere in the region of 5%, and forecasts of up to minus 7% not seeming exaggerated).<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-9MIG5ic24i2_47T2LsUs7CZaC5yCn0dId00lnsaItnD_JoS_jbMtjDTkFP4QODqqb_5qXDrcWQ4yJbKDXsX37Xdo38i5WiMfeg4dB4L3l_MruXTHxutQxZKin9DLnhBdGNYHt7FPzUzN/s1600-h/german+gdp+consumption.png"><img id="BLOGGER_PHOTO_ID_5340168283741062034" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 249px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-9MIG5ic24i2_47T2LsUs7CZaC5yCn0dId00lnsaItnD_JoS_jbMtjDTkFP4QODqqb_5qXDrcWQ4yJbKDXsX37Xdo38i5WiMfeg4dB4L3l_MruXTHxutQxZKin9DLnhBdGNYHt7FPzUzN/s400/german+gdp+consumption.png" border="0" /></a></p>What we seem to have here is "<a href="http://globaleconomydoesmatter.blogspot.com/2009/03/japan-engine-failure.html">engine faliure</a>" rather than mere "magneto problems" (using Claus Vistesen's memorable phrase for a very similar situation in the Japanese economy, and it would be nice if the current crisis could serve as the stimulus for an open, and "in the real world" debate about why this is. So some part of the traditional mechanism of economic transmission seems to have been broken, and the "second leg" of the economic cycle, the domestic consumtion driven one, seems no longer to work. Long term GDP growth rates in the German economy are clearly falling, and the decline looks clearly set to continue. Now falling and ageing population couldn't have anything to do with it, could it?<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmGHZ3cE-SwL-wZhjN-p-TwdXnTuotB9XIWPvqm3HycukCdooFKzjA8uBwFmzNEWjRTqTLmvM_WsaBLpCrD90j-eufwRMxsJ5Q_6q6Das3GFuLwrLeW-XgjD4OX_PXNszf_ZqvUOiZu5G5/s1600-h/german+population.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 240px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmGHZ3cE-SwL-wZhjN-p-TwdXnTuotB9XIWPvqm3HycukCdooFKzjA8uBwFmzNEWjRTqTLmvM_WsaBLpCrD90j-eufwRMxsJ5Q_6q6Das3GFuLwrLeW-XgjD4OX_PXNszf_ZqvUOiZu5G5/s400/german+population.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5340847253090241970" /></a>Unknownnoreply@blogger.com8tag:blogger.com,1999:blog-8529397808101838812.post-49489443285068339212009-05-28T04:12:00.000-07:002009-05-28T04:13:33.468-07:00Seeing is Believing, But Stabilising is NOT RecoveringThis is one of the key points I have been hammering here on this blog for some weeks now. There is clear evidence of most economies globally "stabilising" at this point, you could even stretch it to say that the "worst is over" - since I doubt we will go back to the dreadful days of December and January (see German manufacturing PMI chart below) - when it was like someone had given a very sharp knock to the whole industrial sector with a large sledgehammer, and of course ultimately the vibrations settle down even if the damage remains. <br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFJ3QW5VUIOC3HcL6CEXmmBeTJN2E7HhJcwbnKARWt8fIpjyjpx9fB1xsVWMa-5cHdSIei-GcZvyPiyPIiDxbPyMq0z_6n0pdyeEXkuRRoh5_HN47mtT1t82fpqC-PLia_Xv-kZZOk5yo9/s1600-h/germany+one.png"><img id="BLOGGER_PHOTO_ID_5338396311176983154" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 217px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFJ3QW5VUIOC3HcL6CEXmmBeTJN2E7HhJcwbnKARWt8fIpjyjpx9fB1xsVWMa-5cHdSIei-GcZvyPiyPIiDxbPyMq0z_6n0pdyeEXkuRRoh5_HN47mtT1t82fpqC-PLia_Xv-kZZOk5yo9/s400/germany+one.png" border="0" /></a><br /><br />But to go from this evident fact to drawing the conclusion that a full recovery is now in the works would be a very fast and loose use of both logic and economic theory. Production is falling less slowly (on an annual basis) and even increasing slightly (on a monthly basis) in some countries as orders can no longer simply be met from what are now very depleted inventories.<br /><br />But as <a href="http://germaneconomy.blogspot.com/2009/05/eurozone-may-pmi-improves.html">I suggest in this post</a>, upping output to meet current orders is not a recovery, for the win-win dynamic to move us back into a new cycle investment activity has to increase. And on this front there is precious little actual evidence to back the more positive discourse, and indeed the data we are seeing indicate rather the contrary. <br /><br /><a href="http://germaneconomy.blogspot.com/2009/05/eurozone-may-pmi-improves.html">When I last wrote</a> we did not have detailed data for Q1 GDP for the eurozone economies , so I took a look at the evidence from Japan, where investment activity slumped massively between January and March (pointing out that there was no good reason why we should expect the situation to be very different in Europe). Japanese business investment was down a record 10.4 percent year on year in the first three months, and a massive 35.5% over the last quarter.<br /><br /><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcWdqcU75mV5vRbMyePO1PfNmyNjcNrASVPkaAoIeindnJi-FQgoZ4Fwu6ntDl5s9sRWuCAsNTBe4nvS-NJ9DmK0ZYXVavJDDkgnrdyV4xT0dM-Vx0WKZwbaVvzE7QO2Ih_3u9ohDbIEg/s1600-h/japan+investment.png"><img id="BLOGGER_PHOTO_ID_5338211070520906674" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 227px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgcWdqcU75mV5vRbMyePO1PfNmyNjcNrASVPkaAoIeindnJi-FQgoZ4Fwu6ntDl5s9sRWuCAsNTBe4nvS-NJ9DmK0ZYXVavJDDkgnrdyV4xT0dM-Vx0WKZwbaVvzE7QO2Ih_3u9ohDbIEg/s400/japan+investment.png" border="0" /></a><br /><br />But now <a href="http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2009/05/PE09__197__811,templateId=renderPrint.psml">we have detailed German Q1 GDP results from the Federal Statistics Office</a>, and we find a very similar picture. Total investment was strongly down (– 7.9% quarter on quarter), while capital formation in machinery and equipment, was 16.2% lower than in the last quarter of 2008, and 19.6% lower than in the first three months of last year.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s1600-h/german+macin+euip.png"><img id="BLOGGER_PHOTO_ID_5340168124660685586" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 248px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuk_bO33cU7wn1HjfMcNlr-xZkLBBNv5ik2HwuNiyS4Zb2h3Y5zIVFNWyDk_kqdxGzaOda8Rh77rAnvbsdrsJTeeHBcu6vZ_dJAt4CGlixVoC5beG_etlfW-SwTm1ywX4IdQke0B52JU_q/s400/german+macin+euip.png" border="0" /></a><br /><br />But all of that is to some extent history. Much more preoccupying - certainly for the "onward-annd-upward-we-go" thesis - is that <a href="http://www.bloomberg.com/apps/news?pid=20601100&sid=apIS0VVZ89nI&refer=germany">German plant and machinery orders declined the most on record in April</a> from a year earlier. Orders dropped an annual 58 percent, the most since data collection started in 1950, after falling an annual 35 percent in March, according to the Frankfurt-based VDMA machine makers association in a statement today. Export orders slumped 60 percent while domestic demand dropped 52 percent. So things actually seem to have deteriorated in April with respect to March. No good news this.<br /><br />Especially when you read the same day <a href="http://www.riskcenter.com/story.php?id=18427">an interview with Hans-Joachim Dübel</a> - CEO of Berlin based FinPolConsult, one of the leading and few relatively independent voices in the German housing finance community - where he says: "My guess is that the Landesbanken alone will cause ultimate losses of 8-10% of German GDP, which is real money. Compare that sum with the 5% of GDP costs for the US S&L crisis".Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-12259960601360237232009-05-28T02:24:00.000-07:002009-05-28T04:29:16.739-07:00German Unemployment Little Changed In MayGerman unemployment remained largely unchanged in May after a slump in exports and investment sent the economy off into its worst quarterly contraction on record in the first three month of this year The number of people out of work increased a seasonally adjusted 1,000 to 3.46 million, according to todays data from Federal Labor Agency although the figures were slightly distorted by a new law that means the agency has to change the way it counts the unemployed. The seasonally adjusted jobless rate was even down to 8.2 percent, from 8.3 percent in April.<br /><br /><br />German unemployment began to increase in November after falling steadily for more than three years. Germany's leading economic institutes predict the country will lose 1.4 million jobs this year and next, pushing the average number of unemployed to a five-year high of 4.7 million.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKCbodMahGMTLEulKAIqAzDFIV3vLFkjKIdodrUA65PIcH3J9XklWnH-a7DSDDcKd3DtlvwtdwdSBxRrA8NGGE4aZGRZC-7qK_I7ifGa1pMVmLSRlpUnZs7zujWGr2I5eONbdyHQpe0tay/s1600-h/germany+two.png"><img id="BLOGGER_PHOTO_ID_5340818099367747378" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 236px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKCbodMahGMTLEulKAIqAzDFIV3vLFkjKIdodrUA65PIcH3J9XklWnH-a7DSDDcKd3DtlvwtdwdSBxRrA8NGGE4aZGRZC-7qK_I7ifGa1pMVmLSRlpUnZs7zujWGr2I5eONbdyHQpe0tay/s400/germany+two.png" border="0" /></a><br />According to data also out today from the Federal Statistical Office, the number of Germans in employment was 39.96 million in April. When compared with a year earlier, this represents a decrease of 130,000 (–0.3%). Thus rhe economic crisis is slowly but surely having an impact on the labour market despite all the measures to encourage companies to hold on to workers.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJlxRcORxp1ZN3vb_-LOpYZenFoZtA4avTLXXdO2tPYEFJGVihgNnmInG_9IDRp4vxsBAcfFrtp6uclW9OBrcObFDrqXxLl8Qn287PHoEc_ylkWVhzOPe_7uQ2G0YigHeYwt042sExISeQ/s1600-h/germany+three.png"><img id="BLOGGER_PHOTO_ID_5340818193515484626" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 231px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJlxRcORxp1ZN3vb_-LOpYZenFoZtA4avTLXXdO2tPYEFJGVihgNnmInG_9IDRp4vxsBAcfFrtp6uclW9OBrcObFDrqXxLl8Qn287PHoEc_ylkWVhzOPe_7uQ2G0YigHeYwt042sExISeQ/s400/germany+three.png" border="0" /></a><br /><br />Compared to March, the number of those employed was up by 68,000 persons (+0.2%) in April. In comparison with earlier years, that is an unusually small increase, which seems to indicate that the usual labour market upturn in spring will be small this year. In the last five years, the number of persons in employment rose by an average 164,000 persons from March to April.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9-cmCybfP77fRY1bFCFYb277uoTRNTFeQzIG7WZb2nUqjKb3JVnqM9fSBZWUNuF2_fxyhPEqoenuxMIVRGtkzavnoe29lcmkHE2Xz0Od_QnhftlxHEO4OOdFmEQK2rkpnc9xV4lMmaVzV/s1600-h/germany+one.png"><img id="BLOGGER_PHOTO_ID_5340818021752274594" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 239px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9-cmCybfP77fRY1bFCFYb277uoTRNTFeQzIG7WZb2nUqjKb3JVnqM9fSBZWUNuF2_fxyhPEqoenuxMIVRGtkzavnoe29lcmkHE2Xz0Od_QnhftlxHEO4OOdFmEQK2rkpnc9xV4lMmaVzV/s400/germany+one.png" border="0" /></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8529397808101838812.post-13429699051622059932009-05-26T06:59:00.000-07:002009-05-26T07:43:41.326-07:00German Consumer Confidence Steady In MayGerman consumer confidence remained stable for the fourth month in a row May and GfK AG’s forward looking sentiment index for June, based on a survey of about 2,000 people, was unchanged at 2.5.<br /><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjInexnhDgvEXgHEaba4-QVNrbkjaMlLS0EwnTLYfOF70c-4auSUABi50VpNjwobeBVrMerLWl70Epw_oQhBeZB6eiIL4xYaMPdM9aMK813VlPj2DBpJPx1yBlcrj3x6mwg9yRZw3ezBjt3/s1600-h/GFK+confidence.png"><img id="BLOGGER_PHOTO_ID_5340132206445596866" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 199px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjInexnhDgvEXgHEaba4-QVNrbkjaMlLS0EwnTLYfOF70c-4auSUABi50VpNjwobeBVrMerLWl70Epw_oQhBeZB6eiIL4xYaMPdM9aMK813VlPj2DBpJPx1yBlcrj3x6mwg9yRZw3ezBjt3/s400/GFK+confidence.png" border="0" /></a><br /><br /><blockquote>"The economic outlook, although remaining at a very low level, has also risen for the second time in a row and the propensity to buy also defended its positive level to remain virtually unchanged in May. Conversely, however, income expectations dropped back as a result of escalating fears of job losses, concerns which are rising in the wake of increased short-time work and declining income prospects."<br />GFK Press Release </blockquote><p>Economic expectations were up very slightly - a 2.9 point increase - suggesting that, at least for the time being the downward trend in the economic climate appears to have halted, but with an index value over 40 points below that for the same time last year, the indicator remains at a very low level.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdX1ujupF-5xkKvOmdjX7_RadSHKy8o2doM3JVnmvQr51a0ZEUzAbMbB5gszoYjHLFOl9Mpj1QCOzgMK5JFUCzcKg9xt1-1uryczIVFFV8_lrf0jDGOCy4M19LWvwvt9zizc0wso4QiK7k/s1600-h/germany+gfk.png"><img id="BLOGGER_PHOTO_ID_5340132142664352834" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 243px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdX1ujupF-5xkKvOmdjX7_RadSHKy8o2doM3JVnmvQr51a0ZEUzAbMbB5gszoYjHLFOl9Mpj1QCOzgMK5JFUCzcKg9xt1-1uryczIVFFV8_lrf0jDGOCy4M19LWvwvt9zizc0wso4QiK7k/s400/germany+gfk.png" border="0" /></a><br />In spite of continuing economic pessimism over the present, consumers seem to be assuming that the worst is behind us. While in terms of the ferocity of the contraction this is almost certainly true, it does not mean things will improve, only that they will get worse more slowly.<br /><br /><br />After an increase of 3.4 points in April, income expectations were down by 1.3 points in May. The index currently stands at -9.3 points.<br /><br />On the one hand, the very low inflation readings - German inflation, according to the harmonized European Union index , rose 0.1 percent in April from the previous month, when they dropped 0.2 percent - and forthcoming pension increases averaging 2.5% seem to have had the effect of stabilizing purchasing power and buoying up income expectations. </p><p>On the other hand, growing fears of job losses are having an impact on German sentiment. Following a period of continuous decline in job anxieties in recent years, German concerns about unemployment are once more creeping up, rising by 4 percentage points so far in 2009 according to the GfK survey "Challenges of Europe”. With a 57% rating, problems on the labor market are by far the biggest worry for Germans at the moment. However, the true test of the mood here will only come if the job market contracts significantly during the course of the year, which looks entirely posibel.<br /><br />The propensity to buy was more or less stationary in the month, with the index recording a minimal rise of 0.1 points. Compared with this time least yearthe index has risen by just under 33 points.<br /><br />Whether the consumer climate index reading remains at the present level in the coming months, or whether there is another shoe to drop depends very much on the extent to which job market prospects contract. If the short-time work measures prove incapable of generating any identifiable economic revival, companies will be compelled to introduce staff redundancies, leading to a significant increase in the level of unemployment. In turn, this would further fuel fears of job losses and severely impact the consumer climate. </p>Unknownnoreply@blogger.com0