The preliminary Markit euro-zone manufacturing purchasing managers index, or PMI, fell to a record low of 33.6 in February from 34.4 in January, while the services PMI also fell to a record low, dropping to 38.9 from 42.2 in January. As a consequence the euro-zone composite PMI reading dropped to its own record low of 36.2 from 38.3 in January. Any reading below 50 on these indexes indicates month on month contraction.
Barring some spectacular (and entirely improbable) turnaround in March it now seems likely that the Q1 GDP contraction will be worse than the Q4 2008 one. If we consider that the eurozone contracted by 0.2% in Q3 2008, and by 1.5% in Q4, then, in my humble opinion, the data we are seeing for this quarter are entirely consistent with a 2% quarterly contraction (or an annualised 8% rate of contraction). Not quite Japan territory yet, but not far behind. And for those who simply don't believe the PMIs can tell you so much, here is Markit's own chart, showing the strong underlying relationship between movements in GDP and the *flash* composite PMI. Pretty impressive I would say.
Germany's Contraction Intensifies
The German service PMI came in at at 41.6, showing the fifth consecutive month of contraction. This was a sharp drop from last months 45.2 reading, and means that the recession is now feeding through from manufacturing to services. The difficult conditions have lead service business owners to hold to the grimmest outlook in the last decade, that is since the index was started. More ominously, the recent data points to a strong reduction in the employment level.
On the other hand February saw the tiniest of upticks in the manufacturing sector, since the PMI came in at 32.2, from January's 32 , the best that can be said here is that the rate of contraction may have stabilised.
France Holds Up Slightly Better Than Most
In France, the manufacturing sector (see chart below) gave up on most of January's rebound, and the PMI fell to 35.4 from 37.9 in January, while services (see chart above) slipped to a record low of 40.1 from 42.6 in January. Nonetheless France is visibly performing rather better than Germany, and when all this is over we will have plenty of time to hold the debate as to why that has been.
Hi Edward,
ReplyDeleteI post some short consideration here, even if they are more related to the previous post. I will return on these in the weekend, it's getting very late here (01.30 am now...)
I'm not very worried about EU bonds, at least not like in the past when I saw EU initiatives as something to lift responsibility from national decision makers and impose an external laces. Maybe I've a distorted vision from the Italian experience, EU rules and controllers were very useful at the beginning, they worked to put some control to the debt and deficit, but now they are used as an excuse to do the minimum and to prevent a sane discussion.
i.e., deficit has to be under 3%, ok let's do limited intervention to stay at the level, no matter if we have a good cycle or a bad one; or let's rise womens' pension age to 65 years as for the men (just a first little step in the right direction but nothinf further planned), because European Court of Justice ask it, and no debate about the theme.
Well as for today, I think we have enought discipline to manage EU bonds, and make all EU states responsible to commit with them.
But as I stressed many times, for me no matter how we rise funds, Central Banks direct intervention, CB injections, quantitative easing, National bonds, or EU Bonds or nationalizations (I put in my preference order), I'm very concerned in how we use them and how we want the markets will work in the (near) future. Because the risk to burn all the funds to make bad policies is really high.
I want also say that each country (or area) presents very different problems, ok to a global or continental approach, but if it's too rigid it can work in a place and be harmful in others.
Even we don't know the real dimensions and nature of the problem in the financial system or in a single bank. Probably some government knows what is hidden inside the banks of its country but I'm really doubful. 1 and a half year is passed, a lot of meny has been poured in, a lot of strategies have been changed or implemented and we know almost nothing.
So again, first all the information have to come out, now and clear, then we act acoording. I read about roumors, Banca d'Italia governor Mario Draghi asked in the last G7 the banks to explicits their toxic assets, and that they will do that after a "bad bank" will be issued because otherwise they don't have where to park them. Well I really see a lack of logic in that, first I want to see the "papers" then I will decide how and if the bad bank is the right solution.
Again I ask for bank managments change, to make all clearer. I don't want any external force to do that, just shareholders if they can and want. It's not so difficult at the end, and it makes really a huge difference. Swedbank was one of the stronger defender of the CEE models and the strategy they adopted in the area, now they regret each day about their errors and forecast the worst scenarios. Unicredit is falling like a stone, they keep saying all is under control. Well, sorry Profumo you did quite good job, you were probably the best european banker in the past years, but everything has changed now, your recent track is unacceptable, too many bad forecasts, too many statments to the market followed by opposite actions.
Core Tier1 is very important, but the basic asset for a bank is the reputation. Money matters, but also the men.
After that we come to the resources, how to use them to rescue our economies. I really don't find any reason for choosing to bailout or support a sector or another, an industry or another. I see very illogical to apply the same schemes to financial system and to industrial system, as their problems are completely different. Political decision are driven by lobbystic plessure. In an old post I reported that the automotive market in Italy comes from a long period of overpumping, that a sort of contracion is normal, that FIAT is not doing so bad as it has mainly a temporary overcapacity and that the news from genuary were mismanaged. Well the Italian govenrment made its first huge supporting plan for car market, even before any important intervention on financial system. Today FIAT announced they suspended the programmed production stops as the government support is working very well, they also revise production plans for many models rising annual targets for 2009, association of car dealers communicated that in february the quotation requests rided 70% month on month.
Well I propose to put Tremonti and Berlusconi in charge for world savers as they proved to be so effectively!!! a whole market so in trouble as the automotive, fully regenerated in just 2 weeks....
Let's handle the things more seriously please. Actually I still think Central Banks can stabilize financial system. Trichet said today the ECB is providing unlimited liquidity to the system, bit it's not circulating properly because of lack of trust. Here we are again, take out all the rotten meat and change the figures, a part of this trust will come back. And if not sufficient the ECB and other Central Banks can put direct capital. It makes much more sense to me than seeing the Governments among the shareholders, or to see private financial entities to be the controlling shareholders of the CB as in Italy.