Thursday, June 20, 2013

European Depression Grinds On

From the latest Market Manufacturing Report:

The Markit Eurozone PMI® Composite Output Index rose from 47.7 in May to 48.9 in June, according to the flash estimate, indicating the smallest downturn in business activity since March last year.

The sub-50 reading nevertheless rounded off another weak quarter. At 47.8, the average reading for the three months to June is only marginally higher than the 47.7 average recorded in the first three months of the year, suggesting that the eurozone’s recession will have dragged into a seventh successive quarter.

Although activity continued to decline overall, the third consecutive monthly rise in the PMI in June indicated that the rate of contraction is on a moderating trend. Manufacturing output fell in June at the slowest rate in the current 16-month sequence, registering only a very modest decline, and services business activity showed the joint-weakest fall since March 2012.

Adding to the picture of the downturn moderating, new business fell at the slowest rate for five months, the rate of decline having eased for the third month in a row. New orders in manufacturing fell only marginally, registering the smallest decline for two years, while the services sector saw the smallest fall for five months.

Expect a fair amount of hype about the slowing trend in the downturn, along with a special emphasis on the possibility of the EU coming out of the depression in the second half of 2013.  Don't believe the hype.  First, this is the sixth quarter of negative growth.  We're now entering the possibility that a continued slow pace of expansion is the new norm.  The region is not only still experimenting with the incredibly backward idea of austerity but their export markets are growing modestly at best.  And the political leadership has absolutely no foresight.