Portal to the Economy of the Euro

S U M M A R Y (updated 3 Feb'12)

The surveys available for Oct-Dec'11 suggest that GDP growth in Q4'11 is negative, with a q/q decline of around 0.4% probable. First results for Jan'12 indicated that the decline in activity eased. But the forward looking indicators remain weak and divisions remain deep: solid growth in Germany, modest growth in France and persistent weakness in the Mediterranean countries.

The steep declines in confidence in the summer months were replaced by more modest declines in Oct-Dec'11 and a small upturn in Jan'12.

The forward looking indicators point to slack business conditions to continue in the months ahead.

The euro zone economy is deeply divided. Solid growth in Germany and modest growth in France contrasts with shrinking output in the Mediterranean countries.

Based on the surveys, GDP growth in Q4'11 may be -0.4% q/q, +0.7% y/y.

Based on the surveys, GDP growth in Q1'12 may be -0.3% q/q, -0.2% y/y. See also growth

Jan'12 surveys for euro zone economy:

The Purchasing Managers' surveys indicate that activity rose marginally in services, declined modestly in manufacturing. more

Ifo reported that current German business conditions remain robust. Expectations of future business conditions, which plunged in earlier months, have recovered. more

Belgium's business barometer for the manufacturing sector ticked up. more.

European Commission's survey found unchanged confidence in industry, improvement in services, depression in construction. more

Consumer confidence rose a fraction, but confidence in retail trade sunk. more

The JPMorgan Jan'12 Global Purchasing Managers' All-Industry Output Index rose to 54.6 (from 52.7), an 11-month high. New order inflows accelerated markedly to 54.0 (51.5) and employment also recorded a significant rise at 52.6 (from 50.3). The rise in output was driven by the US and various developing countries (India, Brazil, Russia). The euro zone (at 50) was not a drag on activity. The index signals a solid upturn in global growth after a broad sideways movement during Q2'-Q4'11.

Feb-Mar'12 surveys due:

21 Feb   Consumer confidence flash
22 Feb Purchasing Managers' flash
23 Feb Ifo German business sentiment 28   Feb   European Commission's business &
                consumer survey
1 Mar Purchasing Managers' final manufacturing
5 Mar Purchasing Managers' final services
5    Mar JPMorgan Global PMI

Services sector: modest upturn

The overall index for the services sector (final) rose to 50.5 (48.8 in Dec'11), only just in expansionary territory but nevertheless at a 5-mo high. Output rose marginally. The inflow of new business declined for the fifth month running, but at a more moderate rate. Outstanding business shrunk and employment eased. Business expectations however improved.

Country details for Jan'12: growth solid in Germany, moderate in France

The German services sector strengthened a little further in Jan'12 with the PMI rising to 53.7 (from 52.4 in Dec'11). There was a solid strengthening in activity with business prospects brightening even though the inflow of new business stagnated. Employment rose again, if modestly, demonstrating confidence in the long term business outlook.

Moderate improvement in activity in the French services sector. The PMI rose to 52.3 (from 50.3), a 5-month high. The inflow of new business rose only marginally and the backlog of work still shrunk. There were no further gains in employment. In contrast to Germany French business expectations slumped to its lowest in nearly three years.

Italy's services sector remained in deep recession. The index inched up to 44.8 (from 44.5). At least the decline in the inflow of new business and in employment slowed. Outstanding work shrunk. Confidence improved slightly from Dec'11's 3-year low..

Jan'12 brought a less sombre view of Spain's services sector. The PMI rose to 46.1 (from 42.1 in Dec'11 and as low as 36.8 the month before). The decline in new business slowed but less than in earlier months. Job shedding, however, accelerated. Business confidence improved a little from a low level.

In Ireland the Jan'12 PMI for the services sector signalled another month in recession. The index was virtually unchanged at 48.3 (from 48.4). New business decreased, but by less than the month before. Nonetheless, job losses accelerated. Export orders, however, rose at a faster pace, mainly from non-EU markets. This boosted confidence about the business outlook.

Manufacturing: still weak, but at 5 month high

Manufacturing sector's overall index (final) in Jan'12 rose to 48.8 (from 46.9), indicating that the contraction slowed. Manufacturers reported a slower decline in new orders. The decline in export orders also slowed. Output rose marginally on the month. Work in hand declined but employment rose very slightly.

Country details for Jan'12: modest growth in Germany and Austria, slower decline in Italy and Spain

Activity in Germany's manufacturing sector increased modestly in Jan'12. The PMI index rose to 51.0 from 48.4, driven by a robust rise in output and a solid rise in employment. But the decline in new orders continued, if at a slower pace than earlier. Export orders also again fell steeply. As a result work in hand declined sharply.

The contraction in the French manufacturing sector deepened marginally in Jan'12. The overall index eased to 48.5 (from 48.9). Output declined modestly. But new orders declined at an accelerating pace due to weak domestic demand (export orders declined only fractionally). Work in hand shrunk but employment actually increased a little in spite of falling business confidence.

In Italy manufacturing activity continued to decline, but at a slower pace. The overall index at 46.8 (up from 44.0) remained in contraction territory. New orders and output declined at a slower pace as exporters benefitted from the weaker EUR. But the decline in employment accelerated and the backlog of work shrunk further.

In Spain the PMI rose a little to 45.1 (from 43.7), indicating another month of major weakness in the manufacturing sector. There was once more a substantial decline in output, in domestic new orders and in employment. The decline in export orders slowed. Conditions have now worsened for nine successive months with no end in sight.

Though still shrinking, Jan'12 was for the Dutch manufacturing sector the best month in five with the PMI rising to 49.0 (from 46.2). Output rose marginally in spite of declining orders. Outstanding work was thus depleted and employment eased.

Manufacturing activity recovered in Austria in Jan'12. The PMI rose to 51.8 (from 49.0). Output, work in hand and new orders rose, though employment shrunk a little.

In Greece business conditions in the manufacturing sector deteriorated for the 29th month in succession. Output, new orders, employment and demand all continued to weaken at a rapid pace. The overall PMI stood at 41.0 (down from 42.0), deeper than ever in recession territory. Liquidity and cash flow problems aggravated the weakness in demand.

Business conditions deteriorated again in Jan'12 in Ireland's manufacturing sector. The PMI edged down to 48.3 (from 48.6), slightly deeper in contraction territory. Output and domestic orders declined at a solid pace. Export orders rose marginally for the second month. Employment declined.

The Ifo business climate survey for Jan'12 indicates that growth in the German economy stabilised at a still quite robust rate. Though the current conditions index edged lower, it remains at a historically high level, suggesting that the economy is still functioning near full capacity. Employment is also still rising, though at a more moderate pace.

Expectations shot up in Jan'12, probably reflecting the improved global growth outlook and diminishing concern about the sovereign debt crisis.

The business climate index has now risen for three successive months, suggesting that the earlier downtrend has been reversed.

The manufacturing sector is leading. Business conditions improved in Jan'12 and firms assessed the outlook, which deteriorated substantially last year, as clearly more favourable. Export and domestic demand is seen to firm. Capacity utilisation remains above average. The weaker EUR may have contributed to improved export expectations.

In the construction sector business conditions rose to boom levels in mid-2011, cooled in late summer and perked up again in the last three months. Expectations about business conditions in the months ahead have rise significantly.

Lagging the upturn are the retail and wholesale sectors. The business climate and short term expectations in the retail sector declined in Jan'12.

Activity in the services sector eased somewhat in Jan'12 but remains at a historically high level. Expectations of future business improved sharply leading to an acceleration in recruiting.

Belgium's business barometer for the manufacturing sector rose a fraction in Jan'12. At -13.6 the indicator remains somewhat below its historic average of
-11.

The rise is due to less negative expectations of future employment. Order books remain thin and stocks higher than earlier in the year.

Confidence in the other (domestic) components of the survey (not shown in the chart) were mixed. The business climate brightened up a little in building and a lot in business related services. But in trade the outlook for demand was judged to be poor.

Background:

The National Bank of Belgium's monthly survey of the Belgian manufacturing sector is a reasonably good leading indicator of developments in the euro area manufacturing sector. A significant part of Belgium's manufacturing sector consists of intermediate goods (e.g. steel, non-ferrous metals, plastics, chemicals) destined for use by manufacturers in the euro area. The Bank's survey also covers Belgian trade, business services and construction (not shown in the above chart).

Industrial sector: confidence stabilised at its historic average after steep declines in previous months. The industrial sector appears to be on a firmer footing.

Declines still predominated among the 17 countries. In core Europe confidence improved in Germany, but deteriorated in various other countries, with a particularly steep decline in France.

Among the most indebted countries confidence deteriorated further in Italy and Greece, but improved in Spain and Portugal from low levels.

The subcategories of the survey give partial support to the view that the decline in the industry sector is flattening out. Thus production expectations were stable, stocks declined a little and export orders and employment expectations recovered a little. But domestic order books remained thin.

Construction sector: sentiment continues to "bump along the bottom". Orders show no impending improvement.

Confidence in construction remains deeply depressed in the most indebted countries (Spain, Greece, Portugal and Italy; Ireland does not participate in this survey but confidence levels there are likely to be similarly low).

Services sector: confidence recovered somewhat, albeit from a low level. Demand was improving and was expected to continue to improve.

By country results were again mixed. There were solid rises in Germany, Belgium and even Spain. Elsewhere, however, declines still predominated.