The final RBS/NTC Eurozone Manufacturing PMI came in at 50.7 in April, down from 52.0 in March and slightly below the earlier flash estimate of 50.8. The fall in the PMI was the largest for six months and took the index to its lowest since August 2005.
National trends among the big-four euro nations varied markedly again in April, as did production by sector, with consumer goods producers reporting a survey record decline in output.
The PMI (Purchasing Managers' Index) was particularly weak, registering the first decline in new orders since May 2005 (in line with the flash reading). New export orders fell by marginally more than indicated by the flash reading, also declining for the first time since May 2005 due to softer economic growth in key foreign markets and the strong euro.
Among the big-four euro countries, only Germany recorded an increase in new orders, though the rise was the smallest for three months. This deterioration was primarily the result of a substantial easing in growth of new export orders at German manufacturers. Spain and Italy both saw new orders fall at the steepest rates since December 2001.
In a sign of broad-based weakness of production to come in future months, new orders for consumer, intermediate and investment goods (such as plant and machinery) all fell in April, albeit only marginally in the case of investment goods. Consumer goods producers saw the sharpest monthly drop in new orders in the survey’s ten-year history, in part reflecting lower levels of new export orders.
``Germany will do better than average,'' said Dominic Bryant, an economist at BNP Paribas in London, in a research note to investors. ``At the other end of the spectrum, Italy and, in particular Spain, will have a very tough year with growth well below trend.''
Italy's Manufacturing PMI
Italy's manufacturing sector contracted for a second month in April, posting its weakest performance since May 2005 and casting a deepening shadow over growth prospects, accoring to the NTC/ADACI PMI survey.
The NTC Purchasing Managers Index fell to 48.2 from March's 49.4, sinking further below the 50 divide between growth and contraction. The survey is the latest in a string of negative data for the euro zone's third largest economy, underscoring the tough task awaiting incoming Prime Minister Silvio Berlusconi after his victory in last month's general election.
"There are really no indications of a turnaround, with backlogs of work still falling and new orders the weakest since December 2001," said Chris Williamson, chief economist at NTC Research which compiles the data.
"The big area of weakness in Italy is in the domestic economy, and within that the consumer sector where things are going form bad to worse."
The International Monetary Fund forecasts the Italian economy will grow just 0.3 percent this year, and Williamson said the PMI data pointed to a contraction of gross domestic product in the first and second quarters, and possibly beyond.
"These PMI figures are very much signs of recession," he said, forecasting that the rate of job losses is likely to pick up, hitting consumer confidence further. Italy's 1.5 percent 2007 growth rate was little more than half the euro zone average, maintaining a trend of Italian underperformance that has persisted for at least a decade.
The survey showed employment levels fell for the third month running and the manufacturing output sub-index pointed to a fall in output for the first time since May 2005. Input price inflation eased significantly to a four-month low but, with an index level of 64.2, remained at a high level by historical standards.
3 comments:
Though Italy has been posting rather depressing readings, Spain seems to have consistently performed worse. I know that a lot of these readings are 'sentiment' and not a complete picture of the economic situation, but if many analysits feel (know!!) that Italy has slipped into recession, then surely Spain, with constantly low readings has too. Has the EU revised down its outlook for Spain's economy for 08? Because the initial figure (was it 2.5% growth?) seems ridiculous high now. Spain must be facing growth of at most .5% this year, perhaps less
Hi Callum
First off here's the latest EU GDP growth forecast (April 27):
According to the latest forecasts by the EU’s executive, the European Commission, gross domestic product (GDP) in the 15-member Eurozone was similarly set to rise by a modest 1.7 percent this year and by 1.5 percent in 2009, after growing by 2.6 percent in 2007. The economy of the 27-member EU as a whole grew by a slightly better 2.8 percent that year. The Commission’s spring forecasts are in line with its February estimates, when 2008 growth was cut by about half a percentage point. “Economic growth is moderating in the EU and Euro area and the current, imported inflationary pressures are a matter of concern,” said EU Economic and Monetary Affairs Commissioner Joaquin Almunia in presenting his spring economic forecasts.
"but if many analysits feel (know!!) that Italy has slipped into recession, then surely Spain, with constantly low readings has too. Has the EU revised down its outlook for Spain's economy for 08?"
Basically the two situations are rather different. Italy's issue is long term. This has been running for a decade or more now. So each time the rate of expansion in the global economy eases Italy slips into recession. This is what we are seeing now. We may see several years of weak growth, but the recession will not necessarily be a deep one, and the key questions are all going to surround what happens to the deficit, and what the credit ratings agencies and the ECB say and do.
On Spain, IMHO this is one of those proverbial "hard landings". Spain was running at a 4% annual growth rate in GDP, to get to y-o-y negative numbers in this context needs several quarters since you have a high base effect, and there is strong momentum.
Also the real economy in Spain is only now (maybe in march/April) starting to feel the squeeze, since the problem started in the financial sector and has been working its way out from there. This is unusual, you will remember - eg - that in the US the issue started in housing, and then worked its way back to the financial sector via unpaid sub primes. In Spain there are very few mortgage delinquencies at this point, the problem is building up in the construction sector since they are building houses (although many of these may well now be folding under thre pressure) and there are people who want to buy but there are few mortgages available.
This is by and large the situation in the Uk and Ireland too. But I would say spain is the worst case scenario here. If you want more details go over to my Spain Economy watch blog (link in sidebar) and take a look at the charts, these are now a lot more than sentiment indexes.
"Because the initial figure (was it 2.5% growth?) seems ridiculous high now. Spain must be facing growth of at most .5% this year, perhaps less"
I agree, but I think this is very normal with "forecasts" since precisely becuase they are seen as inflencing to some extent outcomes they are always behind the field in coming down. If you look at my forecast on the header to this blog - which was written in January - I think I was about the only analyst to be saying that we could see growth as low as 0.5% this year for Italy at that point. I think Vladimir Pillonca, at Morgan Stanley, with his 0.7% was the only one who really got near the mark, and even he was suggesting "Italy may be the first and only country in the euro region to enter into a recession this year".
ie he discounted Spain and Ireland.
I am even asking myself now where Germany will be as we enter Q4. I guess a lot depends on Eastern Europe.
So if you look at the forecasts they are well behind things not only in the cases of Spain, Ireland, Italy and the UK, but also in the Baltics (where they have all been predicting a soft landing) and Hungary. And this is only to talk about the economies I know about.
That is to say, I would take all official forecasts with a pinch of salt, which is not to say that some aren't better than others. I take the IMF WEO forecasts reasonably seriously. At least they take more risks, risks which are sometimes very necessary if you are to take remedial action soon enough.
Post a Comment