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Euro Area Crisis Hits Confidence in the Core

by Rebecca Wilder

Euro Area Crisis Hits Confidence in the Core

France’s INSEE business confidence, Germany’s Ifo business climate, and theNational Bank of Belgium’s business survey demonstrate ongoing infection as the Euro area debt crisis hits business expectations in the core. Through July, business confidence in Germany and France continued to slide while that in Belgium rebounded, albeit from a low base.

Of note, the service industries in both Germany and Belgium may offer a “ray of hope” (the Ifo Institute puts it.), as these large economic sectors are perhaps stabilizing in the surveys.

Furthermore, consumer confidence in the Netherlands and Italy remain depressed. Notably, the July prints increased 8 and 1.1 points, respectively, over the month – is this the start of a trend, or rather a dead-cat bounce? If I were a betting girl, I’d go with the latter, given the weakness in labor markets and election cycles coming up (September in the Netherlands and TBA in Italy).

In Germany, the Ifo survey has deteriorated swiftly in recent months. This now brings this survey more in line with other business surveys, such as the German PMI, which had shown a more pronounced economic decline.

The Ifo Business Climate survey contains a wealth of information, but is generally dissected into assessment of the current business situation and expectations of the future business environment. The current environment survey, 111.6 in July, fell over the month but remains above the longer term average, 102. In contrast, expectations as regards the future business environment are falling swiftly. The Euro area crisis is impacting the business decision process.

Finally, as demonstrated in the Ifo Business Climate survey that highlighted its ‘significant deterioration’, the manufacturing base is leading the way down. In France and Germany, Markit Manufacturing PMIs hit the low 40s, 43.6 and 43.3, respectively in July. This implies a quickening of the pace of contraction across the French and German manufacturing bases with not much hope of near-term relief, neither from domestic nor foreign demand. The Dutch Statistical Agency, CBS, today reported further decline of Dutch manufacturing opinions in July, as manufacturers anticipate layoffs.

My only question becomes how much weakness is needed in the core (Germany) to get a(nother) significant response from the ECB?

Rebecca Wilder

cross posted with The Wilder View…Economonitors

Confidence Indicators Deteriorated Significantly This Week

by Rebecca Wilder

Confidence Indicators Deteriorated Significantly This Week
This week national confidence surveys rolled in with just one story: the economic infection in Europe is spreading. Business confidence indicators in France and Germany declined 1.1% and 1.6%, respectively, in the month of June. In Italy consumer confidence hit another record low since 1996 of 85.3 after falling 1.4% in June.

The National Bank of Belgium and Statistics Netherlands released their balance measures of consumer confidence. Both balances fell 2 points over the month of June. Notably, consumer confidence in the Netherlands is depressed, hitting a record low since 1986 at -40 in June.

These are highly credible indices with robust correlations with hard data like real retail sales and production. Given the precipitous decline in confidence, it’s hard to imagine how European economic sentiment will turn around without truly innovative policy action.

Rebecca Wilder

crossposted with The Wilder View…Economonitors