Sunday, January 27, 2013

27/1/2013: Eurocoin January 2013: Misery broadly unchanged isn't a sign of stabilization

You might be forgiven for thinking that the euro crisis is over and that we are returning to the 'Old Normal' of growth, recovery, stability etc... Much of the recent commentary has been focused on the 'restoration of markets confidence' in sovereign finances, citing yields declines across the euro area.

I covered the latest data on sovereign yields from the CMA quarterly report for Q4 2012 here.

However, euro area remains a global (that's right - global) growth laggard on par with the gravely sick Japan - as the IMF latest WEO update clearly shown (see details here).

And here are the most up-to-date data on leading economic growth indicator from CEPR and Banca d'Italia - the eurocoin - for January 2013:

  • In January 2013 eurocoin stood at -0.23, an improvement on -0.27 in December 2012 and the highest reading since June 2012, but still in the negative territory.
  • January marked 16th consecutive month of below zero reading in eurocoin and based on historical trends, this gives us forecast for the euro area economic growth of -0.4% in Q4 2012 and same for January 2013.
  • In 2008-2009 recession, eurocoin average reading stood at -0.31. In 6 months period through January 2013, the average reading is at -0.29. 
  • Ominously, while in 2008-2009 recession period, average ECB rate stood at 2.54%, last 6 months average rate was 0.75%, suggesting that easing of monetary conditions has little effect on the real economy.
Some charts to illustrate:



The next set of charts shows that the ECB policy remains in a bizarre no-man's land of neither delivering price 'stability' target (close to, but below 2%), nor supporting growth.



So no easing of the real economic crisis in sight and no signs of the euro 'saviour' ECB when it comes to dealing with the growth collapse.
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