Wednesday, August 6, 2014

6/8/2014: Italy's New Old Recession...

In Q1 2014, Italian GDP shrunk 0.1%, in Q2 2014 it fell 0.2% just as all indicators were suggesting that the Italian economy was starting to regain some growth momentum.

Meanwhile, latest data for new orders in Germany posted a fall of 3.2% in June compared to May.

Much has been made of the effects of Russia-EU trade sanctions on both figures. And much has been made of the effects of slower global growth on both figures. Little has been made of the fact that absent foreigners' demand for European goods, there is no real growth in Europe. That is because this fact hides horrific truth - European consumers and households have been hit by a freight train of banks bailouts, Government deficits adjustments and the need to support EU and national politically connected cronies - corporate, sectoral and individual. While pensions provisions for currently working middle classes shrink, taxes rise, indirect taxes, crates and levies climb sky high, there is hardly any decline in subsidies pots distributed by Europe to predominantly wealthy landowners, industrialists and an entire class of NGOs/R&D/Social Enterprises.

Thus, European investors' confidence is a feeble organism so vulnerable to shocks that a war in Ukraine's East can knock it out of its tracks. Thus, the only hope still remaining in European capitals is for the ECB to prime the proverbial printer. On the eve of the ECB monthly interest-rate-setting meeting, European banks still prefer to lend to the Governments rather than to the real companies. Why? May be it is because of some technical mumbo-jumbo of 'markets fragmentation' or may be it is because the real economy is left holding the bag for banks bailouts and Governments bailouts and cronies bailouts and as the result, European producers need Russian, Ukrainian, Chinese, Turkish and so on consumers?

Spanish economy, in contrast with Italian, posted 0.6% growth in GDP, but much of this (and previous 3 quarters) growth is down to the rate of economic activity destruction in previous years.

Meanwhile, Bundesbank is prepping the public to what might be a lacklustre growth release for Q2 figures due on August 14. Consumer and producer confidence indicators in Germany are pointing to a slowdown in economic activity there. Ifo German business sentiment indicator posted three consecutive months of declines in July 2014, falling to the levels last seen in October 2013. German investor confidence index published by ZEW has been now on the decline for seven consecutive months.

All in, the much-publicised recovery in euro area economy remains fragile and prone to reversals on foot of external shocks. Meanwhile, internal growth dynamics remain weak and unyielding to the PR blitz promoting the reversals of the crisis. Italy is just a proverbial canary in the mine… the only question is whether it is motionless from something that hit it before it was brought to the ICU in 2013, or from something new it caught in the ICU… 
Post a Comment