Sunday, September 29, 2013

29/9/2013: Economic Sentiment in Europe: Not Exactly a 'Crisis Over' Signal

There's a lot of optimism in the air nowadays across the EU with eurocrats of all shades of grey busying themselves declaring the end of the euro crisis... and the media is firmly on the bandwagon too - even signs of shallower contractions are interpreted as 'huge bounces' into growth.

Amidst all of this, the data on economic sentiment across all productive sectors, collected by the European Commission is a bit more sombre.

Take this simple chart, showing how economic sentiment in the euro area compares against the same in the EU27.

Yep, that's right: in September 2013, economic sentiment in the euro area was at the lowest point compared to the economic sentiment in the EU27 for any month since the formation of the euro... in fact, it was at the lowest point since July 1988 when many EU27 non-euro nations were struggling members of the Warsaw Pact. Congratulations on that recovery, folks!

Things behind the above numbers are even worse. Here's a chart plotting economic sentiment across the three sets of countries that are members of the euro area: the euro area core (Austria, Finland, Germany, and the Netherlands), the periphery, and the rest...

Things are improving, all right, but are these improvements a miracle of the euro area recovery or a bounce from somewhere else? Take again the gap to EU27...

Now, we already know about downward direction across the euro area relative performance as a whole. Now we also know that all  part of the euro area are under-performing relative to the EU27 and that this underperformance has accelerated in recent months for two sub-regions other than the 'periphery'. Worse, the core is about to hit the levels of sentiment under-performance comparable to the peripherals back in H1 2013, while the non-core, non-periphery states are about to converge in earnest with the periphery. This is some 'improvement'...

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