13/8/15: Eurocoin: Marginal Strengthening of Euro Area Growth in July

Earlier this week I covered Ifo Institute Index of Economic Conditions for the Euro Area.  This time around, lets take a look at the leading growth indicator, Eurocoin published by CEPR and Banca D'Italia.

July 2015 reading for Eurocoin stood at 0.41, up on 0.39 in June and well ahead of 0.27 reading recorded in July 2014. This means that economic growth slightly firmed up at the start of Q3 2015 compared to the end of Q2 2015.

2Q 2015 Eurocoin average suggests growth at around 0.35-0.4% which compares to 0.4% growth recorded in actual real GDP in 1Q 2015. However, growth improvements are continuing to come against core inflation (HICP) remaining at 0.1 percent through May 2015.

This is despite the ECB rate remaining in the near-zero corner:

The reason is simple: per Eurocoin release, "the recovery in stock prices and the performance of industrial activity in several of the leading countries prevailed over the decline in confidence of households and firms." In other words, growth firming up is coming not from organic real activity on the ground, but from trade effects (weaker euro) and financial markets effects (monetary policy driving euro).

25/12/2013: Eurocoin: Euro Area Growth Firmed Up in December

Merry Christmas to all!

Some good news from the euro area economy front on Christmas day: eurocoin - leading growth indicator for the euro area - posted another (6th consecutive month) improvement in December 2013, rising to 0.29 from 0.23 in November.

December reading marks the 4th consecutive month of the indicator above 0.0 (growth), although it remains in statistically insignificant range. This is the highest reading for the indicator since July 2011.

Latest forecast for Q4 2013 growth in euro area GDP, based on eurocoin, is 0.22-0.25%.

Chart below shows that 2013 marks the year of ECB policies starting to finally bear some fruit. The point here, of course, is that the ECB should have been much more aggressive earlier on - as this blog argued consistently since the beginning of the crisis.

However, the ECB policies are still not being able to generate the momentum strong enough to escape deflationary pressures. Chart below shows that over the last 24 months, monetary policy has failed to sustain moderate inflation and that overall policy trajectory is still driving euro area economy toward deflation.

But back to better news. Despite weaker industrial activity, eurocoin rise in December is based on broad improvements in the economy across household and business confidence.

31/10/2013: Eurocoin: Weak Growth Remains Weak: October 2013

In the previous post (http://trueeconomics.blogspot.com/2013/10/31102013-nairu-or-ndru-euro-area.html?spref=tw) I covered the latest unemployment and inflation stats for the Euro area in the context of economic growth conditions. Now, let's update the data for Euro area leading growth indicator, eurocoin:

Eurocoin rose in October 2013 to 0.20 from 0.12 in September, marking the second consecutive month of the indicator reading above zero. However, eurocoin failed to reach statistically significant levels once again. This implies that the recovery is weak, and subject to serious risks.

In line with the indicator increase, growth forecast also improved from 0.1% for Q3 2013 to 0.18% for the start of Q4 2013.

In relation to inflationary pressure, eurocoin is now signalling expansion that is not sustained by underlying domestic activities:

The above conjecture is supported by analysis of eurocoin core components, showing that the latest improvements came from equity markets indicators (as in September) and also from improved industrial production and exports. Industrial production gains were in turn driven primarily by Germany, while composite PMIs remained generally in the negative territory. Meanwhile, consumer sentiment deteriorated, including in Germany (though it stayed in the positive territory there). 

On ECB move potential see: http://trueeconomics.blogspot.ie/2013/10/31102013-nairu-or-ndru-euro-area.html

4/10/2013: Eurocoin: Cautious Return of Growth? September 2013

I have not updated my charts for Eurocoin in some time now, so might as well bring them up to September cover:

Eurocoin - the Banca d'Italia and CEPR joint leading indicator for growth in the euro area rose above zero, for the first time since September 2011, reaching +0.12 in September 2013. The rise was not statistically significant, but is nonetheless welcome. Growth forecast consistent with this level is 0.1% which is below Q2 2013 at 0.3 but that ignores the point that in Q2 2013 eurocoin run at an average of -0.143.

And updating monetary policy charts: growth is still being accommodated by historical standards, but caution on behalf of ECB is still excessive. Cutting rates to 0.25 or lower will be fine, even by inflation consideration (chart below):

And y/y change in inflation/growth relationship:

Inflation dampening while growth accelerating... hardly a scenario for sustained recovery, but we have seen periods with even more pronounced disconnect. 

26/7/2013: Eurocoin signals 22nd consecutive month of recession

CEPR and Banca d'Italia leading growth indicator for the euro area, Eurocoin, is out for July, showing that growth in the euro area economy remained under water for 22nd month in a row.

Per charts above,

• Eurocoin indicator stood at -0.09 in July, an improvement in the rate of contraction on -0.18 in June 2013 and on -0.24% in July 2012.
• Both, 3mo MA and 6mo MA of Eurocoin through July 2013 are at -0.14.
• Q2 2013 forecast for growth is now at -0.15 and Q3 2013 forecast (based on July and trend) is slightly more benign -0.1-0.11, though that is a very high risk forecast.  

Looking at the 'Impossible Monetary Policy Dilemma':

ECB rates are at zero bound and are not stirring growth, with HICP being in the 'safely benign' territory. We are looking at a scenario where the only reason not to drop rates to zero is that doing so will not make any serious difference to growth.

29/3/2013: Eurocoin signals 18th consecutive month of recession

Eurocoin leading indicator for euro area growth was out today. Key highlights:

• Eurocoin rose to -0.12 in March 2013 from -0.2 in February 2013. 
• Eurocoin remains below -0.03 reading attained in March 2012 and +0.57 reading for March 2011.
• 3mo MA is now at -0.183 which gives Q1 2013 growth forecast (q/q) or 0.18% for euro area GDP.
• This means that Eurocoin is now below zero in every month since September 2011, marking a massive 18 months in a row.
• In previous recession of 2008-2009 Eurocoin duration below zero was 13 months, which means that the current bout of economic contraction is longer in duration than the so-called Great Recession.
• In March 2013 Eurocoin gained some upside support solely from buoyant stock markets. 

Here are some charts:

And as usual, monetary policy charts for which analysis remains as postulated in my February post (here):

1/3/2013: Eurocoin February 2013 - 17 months-long recession?

February eurocoin leading growth indicator for the euro area, published by the Banca d'Italia and CEPR came in at another sub-zero reading of -0.20. This marks statistically insignificant improvement from -0.23 in January 2012.

More ominously, the reading posts 17th consecutive monthly below-zero reading. Put differently, on monthly average basis, eurocoin has been posting sub-zero readings since March 2011.

Y/y comparatives are even worse. Back in February 2012 the indicator stood at -0.06, and in February 2011 it was running at a blistering pace of +0.57, while in February 2010 we had a reading of +0.77. In fact, this is the lowest reading for any February since the depths of the Great Recession in February 2009.

Two charts to illustrate the eurocoin dynamics and associated implied growth forecasts:

• 3mo MA is now at -0.233, while 6mo MA is at -0.267. 2008-2009 crisis-period average was -0.31. Draw your own conclusions (STDEV = 0.471 for historical record and 0.560 for the crisis period).

As I pointed out before, the last 12 months of economic performance in the euro area have shown very clearly that the ECB monetary policy stance is not working. Here are the same illustration (updated to February 2013 figures) once again:

Growth-consistent level of the ECB rates is zero. Meanwhile, with slowly moderating inflation still above the target, inflation-consistent rates are probably closer to 1.25-1.5%.

Inexistent fiscal policy at the euro area level is matched by the dysfunctional monetary policy. Next stop? Possibly political psychosis?

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.

30/11/2012: Eurocoin continues to signal EA17 downturn in November

In November euro area leading growth indicator Eurocoin stood at -0.29 % which is the same level as in October. This reading "reflects the opinions of households and businesses, as recorded by the surveys, which overall remain still unfavourable, though signs of an easing of pessimism emerged in some euro-area countries less affected by the sovereign debt tensions". Some details can be found at http://eurocoin.cepr.org/index.php?q=node/148 .

Reading below zero signals contraction in economic activity and the Eurocoin is now under water for 14 months in a row. The reading of -0.29 is the 3rd lowest the indicator reached during the current downturn. 

Consistent with the current slowdown, the price-growth dynamics suggest that there is an opening for further ECB easing:

Per above, it is quite obvious that we are stuck in the quick sand of being very near the zero-rate bound and no improvements in growth.

Per below, current inflation is still above the target, but the direction of change is encouraging:

In particular, latest inflationary pressure easing appears to be in line with ECB expectations and suggest that inflation is relatively well anchored, although still ahead of the ECB formal target.

Furthermore, 3-mo MA for Eurocoin through November 2012 is at -0.3 and 6mo MA at -0.273, both close to -0.31 average for the crisis period of 2008-2009.

The mixed bag of indicators is firmly shifting toward some action from the ECB soon.

30/10/2012: Eurocoin signals continued recession in October

Euro area economy did not improve significantly in September-October, according to the leading composite indicator eurocoin published by the CEPR and Banca d'Italia.

Per eurocoin,

• October growth reading stood at -0.29%, statistically indistinguishable from -0.32 and -0.33 recorded in September and August, respectively. 
• October marks thirteenth consecutive month of contraction being signaled by eurocoin
• Crucially, 3mo MA is now at -0.313 which is the same as 2008-2009 average (-0.31). 6mo average is at -0.23.
• We are now into the fourth month of statistically significant sub-zero readings.

As charts below show, ECB remains in the operating range where inflationary target is not consistent with Taylor Rule target.

And here's a chart from Morgan Stanley Research showing PMI-based indicators are also pointing South:

12/08/2011: Industrial Output - Euro area June 2011

European industrial production indices released today show that through June 2011, core Euro area economies have slowed down significantly their industrial and manufacturing output growth. This outcome, well flagged earlier by PMIs and eurocoin leading indicator of economic activity, implies that in all likelihood, Euro area growth for Q3 2011 is going to show if not an outright contraction, at the very least flat-line performance.

For Ireland (we have data through July now - see PMI data analysis for manufacturing and services, plus additional analysis of exporting activity and industrial turnover and volumes) this trend is now fully established with either contraction signals remaining persistent over recent months or flat-line trend being established on more volatile industrial production data for some 12 months now.

But what about the rest of the EU and the Euro area? Here is the data.

Industrial production index showed a decline from 101.63 in May to 100.94 in June for the first time since September 2010 (against 2008 average of 106.6, 2009 average of 90.88, 2010 average of 97.66 and 2011 average to-date of 101.18) driven, primarily by:

• Germany index falling from 111.7 in May to 110.8 in June, with current 2011 average to-date standing at 110.37, up on 2010 average of 103.48, 2009 average of 93.46, but below 2008 average of 111.73
• Greece contracting from already recessionary 75.68 in May to 74.02 in June - the worst performance since 1994 when the series began
• Spain posted a decline from 84.97 to 84.26 between May and June this year. This compares poorly against the running average for 2011 to-date of 84.87, 2010 average of 84.68 and 2008 average of 99.55. However, the index is still above 2009 average of 83.97
• France also recorded a decline in industrial activity from 94.80 in may to 93.20 in June with current average for 2011 to-date standing at 93.93, ahead of 2010 level of 91.49 and 2009 level of 86.95, but below 2008 average of 99.40.
• Italy recorded a decline from 90.00 in May to 89.5 in June with current 2011 average to-date remaining ahead of 2009 and 2010 averages, but well below 2008 average of 102.00
• Netherlands, Denmark, Portugal and Finland showed declines in their indices in June
• Ireland and the UK were the two countries in the series to show an increase in the index, while Belgium, Austria and Sweden did not report data for June.
• Poland showed a slowdown in the sector from 143.7 in May to 140.6 in June with current 2011 average to-date standing at 140.77, still significantly up on 2010, 2009 and 2008 averages
• The UK posted a marginal increase in the index from 89.57 in may to 89.58 in June with current 2011 to-date average running at 90.09 - ahead of 2010 average of 89.99 (marginally) and 2009 average of 87.74, but below 2008 average of 97.58.

Charts to illustrate (note: SOEs refers to Small Open Economies):

On Manufacturing side: Denmark, Germany, Greece, Spain, France, Italy, the Netherlands, Poland, Portugal, Finland and the UK all showed declines in output activity. Only Ireland posted a rise in June.
Euro area manufacturing activity overall fell from 102.76 in May to 101.67 in June and is now below 2011 average to-date of 102.32, although still running ahead of the annual averages for 2009 and 2010. 2008 annual average was 107.27, well ahead of the activity levels to-date.

New orders also came in disturbingly lower at 104.64 in June down from 105.74 in May. New orders index now running below its 2011 to-date average of 104.77 and below 2008 average of 110.09, thaough still well-ahead of 2010 and 2009 averages.
Again, as before, new orders fell in Denmark, Germany, Greece, Spain, France, the Netherlands, Poland, Portugal, Finland and the UK. The New Orders sub-index rose in June in Ireland and Italy.

Capital goods production declined significantly in the Euro area from 107.05 in may to 105.5 in June and now stands below 105.55 running 2011 average to-date, ahead of 2009 and 2010 averages, but below 2008 average of 113.52.
In terms of individual countries, capital goods output fell in Denmark, Germany, Ireland, Greece, Spain, France, the Netherlands, Poland and Portugal. Output rose in Italy, Finland and the UK.