8/5/15: Euro Area Growth Indicator for April: Weak, but Improving

The €-coin index of growth indicators for Euro area published by Banca d'Italia and CEPR posted another rise in April, marking the fifth consecutive month of increases. Eurocoin printed 0.33 in April, up from 0.26 in March. Per Banca d'Italia, "the indicator was mainly buoyed by the increase in industrial production and rising share prices." In other words, welcome to the marvels of QE.

Forecast 3mo on 3mo growth rate is now at 0.3-0.35%, the highest since April 2014. However, April 2015 reading of 0.33 is still below April 2014 reading of 0.39.

The monetary policy remains firmly lodged in a low-growth, low-inflation corner, while rates are at their zero bound:

Growth conditions signalled by Eurocoin (not actual growth data, yet) signal 12mo growth returning to close to long-term average:

This is hardly impressive, since historical growth records for the Euro area are exceptionally anaemic and current major monetary policy push for growth should be expected to drive rates of growth much higher. This is not happening so far.

Euro area business confidence surveys indicate either weak (EU Commission) or falling (PMIs)

But actual PMIs are a more upbeat:

While Consumers continue to stay away from the shops:

27/3/15: Euro Area Growth Indicator up in March, but...

Latest Eurocoin (Banca d'Italia and CEPR) leading growth indicator for euro area economy came in at a slight improvement in March to 0.26 from 0.23 in February, posting the highest reading since July 2014. The average quarterly growth forecast now implied by Eurocoin is at around 0.25-0.3% q/q with the risk to the upside.

This is the first monthly reading since July 2014 that puts Eurocoin into statistically significant growth territory and also the first monthly reading for positive growth momentum based on 6mo moving average.

However, as the chart below indicates, y/y we are still in weak growth territory and, to a large extent, this growth is supported by dis-inflationary momentum, rather than by nominal growth.

Accommodative monetary policer remains the key forward and the ECB remain stuck in the proverbial 'monetary policy corner':

In March, the main factors behind the Eurocoin increase were: an improvement in household and business confidence, plus gains in share prices. In other words, there is no organic driver for growth - both confidence indicators and share prices may have only indirect link to real economic activity.

10/3/15: Euro Area Growth Indicator Improved in February

In February, Eurocoin - a leading growth indicator from CEPR and Banca d'Italia posted a pretty decent rise to 0.23 from 0.16 in January. The 2 months average is now consistent with growth of 0.3-0.4 percent q/q.

This is the strongest reading in the indicator since July 2014. This time around, gains in Eurocoin indicator were based on improved exports and industrial activity, which is a much better indicator of actual underlying economic performance than gains from stock markets valuations that drove Eurocoin over previous months.

Nonetheless, Eurocoin remains well below its historical average of 0.32. 3mo average through February 2015 is 0.17 against 3 mo average through February 2014 of 0.32, so, once again, growth conditions, albeit improving, remain weak.

The above is confirmed by the recent weakening in the outlook for France. Yesterday, French Government lowered its forecast for Q1 growth from 0.4% to 0.3%.

As ECB went into its much hyped QE, the monetary policy remains firmly 'anchored' in zero growth corner:

23/12/2014: Eurocoin Growth Indicator: Q4 misery continues in December

Euro area lead growth indicator Eurocoin posted a rather predictable rise in December - from a miserable 0.06 in November (roughly translating into 0% growth) to a rather miserable 0.11 (roughly still translating into 0% growth).

The rise was driven by stock markets improvements and lower rate of contraction in Industrial Production, plus a gain in the European Commission-measured Business Sentiment (that roughly contrasted the deteriorating growth signalled by the PMIs). Consumer surveys continue to disappoint, but exports posted a pick up.

So where we are in growth forecast terms?

As the above shows, growth forecast is running at 0.1% real GDP expansion for Q4 2014.

With Q4 2014 average eurocoin reading at 0.083 and 6mo average at 0.14, we are well below 0.24 3mo average for Q4 2013 and well below the rather poorly 0.33 historical average.

ECB is still caught in the zero-rates trap:

And longer term growth rates are, well, not impressive at all and slowing down:

All in, an ugly picture of euro area economic performance.

31/10/2014: Eurocoin Falls Again in October

Meanwhile, in the vastly-repaired, improvingly-coordinated, enhancely-harmonised Euro area, leading growth indicator, Eurocoin (published by Banca d'Italia and CEPR) posted another (4th consecutive monthly decline in October, falling from massively anaemic 0.13 in September to even more anaemic 0.08 in October.

The projected underlying GDP growth rate is now back at zero, having posted a 'recovery' to 0.1% in Q3 2014.

And the ECB is now even more stuck in the proverbial dark corner of near-deflation, zero growth and zero interest rates:

The drivers to the downside?

Industrial production is down across all Big 4 economies:

Business Confidence is down everywhere, save in Spain:

Consumer surveys down in performance terms everywhere and below zero on balance in France and Italy:

With stock markets performance markedly deteriorating, this means the only previous consistent support for 'growth forecasts' is also gone:

And the 'exports-led' recovery is just... err... shall we say 'fizzled out'?

But keep reminding yourselves, this is a 'European Century'...

26/9/2014: Eurocoin Signals Accelerating Fall in Economic Activity

Eurocoin, euro area leading growth indicator compiled by Banca d'Italia and CEPR has fallen again in September, indicating further slowdown in growth conditions:

• In August 2014 Eurocoin indicator stood at 0.19. In September, the indicator fell to 0.13 - its lowest reading in 12 months.
• Growth forecast consistent with current readings for Q3 2014 are in line with y/y euro area GDP growth of 0% (range between +0.1% and -0.1%).

As usual, updating my ECB Monetary Policy Dilemma chart:

The above shows the proverbial 'growth corner' for ECB: historically low interest rates and virtually zero growth signalled by the leading indicator.

Annualised growth rates are abysmal:

Per release: the latest decline reflects continued losses in consumer and business confidence, slowdown in exports and weakening of industrial production conditions. Those tracking my analysis for previous months would note that in the past Eurocoin was supported to the upside primarily by equity markets valuations. As predicted, these effects are now becoming exhausted and as the result we are witnessing rapid declines in the leading indicator.

29/8/2014: Eurocoin Signals Further Slowdown in Growth in August

August the €-coin - a lead growth indicator for euro area GDP - fell to 0.19 from 0.27 in July, continuing the trend that began last spring.

Last month Eurocoin coverage is here: http://trueeconomics.blogspot.ie/2014/08/1482014-yugo-area-economy.html

Per CEPR and Banca d'Italia release, "The decline of the indicator reflects the weakening of economic activity in the second quarter and the recent worsening of consumer and business confidence, although the flattening of the interest rate curve made a slightly positive contribution."

This comes as further bad news for the euro area that has been posting some pretty awful macro data for some months now.

Eurocoin latest decline is marks the fourth consecutive month of no growth in the indicator. The stock market performance component of the indicator is holding it above the zero line, but August reading is no longer statistically distinguishable from zero growth. Once stock markets effects fizzle out, there will be little left to support indicator.

In Q1 2014, the eurocoin indicator averaged 0.35 against actual GDP growth coming at 0.2%, in Q2 2014, the indicator averaged 0.34 and actual growth came in at 0.0%. So far in Q3 2014 we have two months-average of 0.23, suggesting that factoring out stock and bonds markets / interest rates performance from the indicator we have negative growth closer to -0.05-0.1%.

Bond markets are currently out of touch with reality. Take Italian auction this week. EUR2.5 billion of 2019 BTPs sold at a yield of 1.1% - down from 1.2% in July 30 auction, EUR4 billion worth of 2024 BTPs sold at 2.39%. This has nothing to do with the country fundamentals that are all flashing red. Italian unemployment is now up 0.3% m/m to 12.6% in July with youth unemployment down 0.8% on June at a massive 42.9%. Retail sales fell 0.1% in June, compared to May, for non-food items and Q2 average was down 0.2% on Q1 average. Business confidence is tanking, having fallen from 90.8 in July to 88.2 in August. Inflation is (flash estimate for August) at -0.2% m/m and y/y, worse than -0.1% consensus expectations. And so on...

Inflationary signals are also weak: August data we have so far shows German inflation at 0.8%, Spanish at -0.5%, Belgian at 0% and Slovenian at 0%. Update: Euro area flash estimate for inflation is now down to 0.3% from 0.4% in August weighted down by energy costs and food.

Some charts to illustrate the Eurocoin performance:

You can see the weakening growth trend in the above, incorporating the latest growth forecast for Q3 2014. This puts even more pressure on the eCB which has already used up all conventional (rates policy) tools without much of a positive effect on growth:

And to remind you all - euro area growth record is abysmal to begin with, even with 'good years' factored in:

31/7/2014: Deflationary Trap: Eurocoin Signals Slowing Euro Area Growth in July

July Eurocoin - higher frequency gauge of economic activity in the euro area published by CEPR and Banca d'Italia - is out. Headline number posted a decline from 0.31 in June to 0.27 in July, consistent with slower growth in the first month of Q3 2014.

As chart above shows, July reading is barely above the statistical significance line, suggesting that the slowdown is quite pronounced. As Eurocoin release indicates: "The negative impact of the fall in industrial production in May and of the weak performance of the stock market in July was partially offset by the flattening of the yield curve." In other words, save for the excessive exuberance in the bonds markets, the economy is showing substantial weaknesses going into Q3.

This means that while Q2 2014 projection is now for stronger growth at around 0.31-0.34% q/q, up on officially estimated Q1 2014 growth of 0.2%, Q3 2014 took off with a growth outlook of around 0.26-0.28%.

Current economic activity is sitting at around the rates compatible with November-December 2013. Barring any significant changes in HICP (although indications are, HICP will fall to 0.65% for July data), the ECB remain in the proverbial 'deflationary risks' corner:

UPDATED

To-date, while growth moved into positive territory over the last 12 months, inflationary dynamics have pretty much collapsed.

UPDATED

If July trend (falling activity) remains into August and September, we are looking at further worsening in the overall activity in the euro area and more pressure on inflation to the downside.

27/6/2014: Eurocoin: Euro Area Growth in Q2 ahead of Q1

CEPR and Banca d'Italia released their latest Eurocoin forecast for the euro area economy today. Here are the details:

• In May 2014, Eurocoin posted its first decline in 11 months, falling from 0.39 in April to 0.31. Still April-May 2014 forecast for GDP growth based on Eurocoin stood at 0.35% q/q, faster than any quarter since Q1 2011. 
• The Eurocoin remained unchanged in June 2014, implying the overall average rate of growth of around 0.34%, a moderation on April-May forecast.
• Error-adjusted forecast range for growth is between 0.17% and 0.5%.

Per Banca d'Italia: "The deterioration in business confidence was counterbalanced by the positive contribution from the improved conditions in the financial markets and the pick-up in industrial activity."

Couple of charts to illustrate:

7/5/2014: Eurocoin Leading Indicator: April 2014

The latest Eurocoin leading growth indicator for the euro area is at 0.39 in April, statistically unchanged on 0.38 in March.

Q1 2014 forecast based on Eurocoin is now at 0.34% q/q growth and Q2 2014 forecast is now running closer to 0.38%.

In other words, things are slack.

Here are some charts:

Crucially, Eurocoin reading in April was driven by "favourable performance of the financial markets and by household and business confidence, although these were counterbalanced by the small downwards revision of euro-area GDP in the fourth quarter of 2013." Actual industrial activity and external trade data was not supportive to the upside.

In other words, much of the improvement in Eurocoin since December 2013 is down to financial and confidence effects and not to underlying real economy.

Monetary policy side and inflation remain stuck in slow-growth corner:

7/4/2014: Eurocoin March 2014: Q1 Growth Estimate at 1.4% y/y

I have not updated stats for Eurocoin leading growth indicator for euro area economy for some time now, so here's the latest.

In March 2014, eurocoin rose to 0.38, with Q1 2014 average reading of 0.35 and 6mo average of 0.29. In Q1 2013 the average stood at -0.18. Hence, Q1 2014 growth forecast is for 0.34% q/q expansion. Annualised Q1 2014 projection is for GDP growth of 1.39% and this compares against annualised contraction of 0.73% in Q1 2013.

Couple of charts:

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