22/6/2012: Don't rush with that 'Germany Imploding' headline, mate

So the silly season of 'Germany is collapsing' is on again today with the release of the Ifo Index and the subsequent media charade on foot of yesterday's PMIs.

Now, let's take a look at the thesis so beloved by on-line business media hacks. Is Germany really caving in?

Headline Business Climate Index from Ifo:

What do the numbers tell us?

• Headline Business Climate index fell from 106.9 in May to 105.3 in June - a monthly drop of 1.5%. Previous monthly drop was steeper at 2.7%, but 'business media' missed that.
• Year on year, the index is down 7.9% - steeper than back in May when it fell 6.4% y/y.
• 3mo MA is down 1.7% on previous 3mo period and is down 5.9% y/y.
• 6mo MA is at 108.3 same as 12mo MA and the last two months both came in at below that. But the 3mo MA is at 107.4 - and that is probably more significant of an indicator than monthly readings. 
• June reading is the lowest since March 2010 - the headline that many captured in their reports.

So things are not great. But are the schloss walls caving in? Look at the historical chart above. Current reading. Current 3mo MA is 107.4 - well ahead of historical average of 100.8 and crisis-period average of 103.2.

Next, take a look at the components of the index:

• Business Situation sub-index actually improved in June to 113.9 from 113.6 in May. So last m/m move was +0.5% against previous m/m move of -3.6%. Y/y comparatives are less pleasant: June 2012 y/y index fell 7.5% against May 2012 y/y fall of 6.7%. 3mo MA fell 1.8% on previous and 5.7% y/y. 
• Overall Business Situation sub-index remain weak - marking second lowest reading since August 2010. And it is below 12mo MA of 117.0 and 6mo MA at 116.0 both in level terms and in 3mo MA terms. Still, the sub-index is well ahead of 101.7 historical average and 107.1 crisis-period average.
• Business Expectations sub-index fell 3.6% m/m in June to 97.3 compounding the fall of 1.8% in May. Y/y sub-index is down 8.3% in June after -6.0% drop in May. 3mo MA is down 1.7% on previous and down 6.2% on same period in 2011.
• At 100.3 3moMA is now below 6moMA at 101.2 but is identical to 12mo MA at 100.3. The 3moMA for the sub-index is basically tracing the historical average of 100.2 and is only slightly ahead of the crisis-period average of 99.7.
• Sub-index is now at the lowest point since October 2011.
• But I wouldn't read too much into expectations sub-index, which tends to reflect the mood of the day, rather than act as a true leading indicator.

So overall, things are weak. The weakness is not accelerating in m/m terms, but is accelerating in y/y terms. Short-term averages are performing in line with June trends. Not a happy place, but not quite Armageddon either.

24/10/2011: New Orders for Industry: August data

Cheerful update today from the Eurostat on New Orders in Industrial Production series:

"In August 2011 compared with July 2011, the  euro area (EA17) industrial new orders index rose by 1.9%. In July the index dropped by 1.6%. In the EU27 new orders increased by 0.4% in August 2011, after a fall of 0.6% in July. Excluding ships, railway & aerospace equipment, for which changes tend to be more volatile, industrial new orders rose by 0.7% in the euro area and by 0.5% in the EU27. In August 2011 compared with August 2010, industrial new orders increased by 6.2% in the  euro area and by 6.5% in the  EU27. Total industry excluding ships, railway & aerospace equipment rose by 5.0% and 5.2% respectively."

Here are the details:

Start at the top: EU17 new orders index is now at 115.11 for August, up on 112.93 in July, down on 115.54 in May. The index is now back into the comfortable expansion territory, where it has been since April 2010. 

2008 average reading was 110.09, 2009 average was 86.99 and 2010 annual average was 102.2. So far - through August - 2011 average is 112.93 - not a bad result. But miracle it is not - reading of 100 is consistent with activity back in H1 2005, so in effect, through August 2011 we have achieved growth of 2.05% annualized in terms of volumes of output. Given that since then we had pretty hefty doses of inputs inflation and moderate gate prices inflation, the margins on the current activity have to be much lower than for pre-crisis years. Which means relatively robust improvements in volumes of industrial new orders are not necessarily implying robust value added growth in the sector.

Meanwhile, German new orders have shrunk in August 2011 from 122.4 in July to 120.9 in August. Month on month German new orders are down 8.04% and year on year activity is down 13.34%. This marks the lowest reading since April 2011.

 Of the big players:

• France posted an increase in new orders index to 102.90 in August from 100.1 in July. France's 2011 average to-date is 100.43, well ahead of 2010 average of 90.93 and 2009 average of 84.31. France's new orders index averaged 100.06 in 2008.
• Spain posted a surprising improvement in August to 96.43 from 93.85 in July and yoy rise of 2.0%. Spain's 2008 average was 102.93, 2009 average of 81.57 and 2010 average of 89.61. For 8 moths through August 2011, Spain's new orders index averaged 94.27.
• Italy;s new orders index hit 117.21 - very robust increase of 6.14% mom from 110.56 in July. Italy's new orders index is now averaging 113.58 for eight months of 2011, up on 2010 annual average of 103.09, 2009 average of 89.75 and 2008 average of 104.59. It's worth noting that Italy exemplifies the fallacy of 'exports-led growth' argument - the country has posted very robust recovery in its significant and highly exports-oriented industrial sector, and yet it also posted virtually no growth over the last 2 years.

Other countries are illustrated below.

 So on the net, industrial production new orders signal some bounce back from the troughs of the slowdown in early summer 2011, but this can be immaterial for the wider Euro area economic growth and a temporary improvement. September and October data will be more crucial, signaling into early 2012.

26/09/2011: French and German indices signal continued slowdown in September

This week's early trickle of data is continuing to signal ongoing process of deteriorating macroeconomic conditions in core euro area economies.

According to the latest reports, Portugal's economy is likely to post 2.3% decline in GDP in 2012 (revised from 1.8% decline forecast earlier) and shrink 1.8% in 2011 - an improved estimate on 2.2% contraction predicted in Q1 2011 (the swing in 2011 is due to strong H1 2011, while the swing in 2012 forecast is due to weak expectations for H2 2011 and after).

France's MNI survey of economic forecasts (here) are coming in weaker by the week. For previous week, median forecasts were for

• Manufacturing PMI at 48.2 down from 49.1 a week before, both below growth line of 50;
• Services PMI at 54.4 down from 56.8, above the growth line, but slowing

Confirming these, Insee Index of Business Climate posted the first below 100 reading since June 2010, coming in at 97 in September, down from 101 in August. 3mo average through September is now at 101 against the previous 3mo period average of 108. Year on year, index is down 5 points. Just as with German data below, the latest result marks the third month of continued declines.


And today, German Ifo index came with further downgrades to business expectations and conditions. Here's the chart:

• Business climate assessment came in at 107.5, above expansion line, but down for the third month in a row. 3mo average through September is now at 109.7 down from previous 3mo average (through June) at 114.3. Year on year the index is down 3.7 points.
• Business situation sub-index came in at 117.9, down from 118.1 in August, marking 3rd month of continued declines. Q2 average is 121.9 and Q3 2011 average is now at 119.1.
• Business expectations sub-index has hit contraction territory at 98.0 against August reading of 100.1. Q2 2011 expectations average was 107.1, while Q3 2011 average is 101.0. Year on year September 2011 reading is down 9.9 points.
  

25/08/2011: German Index of Business Climate post another sharp contraction in August

Germany's Ifo index of business climate posted another large-scale contraction in August according to the latest reports.

• Index of Business Climate now stands at 108.7 (still in the expansionary territory), down from 112.9 in July. 2Q 2011 average for the index is 114.3 and 3Q 2011 (to-date) average is now at 110.8. Year on year, Business Climate index is down 2.4 points. This is the second consecutive monthly contraction.
  
• Business Situation index also registered a contraction to 118.1 in August from 121.4 in July - a second monthly contraction in a row.
  
• Index of Business Expectations fell precipitously, reaching 100.1 in August, down from 105.0 in July, marking the 6th consecutive month of declines. Index average for 2Q 2011 is 107.1 and 3Q 2011 (to-date) average is 102.6. Business Expectations are now down 8.9 points on August 2010.

All-in the latest reading continues to signal rapid slowdown in business activity, although the levels of the index remain in expansion territory.

16/08/2011: Euro area and German growth Q2 2011

Two quick updates on some economic data released today.

Germany posted virtually zero rate of growth with GDP in Q2 2011 adjusted for seasonal effects up just 0.1 percent on Q1 2011. Q1 2011 quarterly growth rate was revised to 1.3 percent. German GDP growth was 2.6% yoy in Q2 2011, down from 4.6% in Q1 2011.

France data released last week showed economy stagnated in the three months through June with zero growth rate qoq and 1.6% growth rate yoy in Q2 2011, down from 2.1% expansion in Q1 2011. Italy reported data on August 5th showing its GDP growing 0.3% qoq in Q2 2011, 0.8% yoy, down from 1.0% yoy growth in Q1 2011. Spain’s economy expanded by just 0.2 percent in Q2 2011 (qoq) and 0.7% yoy, against 0.8% expansion in Q1.

And so on... until eurostat posted euro area-wide growth rate of 0.2% qoq in Q2 2011, down from 0.8% qoq in Q1 2011. Year on year growth rate fell to 1.7% in Q2 2011 from 2.5% in Q1 2011. Exactly the same growth rates were recorded in EU27, showing that the ongoing slowdown is now spreading across non-euro area member states as well. The EU27 and the euro area growth rates are now below those in the US (+0.3% qoq).

Summary table courtesy of the eurostat:

The overall disappointing growth in the euro area was entirely predictable, given that the leading indicators were pointing to it for some time now (see here), the industrial output data (here), etc.

However, here's an interesting chart suggesting that months ahead are not going to be easy for German economy:
Pay especially close attention to the yellow line showing business expectations for economic activity in months ahead. The data above is through July 2011, the latest we have and it firmly shows that business expectations have now dropped to the lowest level since January 2010, marking as fifth month of consecutive declines. The index stood at 105.0 in July 2011, down from the Q1 2011 average of 110.1 and Q2 2011 average of 107.1.

Euroarea leading economic indicator is now slipping since the beginning of July and this confirms continued weakness in the growth series.