· Weakness in industrial output is now a growing EU-wide phenomenon based on the large countries’ results. Among the early reporting large countries Germany, Italy and the UK show negative growth rates for real output in 2008-Q2. Only Spain with an exceptionally wild output series shows a gain in Q2 and that is after seeing output lower over six months and over 12-months.
· Frances results are plotted in the chart above but they lack a timely update for June. Still the pattern in output is clear. Germany is having the sharpest current drop. Italy has had the longest period in which output has been declining (Yr/Yr). France had not had the degree of output success of the others earlier in the expansion. It has showed better resilience to declining forces than Italy over the past year and has only just dropped to show Yr/Yr declines in output.
· The services sectors of these countries are showing weakened performance as well although the monthly report for EMU showed a bit of resilience. Inflation still dogs Europe – regardless of the domain of the central bank.
While the authorities in Japan have just opened the door to admitting weakness and have gone so far as to admit that the economy could be in recession even now, in the Europe a certain confidence is still exuded, but by increasingly cautious policymakers. Today, German banking association president Klaus-Peter Mueller said that there is no end in sight for financial crisis. 2008 will remain a difficult year for all banks he says. With banks so impeded and the ECB acting slowly (it refrained from any rate changes at today’s meeting) Europe is going to be under increasing downward pressure. The steady decline in the value of the euro exchange rate speaks to what risks that have put in play.