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Economy in Brief

Belgian National Bank Index Signals Euro-Trouble Ahead
by Robert Brusca April 23, 2008

BNB index is a harbinger for the Euro-Area: The BNB index has plunged sharply in April. This early read on Euro Area health in April has been a GOOD SOLID barometer of what the larger and geographically linked key EMU economies will report for the month. The chart shows the tracking of the Belgian industrial index – usually the first read on the Euro Area and EU in any given month - with the EU’s industrial index and with the EU Commission index for Germany. The Belgian index has often moved ahead of the EU and German indices. In this episode, the Belgian index had started to strengthen ahead of any such signs for Germany and EU before posting this recent drop. So the plunge in Belgium in April may overstate the extent of the drop yet to be seen in Germany and in EU. In any event, the smaller Belgian economy often sees its BNB index move more sharply than the indices for Germany and the EU but it is generally a good ‘hint’ for them and is not to be ignored.

MFG sector is weak
The BNB index shows us widespread weakness in Belgium. The MFG index (an up minus down net reading, like all the other components) is at -7.9, the weakest since it was at -10.5 in August of 2005. The domestic production reading slipped from +6 to +2 in April but the domestic and foreign orders indices have both plunged to register deep negative readings. Foreign orders were last weaker in May of 2005 and domestic orders were last weaker in June of 2003.

They’re here – not the poltergeist but worse… FX gremlins
The current assessment, by comparison, is only mildly negative at a -2 reading, and was last weaker in January of 2008 at -5: so that’s no big deal- or is it? Foreign orders at a -8 are more serious weakened in the current assessment, suggesting that foreign-linked weakness is here now and not just in some vague pipeline of indeterminate length. This is the sort of thing we have been waiting to see happen in the aftermath of the ongoing surge in the euro. Maybe the Euro Area is not so resilient after all. Maybe the German economy is not as ‘robust’ as its deputy Finance minister sees things. Maybe the ECB has lost its cool in pursuit of an inflation objective that made no SHORT TERM SENSE given the nature of the international strains in the system. Maybe, maybe, maybe- a great word that word ‘maybe.’

Weakness across Belgium a geographically central-EU state
Apart from industry the Belgian wholesale/retail index fell sharply to -9.5 in April from +0.2 in March. It had briefing resided at -8 in February of this year and then recovered - but no more. It was last weaker in May of 2005 at -8.7. The construction index is very weak as well. It was last weaker in Sept of 2002. The business services index at 6.3 was last weaker in August of 2005. And so on…

Those lows in 2005 mark the time when the Euro Area was beginning to recover from its period of extended weakness. What we see is the new lows in the various components of the April 2008 Belgian survey go back to OR BEYOND that point, inviting comparisons with a time when things were bad and terms like euro-sclerosis were in vogue. The ‘New Europe’ where ‘robust’ and ‘solid’ and ‘inflation-fighting’ have been key words and phrases may now be past their vintage years. The euro consumer never did kick in as force to support growth. Investment-led growth can only take you so far especially when the rest of the world is slowing and external demand for investment goods begins to dry up…and your currency is setting record highs while your central bank with inflation marginally over the target starts threatening to HIKE RATES! For a time Euro Area growth seemed to be able to out-run the speeding bullet that was the streaking strong euro. But as Edgar Alan Poe once wrote…nevermore. The basis for the belief was flawed from the start, even raven-mad. Exchange rates do matter. Maybe (oh, that word again…) now the ECB can let its policy pay some heed to that.

Belgium National Bank Indices
  Apr-08 Mar-08 Feb-08 3-Mo Change 6-Mo Change 12-Mo Change
Total Industry -7.9 1.2 0.2 -7.1 -7.8 -11.7
MFG -7.4 1.1 0.5 -6.6 -5.6 -9.7
Production 2.0 6.0 3.0 2.0 3.0 1.0
Domestic Orders -22.0 1.0 0.0 -19.0 -19.0 -28.0
Foreign Orders -14.0 1.0 6.0 -18.0 -17.0 -18.0
Prices 8.0 7.0 15.0 5.0 5.0 1.0
Current assess
Total Orders -2.0 -1.0 3.0 3.0 4.0 -5.0
Foreign Orders -8.0 4.0 0.0 -6.0 -3.0 -11.0
Inventories 5.0 3.0 4.0 1.0 3.0 0.0
Wholesale & Retail -9.5 0.2 -8.0 -6.8 -16.2 -19.8
Construction -8.7 2.9 7.0 -10.1 -9.7 -12.7
Business Services 6.3 6.4 7.5 -0.8 -6.5 -7.2
Comparisons:     Changes lag one month  
EU Index: Industry #N/A 0.0 0.0 -2.0 -3.0 -6.0
Germany Index: Industry #N/A 2.0 2.0 -2.0 -1.0 -7.0
Compare: BNB Index     3.1 -0.2 -0.2
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