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Economy in Brief

Markit Indices Continue to Show MFG Declines in Euro Area
by Robert Brusca July 2, 2008

The June EMU MFG PMI moved below 50 for the first time since June of 2005. This signals EMU-wide MFG contraction. The dip comes ahead of a meeting of the ECB when it is expected to hike rates. EMU member finance ministers have been warning the ECB of the potential for a rate hike to turn growth negative in the e-Zone. Meanwhile, in the interest rate and exchange rate sensitive MFG sector it already has happened- at least by one measure.

Of the three largest EMU economies, two are registering contraction in MFG by the Market PMI measures: Italy and France. The Euro-Area’s strongest and largest economy, Germany remains in positive territory – but is easing.

The Euro Area plus Italy and France show that the economy is losing momentum at a rapid pace. Germany, on the other hand, has rebounded from its weakest reading and is losing momentum at a slower pace.

Still, the negative reading for the Euro Area's overall MFG PMI does not make it easier for the ECB to do what it seems already to have decided to do - that is to hike rates. Since the ECB began considering a rate hike more seriously, inflation has overrun the ECB ceiling by an even larger amount. Headline inflation is now is at more that twice the pace that the ceiling allows, leaving the ECB chasing after its own credibility. This is a race that the ECB is determined to win.

NTC MFG Indices
  Jun-08 May-08 Apr-08 3Mo 6Mo 12Mo Percentile
Euro-13 49.16 50.60 50.74 50.17 51.27 52.25 37.2%
Germany 52.56 53.57 53.62 53.25 53.93 54.18 60.3%
France 49.24 51.48 51.12 50.61 51.91 52.07 31.7%
Italy 46.91 48.05 48.24 47.73 49.01 50.57 24.2%
Spain 40.61 43.79 45.19 43.20 45.42 48.21 0.0%
Austria 48.39 49.76 49.83 49.33 51.31 52.71 32.6%
Greece 53.81 53.77 54.38 53.99 53.08 53.50 63.6%
Ireland 44.71 45.21 44.69 44.87 46.13 49.39 0.2%
Netherlands 51.07 51.46 51.45 51.33 52.02 53.99 49.5%
UK 45.79 49.46 50.34 48.53 49.65 52.02 2.8%
percentile is over range since March 2000
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