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Economy in Brief

IP in the Euro-Area
by Robert Brusca  July 11, 2011

While the growth rates of IP from 12-months and in seem different for France and Italy. But their respective growth rate paths in the recovery have been very similar. Over three-months Italy is the only country in the table with IP growth accelerating. France has just broken a string of declines in IP. Germany continues to blast out the high end on growth

In the table we can see the weakness in Spain Ireland Greece and Portugal. All of them have weak or declining quarter-to-date growth rates in their IP.

The EMU total is not yet in, but it is close to complete. The performance of industrial output reminds us that the Zone is slowing –except perhaps for Germany- and that the financially troubled countries are on the cutting edge of that slowing and their weaker growth will make it harder for them to hit their targets.

The recent imbroglio in Europe is that Italy is being sucked into the vortex of debt concerns. Italy’s 10-year notes saw yield jump by 30bp to 5.5% bulging their premium to German bond yields to 2.8% (280bp). Spain’s yields have risen at the same time to 5.90% with spreads to German bonds of 3.2% (320bp). With these two countries the third and fourth largest EMU economies are being spun into the vortex

Friday’s reluctance by PM Silvio Berlusconi to adapt further austerity was a catalyst for this recent sell off in Italian bonds.

Clearly the EMU has entered a new stage of risk. While growth is still solid, the fragmenting of IP, a monthly metric, is revealing the distress created and spread by debt concerns. Several weeks ago the IMF warned that the EMU debt problems could spread to the core and it is now hard to argue that it has not in fact done just that.

If this crisis worsens it will just get harder to deal with. Has Europe already run out of time to deal with its problem or will growth remain strong enough long enough for Europe to work its way back to solid widespread growth with a healthy Zone? The future of the Euro hangs on such an answer.

Selected Euro-Area Countries and UK IP in MFG
  Mo/Mo 3Mo 6Mo 12Mo May-11
MFG Only May-11 Apr-11 Mar-11 May-11 May-11 May-11 Q:2
Date
 Germany: MFG 1.3% -0.3% 1.1% 8.8% 11.2% 8.9% 8.5%
 France 2.0% -0.5% -0.8% 2.6% 5.2% 2.6% 0.4%
  Italy: MFG -0.7% 1.0% 0.6% 3.6% 2.0% 1.8% 7.6%
 Spain 2.3% -3.4% 0.1% -4.2% 0.7% -0.8% -11.9%
 Ireland 0.5% 1.2% -1.4% 1.1% 1.7% 0.1% -3.2%
 Greece 2.0% -5.6% -1.6% -19.6% -12.7% -10.3% 0.0%
 Portugal 2.8% -3.5% 0.8% -0.4% 6.1% -0.3% 0.0%
 UK: MFG 1.9% -1.6% 0.1% 1.3% 1.5% 2.9% -3.2%
Mo/Mo are simple percent changes others are at SAARs;IP X-construction unless noted
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