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Economy in Brief

EMU Recovery Is In Train
by Robert Brusca  April 14, 2014

Industrial production in the European Monetary Union moved up by 0.2% in February following a flat performance in January. That also followed a decline of 0.3% in December. However, measured on a quarter-to-date basis, industrial production excluding construction in the euro area is growing at a 1.9% annual rate for the two months of 2014 over the fourth quarter of 2013.

By component, manufacturing is up at a 5.8% annual rate in the quarter to date; consumer goods output is up at a 4.1% annual rate in the quarter to date; intermediate goods output is up at a 6.3% annual rate at a quarter to date; and capital goods output is up at a 5.7% annual rate in the quarter to date. These are all solid showings, indicating a balanced recovery across sectors.

Output in the euro area seems to be on a solid path for the quarter. The euro area shows increases in output in all the major categories for January and again in February except for backtracking in output for consumer durables. The progress of growth rates, however, shows a slowdown in total industrial production excluding construction from a 1.8% pace over 12 months to 1.3% over six months to a decline of 0.5% at an annual rate over three months. However, for manufacturing alone there is acceleration in place as growth rates move steadily higher from 12 months, to six months to three months. Consumer goods output overall also has a steady acceleration in place and that's led by strong improvements in the pattern of growth for consumer durables output and supplemented by persistent acceleration in the output of consumer nondurables. Intermediate goods run a steady acceleration; only capital goods among the major categories are showing a deceleration from 3.7% over 12 months to 2.1% over six months to 0.1% over three months.

The slowing down in capital goods output is a bit of a surprise as the euro area begins to gain its footing because the capital goods sector means so much to Germany, the country that has been leading the expansion.

Turning to EMU member countries and looking at manufacturing, we detail nine of the original EMU members plus Greece. For this group, there are output declines for three countries in February for three in January and for three in December. This group's growth rates are higher over three months than for 12 months for six of the countries while three show weaker rates of growth on the comparison. Those three are Germany, Finland and Portugal.

Finland's industrial sector is struggling the most in the euro area with progressively declining growth rates from a decline of 3.8% over 12 months to 6.4% over six months to 12.7% over three months. These are negative growth rates and they are quite troublesome themselves as well as the progression to deeper declines. In the quarter to date, output in Finland is falling at a 17.4% annual rate; that is quite uncharacteristic among euro area member countries. Growth rates in the quarter to date, apart from Finland, range between 12.2% in Greece to 3.4% in Portugal. All the growth rates are positive with the exception of Finland.

Among European countries that are not members of the common currency, we look at developments in the United Kingdom, Sweden and Norway. Each of those three countries has increases in output in February of two of them had declines in January. The quarter to date growth rates range from 3.4% in Norway, to 4.7% in the UK, to 5.7% in Sweden. All of Europe appears to be on upswing except Finland.

The results for February are not a ringing endorsement of European growth or of growth acceleration. However, February adds to the pattern of ongoing expansion. February's growth rates by themselves are somewhat irregular across the sectors for the EMU as a whole as capital goods has become a laggard sector. Among member countries, expansion is clearly the order of the day compared to contraction. In February, we saw contraction in just three countries: Italy, Portugal and Greece. That list will surprise no one. Still, each of these countries is posting a positive growth rate in the quarter to date for the first quarter of 2014 with Portugal at 3.4%, Italy at 5% and Greece at 12.2%. There continues to be some irregularity in Europe, but growth across European countries this quarter is cropping up to be positive, just about across the board. The year-over-year growth rates for industrial output have increased in February compared to January in six of nine EMU countries as well as for the three other countries in the table. On balance euro area expansion appears to be on more solid footing.

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