EMU MFG Weakens but Pace of Decline Slows

Manufacturing output weakened slightly in the Euro Area in May but the pace of decline is slowing. Among reporting countries the MFG PMIs mostly slipped in May. France and the Netherlands were exceptions, the Netherlands in the most trivial of ways.

Spain remains the mostly serious impacted of EMU countries with its MFG PMI in the bottom 2.5% of range constructed from early 2000 on. The overall EMU PMI is below breakeven at the 43.7 range percentile. France, Italy and Austria, too, are below their respective range midpoints. Germany’s standing at the 61.2 percentile of its range is astonishing. The UK, an EU only member, stands in the 42 percentile of its range.

For the most part these rankings reflect inflation rankings and therefore reflect competitiveness rankings within the EMU area. Greece, however, is performing in terms of its MFG PMI much better than its inflation ranking would have you believe it would. The rest fall more or less into line. (see inflation chart below for cumulative inflation on the national HICPs since July 2000).

The table shows that German inflation has risen by 4.4 percentage points less than EMU inflation during their period. Greece’s HICP has risen by 11.5% more than the EMU average. Spain is also an inflation leader and as expected it is an output laggard in this cycle as the euro has risen.>

On balance there is a great deal of irregularity within the Euro Area involving inflation performance and output results. Still there is only one monetary policy, making things difficult. The ECB is looking only at group inflation (EMU-wide) to make policy and holding to a firm path. Cracks in the Euro Area are beginning to form.