EU Commission Indexes Show Ongoing But Slowing Recovery

The overall EMU index shows an ongoing rebound with significant monthly gains, but as of August the queue standing of the index is at its 12.9 percentile and nearly 16 points below its February value. The index rose by 8 points in June, by 6 points in July and by 5 points in August. These all are large monthly gains, among the largest ever, but the pace of improvement is still slipping and there is a long way to go to get back to where the index was in February.

All sectors in EMU improved in August except construction

Among the 18 early reporting EMU countries, and the U.K. to make the total 19, only four EMU members plus the U.K. failed to improve in August. All of them improved in July and all but two improved in June. The gains in the indexes have been both strong and widely shared across the EMU. However, just like the overall gauge, none of the members have sentiment indexes that have been returned to strong or even firm standings. No EMU member nation has a queue standing as high as its median (50% mark). The highest readings are generally among the smallest nations such as Luxembourg (41.7%), Lithuania (32.1%) and Latvia (25.4%). Germany and France manage standings of 28.5% and 23.7%, respectively. All of these are still extremely weak readings despite their being among the best the area has to show.

The sector readings are weak too with construction in the EMU the strongest sector of the lot. Retailing has a 41.7 percentile standing. After the industrial sector and consumer confidence has standing in the lower 20th percentile and the all-important jobs-production service sector saw a very weak 4.4 percentile standing. Construction alone has a standing above its median at its 62nd percentile and its employment impact is miniscule.

The table below gives queue standing assessments by sector for the four largest EMU members plus the U.K. Among the five sectors and five countries, there are 25 sector assessments of which only four have standings above their respective historic medians. Three of those above-median assessments are in the construction sector; one is for retailing in Germany.

The EU sentiment reading for each country is also listed in the table. It shows that the two largest EMU economies Germany and France also have the two strongest readings. The next two largest, France and Spain, are much weaker. The U.K., no longer with any EU affiliation, has the weakest standing. The EU indexes are a weighted average of the sector indexes in the table. Nothing anywhere in this table or in the broader country table is really strong. Momentum seems to be fading. The virus continues to spread and cause new shutdowns or measures to be implemented. France has just adopted a policy of mandatory mask-wearing in Paris. Angela Merkel has just issued a warning that the virus impact would drag on warning that even if a vaccine were successful, producing and administering it would still take a substantial amount of time.

The outlook has to continue to be one of extreme uncertainty. There are hopes, plans, and even forward purchases of expected vaccines. But no one knows if the vaccines being developed will pass muster. There are all sorts of divisions among people including policymakers on how to handle this. The recent flare up of virus in countries that thought they were on the downslope of their troubles is a stark warning for the future.