Euro Area Production Tanks in September

Euro Area industrial output (IP) fell sharply in October dropping by its largest amount in over five years. In Sept MFG IP is dropping across all major product groupings just as it did in August and nearly did so in July. In the EMU the drop in IP has become intense, widespread and persistent. Across the largest EU/EMU countries IP also fell in Sept with the exception of Spain where numbers are more volatile than resilient. Spain in fact has the deepest decline in IP for Q3 at a -14% annual rate. Indeed, Germany, France, Italy and the UK all have drops in IP in Q3 as well. It is pretty clear that with declines of this magnitude (apart from Spain’s larger drop) ranging from -2.7% to -5% these economies are in recession or heading there soon.

In Germany the wise men issued a statement urging more public spending to boost the economy and urged the ECB to cut rates as much as it could see its way to do. They predict a recession in German for 2009, based on a wide variety of metrics. .

Similarly the Bank of England in a statement issued on the day said that the UK economy has probably entered recession in the second half of 2008. It does not see GDP growing until the second half of 2009. It sees inflation falling relatively rapidly.

Assessments of the economy in Europe are being cut rapidly. Evidence on the economy is that growth is fading fast. In this environment oil prices are sliding on the weakness in global demand even with some OPEC output cuts having been announced and with China having unveiled a better-than one-half of one trillion dollar stimulus plan. China further announced that as part of that plan it would implement export tax rebates and cut taxes on some export items. In July the government had implemented some export tax breaks for the garment industry. While China portrays some of these as factors to ‘stimulate domestic demand’ it seems that these really are efforts to keep getting a chunk of foreign demand at a time that the size of that pie is shrinking or at least growing more slowly. China’s ‘stimulus’ may not be as helpful to the rest of the world as it thinks.