EMU Confidence Backtracks in December

The EMU economic sentiment index fell to 115.3 in December from 117.6 in November. EMU-wide consumer confidence back-tracked, retailing backtracked and services backtracked. Rising month-to-month was the industrial sector index and construction. The sectors stepping back in December are those sectors that are relatively more impacted by interpersonal transaction activity an important point with the virus spreading in Europe.

Among the 18 early-reporting EMU members in the table, 14 reported declines and only four showed index improvement in December (all small economics: Cyprus, Slovenia, Latvia, and Lithuania). That compares to seven countries reporting declines in November and eight reporting declines in October.

The headline is the weakest since May of last year. March 2021 was the month in which the EMU sentiment index made its jump to the 100 mark, and it improved to 110 by the next month. So, the comparison to the May 2021 level is to an intermediate step up as the economy in Europe dug out from the severe covid weakness. From May 2021 onward, the index improved; October 2021 was the high reading at 118.6. During this phase, improvements were incremental. The headline EMU index has now declined from this post-covid peak for two-months running.

Despite the month's step back, some aspects of the economy are doing quite well. On comparison back to January 1991 and, as of December 2021, industrial confidence is at its best level, order volume is at its best level, export order volume is at its best level and employment expectations are at their best level. The four largest economies all have industrial readings in the top 10 percentile of their queue of data on that timeline and Germany is touting the second best reading ever on the timeline (better only in September 2021).

However, consumer confidence is not as robust. Among the four largest economies Italy has the highest queue standing for confidence in its 92nd percentile with France in its 80th percentile, Spain, and Germany both below their respective median markers. Those are huge differences.

Retailing also gets consistently lower marks from the largest economies. France and Italy give their sectors mid-80th percentile standings while Spain logs a 78.7 percentile standing; Germany sinks to a 64.8 percentile standing. Note that the EMU standing for retailing (87.4%) is relatively stronger than for any of the large economies pointing to consistently better results in this sector in the smaller economies of the EMU.

The service sector readings show wide differences in rankings among the four largest EMU economies. The overall ranking in EMU is in its 65th percentile, but for Germany, the largest economy in the EMU, the rank standing for the sector is at its 20th percentile. Italy has a 98.5 percentile standing, its fourth highest since 1991. Spain has a 91.3 percentile standing. France has a 77.7 percentile standing.

The construction sector shows some variability with a very high standing for Italy, a strong reading in Germany and a moderate reading in Spain.

We can be fairly certain that in the EMU with its harmonized rules and common currency, one of the main things creating country differences in performance is the spread of the virus and the various national reactions to contain it. Omicron has been a huge factor in Europe in December. Although Omicron is extremely transmissible, it has been comparatively less impactful on people's heath- fewer deaths per reported per infection and fewer ICU stays in the hospital. Still, WHO has warned against describing Omicron as a mild variant.

The WHO - the UN's health agency - said the number of global cases has increased by 71% in the last week, and in the Americas by 100%. It said that among severe cases worldwide, 90% were unvaccinated.

"While Omicron does appear to be less severe compared to Delta, especially in those vaccinated, it does not mean it should be categorised as mild," Dr Tedros told a press conference on Thursday.

"Just like previous variants, Omicron is hospitalising people and it is killing people." (Source here).

However cautious or careful with its language WHO may be, the facts and the trends are clear. And the more that unvaccinated people get Omicron, the fewer are the unvaccinated people that have no immunity. Omicron also spreads in the vaccinated community but with less heath impact. Given Omicron's stepped-up infection rate, infection is going to have spread enormously and that is going to lay the groundwork for better immunity in its wake. That is probably the most positive statement we can take away from this infection cycle. We do not know if this is the last variant as some doctors/researchers maintain or if it covid will die out or remain in circulation as a threat but a lesser risk in the future. But given the way it has helped to spread immunity in this infection iteration, the outlook for growth in the future is made brighter with a lesser risk from covid ahead even though we can't categorize exactly what that future will look like.