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Economy in Brief

EMU Economic Sentiment Continues to Unravel
by Robert Brusca  September 29, 2011

The decline in the Euro-Area is quite plain and clear for all to see. The graph above plots index levels and shows how even those (like Germany) with a strong recover yare falling fast. Spain, the weak economy on the chart also shows erosions but in the context of what has really been a truncated recovery that was cut off and has essentially flat-lined since early 2010.

When EMU countries have their current index levels for economic sentiment plotted in the context of their historic values the current standing ranks low. For all of EU the index is in the 24th percentile of its queue; put another way, it is better than this 76% of the time. That is not a good result. For all of EMU the standing is in the 24.9Th percentile of its queue, about the same as for EU. By country: Germany is best off, standing in the 64th queue percentile, France is next but it stands only in its 34th queue percentile, Italy in its 10th queue percentile and Spain resides in its 17th percentile. These are the four largest Euro-Area counties. The UK, the largest EU member that is not an EMU member, has its queue standing is in the 13th percentile. Clearly the Zone is in a bad way. Greece and Portugal are scraping near the bottom of their respective ranges.

The message here remains that Germany is in ‘one world’ and the states of EU/EMU ‘in another.’ Even so, it is clear that Germany while in a much higher orbit than other EMU countries is still orbiting around the same deteriorating fundamentals and those have pulled Germany down as well.

Compared to just three short months ago in June the EU/EMU economic sentiment percentile standings have fallen by over 40 points. As an example the EU queue standing in June was in the 66th percentile and now it is in the 24th percentile. Among countries, Italy and France have dropped the most in this span by 39.9 and 38.3 percentile points, respectively. Germany has dropped by 30 percentile points. Spain has fallen by 13 points on this scale; Greece already so low it did not reduce its percentile standing but recouped less than one percentile point. Greece has not fallen because it really can’t fall by much more but rest assured that markets do not look for Greece to have a better go at it because it is likely to get some sort of ‘bail out.’ In this bail-out the Greeks will be working overtime and bailing as hard as anyone. There is no free lunch even if Greece and the Zone survive.

Turn to the overall results by Industry: the Euro-Area has no strong sectors left. The industrial sector is marginally above its midpoint in the 56th percentile of its historic queue of values and has slipped by over FORTY queue percentage points since June (when it ranked in the top third of its historic queue in the 66th percentile). Consumer confidence has fallen harder dropping 43 percentile points and now resides in the bottom 13 percentile of this historic queue. EU consumer sentiment is better than its September level most of the time, 87% of the time! All other sectors are very weak.

EMU is floundering and it is no surprise that economists are downbeat on growth prospects or that many who are surveyed are skeptical about the future of the euro itself. The failing European recovery is now mostly a failure on the back of Euro issues with a nudge from what have been higher energy costs. While having had Germany approve the changes to the EFSF is a positive for the Zone and while the drop in Germany’s unemployment rate in September is a testimony to resilience of the German economy, the Zone has many challenges ahead and so does the German economy. Unemployment expectations are moving up sharply. They have risen to a point where they are higher in the Zone only 40% of the time compared to June when they were higher only about 25% of the time. This is a substantial and quick deterioration.

Europeans need to sit down across a table and to stop blaming one another and try to come up with a plan that can put the financial crisis at bay and at the same time come up with a real fix. One is no good without the other.

EU Sectors and Country Level Overall Sentiment
EU Sep
%ile Rank Max Min Range Mean By Q
Overall Index 94 97.4 102.3 104.6 55.2 192 116 67 49 100 24.1%
Industrial -6 -2 0 3 70.2 113 8 -39 47 -7 55.3%
Consumer Confid -19 -17 -12 -11 38.2 218 2 -32 34 -12 13.8%
Retail -13 -11 -5 -2 40.0 208 8 -27 35 -7 17.8%
Const. -28 -26 -25 -26 31.1 168 3 -42 45 -20 33.6%
Srvc -4 -1 6 7 42.4 142 34 -32 66 10 21.1%
  %M/M Sep
Based on Level Level  
EMU -3.5% -4.5% -2.3% 95.0 52.9 190 118 70 48 100 24.9%
Germany -2.0% -5.1% -1.6% 104.9 68.0 90 120 73 47 100 64.4%
France -3.5% -5.9% -1.4% 96.2 50.2 166 117 75 42 100 34.4%
Italy -5.4% -0.7% -4.5% 89.0 34.3 227 121 73 48 100 10.3%
Spain -1.9% -0.3% -2.8% 90.9 43.6 209 115 72 43 100 17.4%
Greece -4.2% 3.9% 1.3% 70.6 6.4 248 120 67 53 99 2.0%
Portugal -7.0% -6.0% -1.1% 73.2 9.3 250 117 69 48 99 1.2%
Memo: UK -3.7% -5.7% -1.4% 89.5 48.9 219 116 64 51 100 13.4%
All since June 1990 253 -Count Services:180 - Count  
Sentiment is an index, sector readings are net balance diffusion measures
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