Economy in Brief

The EU commission's overall reading for the European Monetary Area unexpectedly eroded, dropping to 95.2 in March from 96.3 in February, leaving it also below its January 2025 level but above its December 2024 level. It may simply be too soon for this survey to reflect any of the changes going on in Europe. But very clearly a ramp up in military spending is planned and economic conditions in the monetary union and beyond are about to receive a significant boost. While that development might be simply too new to have gotten into the indexes as of March, it is still in train so curb your disappointment.

EMU in March by Sector March readings for the monetary union show the industrial sector unchanged at -11 from February but showing improvement compared to both the December and January readings. Consumer confidence slipped in March to -14.5 from -13.6 in February and it's below its January and December levels as well. Retailing slipped to -7 in March from -5 in February and it also is below its string of readings since December of last year. Construction spending at -3 posted the same reading it logged in February and in January and those were slight improvements from December. The services reading in March slipped to +2 from +5 in February and it is also below its reading of +6 in January.

Country Readings Country level data show readings for 18 of the monetary union members; of these 18, only 6 have percentile standings for overall indexes that are above their median (a ranking of 50%) calculated on data back to 1990. Only one of the four largest countries has a reading above its median and that's Spain at a standing at 51.4% Other large countries show much weaker readings with Germany at a 16-percentile standing, Italy at a 37-percentile standing, and France at a 37.5 percentile standing. Month-to-month changes show deterioration in nine of the 18 reporting countries. This compares to a deterioration in eight in February and compares to January when six weakened relative to December. It is a worsening trend but based on developments in military spending to shore up NATO. Europe supported defense systems must carry more of the load. This will imply stimulus across the board coming for the monetary union.

European vehicle registrations falter and flatten in February. The month-to-month changes for a decline of 0.9% in February; year-over-year vehicle registration growth is -3.9%. The chart makes it clear that country-by-country the growth rates have been closing in on fairly unchanged levels of activity with a slight bias to contraction.

Country-by-country year-over-year sales results are strongest for Spain with the 10.4% increase, France with the 1.7% increase, the United Kingdom with a 2.4% drop, Italy with a drop of 6.2%, and Germany with a drop of 7.1%. These numbers translate into a 3.9% decline year-over-year for the total. If we look at smoothed data updated from three-month moving averages, there's a decline of 1.4% year-over-year, just to get a less volatile read.

Despite the year-over-year declines that are more prevalent than increases, the sequential trends show vehicle registrations trending more toward acceleration. There is clear acceleration registered in Italy and the United Kingdom. After that, there's certainly a very strong hint of very strong acceleration in both Spain and France. I say that because the year-over-year gain for Spain is 10.4%, while the three-month gain goes up to 32.1% at an annual rate (!); however, that is a step-down from the six-month growth rate of 47.6% at an annual rate so it's not exactly a clear accelerating trend but certainly three- and six-month growth rates are far in excess of the 12-month growth rate. We see the same thing happening in France with a 1.7% year-over-year growth rate compared to a 23.1% annual rate over three months, but that three-month rate is a step-down from the six-month pace of 27.7%. Because of that, I can't classify those two countries as accelerating but clearly something very positive is a foot.

If we turn to look at ranked data, we find the ranking of year-on-year sales growth is at 20.2% overall growth rates since 1995 – weak and unimpressive. Country rankings range from low 7% rank for Germany to a high of a 46-percentiel standing in the U.K. All rankings are below 50%, below their respective historic medians. We can also rank the same data in terms of the pace of unit sales. In Europe, the pace of unit sales (units sold per month or per month at an annual rate) there is a 33-percentile standing on all unit sales data since 1995. The auto sector pulled back after the Great Recession, it recovered into Covid, then suffered further downward pressure after the invasion of Ukraine by Russia. Since then, there has been a much more modest recovery leaving the pace of unit sales closer to the lows reached after the Great Recession than to its pre-Great Recession mark. Europe’s auto sector may be recovering but it is doing so slowly and sporadically, and it has a long way to get back to trend.