Archive for the ‘Europe’ Category

China is not happy with the EU, the EU is not happy with China, and the British Solar Trade Association seems to side with China.

The EU has imposed anti-dumping duties on China’s solar panel exports. China has responded with tariffs on Europe’s wine exports.
Actually, this is the EU compromising. It is phasing in the tariffs much more slowly than originally intended, and they will, in any case, be at a much lower rate.

The EU says China is using subsidies to sell its panels on the cheap, and reckons they should be some 88 per cent more expensive.
On the other hand, the solar industry has received large subsidies in Europe, too.

Ray Noble, PV Specialist at Solar Trade Association (STA), reckons that the real problem for the EU is that the European industry has not invested as much as it should have. It has taken the money from subsidies, and, as it were, run. China has invested far more and consequently enjoys greater scale. That is why it can sell panels for less money than European companies.

STA CEO Paul Barwell recently said, “If duties are imposed, panel prices will rise across the board, and consumers and installers alike will lose out. It makes no sense to safeguard 8,000 manufacturing jobs by sacrificing up to 200,000 jobs in the wider industry.”

Mr Noble said, “I suggest David Cameron and Angela Merkel work together to sort out these absurd rules and remove this lingering market uncertainty, so that industry can get on with installing low cost, clean and affordable solar energy.”

© Investment & Business News 2013

The news out of the euro area was good yesterday. Yes, it is still in recession, but it has been in recession for a record length of time. No, there is no sign of the recession coming to an end, but at least the rate of contraction seems to be falling.

See it in terms of a football team that has been thrashed three games in a row, say seven nil, six nil and eight nil. Then it only gets beaten four nil, and the manager breathes a sigh of relief, fans go home smiling, things are getting better, they say.

The latest Purchasing Managers’ Index tracking the euro area was out yesterday. The index rose to a 15 month high.

In fact, it rose from 46.7 to 48.3. As Markit, which compiles the PMI data, said: “The seasonally adjusted Markit Eurozone manufacturing PMI indicated the slowest pace of contraction since February 2012.”

It is just that any score under 50 is meant to suggest contraction.

The PMIs for Germany, the Netherlands and Austria all hit three month highs; Italy rose to a four month high; France to a 13 month high; Greece to a 23 month high, and Spain to 24 month high.

That may seem impressive, but just bear in mind that in each case the PMI index was consistent with contraction.

Yes it is good news, and maybe it is a little harsh to compare it with a football team celebrating because it had only been beaten four nil, but neither does the data provide reason for much excitement.

PS: In Spain, there are signs of a gradual improvement – although unemployment remains awful. Talk is that the Spanish economy is beginning to have a more Germanic feel about it. Maybe in a few years’ time Spain, just like Germany, will be a great exporter… maybe. Just bear in mind that the global economy cannot afford too many Germanic type models, because if every country tries to export more than it imports the result will be economic depression.

© Investment & Business News 2013

It appears that the Chinese economy lurched backwards again in May. The Eurozone remained firmly in recession, or is that depression? So much for things looking up!

You may know that the Purchasing Managers’ Indices follow a formula, with any score over 50 meaning expansion; under 50 indicates contraction. However, with China it is not that simple, and normally a score under 50 suggests growth slowing rather than outright contraction.

This morning the flash composite PMI for China from HSBC/Markit and for the Eurozone from Markit were out.

These are preliminary readings, with the fuller and more accurate PMIs due out at the beginning of June.

The May flash composite PMI for China was 49.6, the first reading under 50 since last October. The May flash composite PMI for the Eurozone was 47.7, the highest reading in three months but still consistent with recession.

Let’s see what the more accurate and detailed PMIs for both China and the Eurozone say in ten days’, or so, time.

© Investment & Business News 2013

The recession continues, but maybe there were a couple of bits of good (ish) news lurking in the latest data on the economies that make up the Eurozone.

The Eurozone is still in recession. GDP contracted by 0.2 per cent in Q1 of this year, according to data out yesterday. The region has now contracted for six quarters on the trot.

Germany and Belgium both expanded, but of the region’s major economies they were the only ones to see growth. The growth was nothing special either – 0.1 per cent in both cases. To put that in context, Germany contracted by 0.7 per cent in the final quarter of last year.

France contracted by 0.2 per cent, Italy and Spain both by 0.5 per cent, Portugal by 0.3 per cent, and the Netherlands by 0.1 per cent. In Austria the economy was flat. Ben May, European Economist at Capital Economics, said: “We still think that the consensus forecast of a 0.4 per cent fall in euro-zone GDP this year is too optimistic and expect something closer to a 2 per cent decline.”

Chris Williamson at Markit said: “The worse than anticipated start to the year will clearly worry policymakers at the ECB. The central bank has already responded to signs of a renewed weakening in the region’s economy, cutting its main policy rate to a record low of 0.5 per cent on 2nd May, but today’s data will add to calls that more action is required beyond what many see as a token gesture of a rate cut. The focus is turning to how the ECB might possibly emulate recent successful-looking efforts by the Bank of England to stimulate lending to small and medium sized companies.” The news on Greece, however, is oddly encouraging. Then again, everything is relative.

The Greek economy contracted by 5.3 per cent in Q1 over the same period last year. You might not think that is very good. But in fact that was the smallest contraction in Greece since the third quarter of 2011. Furthermore, credit ratings agency Fitch, recently upgraded Greece.

Then again, with unemployment at 27 per cent, further austerity yet to take its toll, and lending to businesses and households still falling, there are still reasons to be cynical about such optimism.

Capital Economics has long been predicting the partial break-up of the euro. It concedes that thanks to better than expected data on Greece, the chance of this happening imminently is “zero”. It still reckons a Greek exit is possible in a few years’ time, however.

© Investment & Business News 2013

May 14 2013: put that date in your diary. For on that day in history data was released showing industrial production across the euro area rose by no less than 1 per cent in March on the month before. It was the second month in succession to see a jump in production, although in February the increase was a more modest 0.3 per cent.

Chris Williamson at Markit said: “The March rise in production was the largest since July 2011.” He added: “The data therefore bode well for GDP to show a significantly weaker decline than the 0.6 per cent contraction seen at the end of last year, and even raises the possibility of the recession having ended.”

Alas, look a little closer and the story that emerged is not quite so good. Mr Williamson put it this way: “[The rise in production] was in part buoyed by a 3.8 per cent surge in energy production. The upturn also masked worryingly strong variations within the single currency area: production surged 1.7 per cent higher in Germany but fell by 0.9 per cent and 0.8 per cent in France and Italy respectively.”

He said: “Any improvement or respite from recession looks likely to be short-lived, as the business surveys have already started signalling a renewed weakening.”

On the other hand, at least there are signs that Germany may be turning. Not only did data reveal a rise in industrial production, the latest Zew index – a measure of investors’ expectations – rose. According to Capital Economics, it is consistent with growth in the Germany economy of around 2 per cent, from just 0.4 per cent in Q4.

So there you have it, Germany is doing well but other parts of the Eurozone are not so strong. Maybe May 14th was not so unusual after all.

© Investment & Business News 2013

Last year Mario Draghi, president at the ECB, said the Eurozone central bank was ready to do “Whatever it takes to save the euro.” The markets loved it, and have been loving it ever since, but they forgot about the prefix, because Mr Draghi also said a few things at the beginning of the “whatever it takes statement.” In fact, he said: “Within our mandate.” That was a pretty important proviso. It is like celebrating because someone says you have done something that is good, but ignoring the fact that it was prefixed by not.

That was last summer. Now it seems that at last Super Mario Draghi has done something other than talk with prefixes that get ignored.

Yesterday the ECB voted to cut interest rates to half a per cent. So at last they are at the same level as the UK – not so long ago they were 1 per cent.

Mr Draghi said the “ECB was ready to act,” and those words got the markets all excited again.

But why has it taken so long? Inflation in the Eurozone was just 1.2 per cent in April. Across the region, and for the time being, inflation is as about as threatening as a puppy wearing a muzzle.

Well, there is an answer to the question. One ECB member voted to keep rates on hold. Jörg Asmussen, a German economist, who is normally thought of as a Draghi supporter, voted to keep rates on hold. He felt the rate cut would have little impact. Jens Weidmann, President of the German Bundesbank, held similar doubts but voted with the rest of the pack on this occasion.

So what’s next? Will the ECB really announce quantitative easing (QE)? Just remember last year Mr Weidmann likened QE to a Faustian pact. See: Quantitative Easing 

It hardly seems likely that when the topic of creating money comes up at the ECB Mr Weidmann will vote in the affirmative.

© Investment & Business News 2013


The inflation hawks say runaway inflation is inevitable. With record low interest rates and money printing, it is as sure as eggs are eggs.

If that is so, explain this. In the latest data out today from Eurostat, inflation in April was recorded at 1.2 per cent. That is about as alarming as one broken egg in a giant chicken farm.

The inflation rate has halved over the last year – it was 2.6 per cent in April 2012.

A breakdown of the figures is not yet available, but last month inflation in Greece was just 0.6 per cent. In Germany it was 2.0 per cent.

Truth be told, in order to compete, the countries of the southern Eurozone – that is Portugal, Spain, Italy and Greece – have to see prices fall relative to Germany.

This has already happened to an extent in Ireland. If you give the consumer price index in Germany and Ireland a reading of 100 in 2008, then by March this year the index had risen to 115 in Germany, 109.5 in Ireland. In other words, since 2008 German prices have risen by 15 per cent and by 9.5 per cent in Ireland. The economy of Ireland still has plenty of problems ahead, but it has at least partially closed the competitive gap with Germany.

The problem facing the southern Eurozone is that at a time when average inflation across the region is just 1.2 per cent, in order to close the competitive gap they may need to see even lower inflation than that – indeed outright deflation may be the ticket.

When you carry large debts, deflation is about as disastrous as you can get. Imagine the scenario. A country suffering from deflation may be growing in real terms, but in nominal terms contracting. And if nominal GDP is falling, it becomes devilishly difficult – some might say nigh on impossible – to cut debt relative to GDP.

Capital Economics reckons that as a result of deflation, there is a danger that by 2020 debt government debt in Italy and Greece may pass 200 per cent of GDP. And it could be around 170 per cent of GDP in Spain and Portugal. The very process of austerity, and the domination of hawks at the ECB, is creating low inflation across the Eurozone, which in turn may cause debts in Southern Europe to escalate to even more horrendous levels.

Capital Economics reckons there are three possible solutions: default, euro exit, or money transfers from north to south of the Eurozone – in other words, much closer political union.

Italy’s new Prime Minister Enrico Letta is pushing for the latter approach. In a speech yesterday he laid it on thick: “Our destiny as Europeans is common, otherwise it will be made up of individual countries that will slowly decline,” he said.

There is a fourth scenario, however and that is more inflation, especially wage inflation, in Germany,

EU Social Affairs Commissioner László Andor has called for wages to rise in Germany. In an interview with Süddeutsche Zeitung, he said: “Belgium and France have been complaining about German wage dumping.”

Mr Andor warned that the alternative to growth policies entailing rising wages in Germany – perhaps enforced by a rise in the minimum wage – may be mass migration.

In words that might resonate with many in the UK, he said: “Some people compare the situation to America in the 19th century, when there was a mass migration from the south to the prosperous north after the Civil War. In order to avoid this, it is necessary to create growth in the crisis countries.”

Whatever the solution, it is clear that deflation and not inflation is threatening to pulverise the southern Eurozone economy.

© Investment & Business News 2013