Posts Tagged ‘Ben May’

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The numbers say what the numbers say. It may not feel right; it may defy reason, but there are reasons to think the Eurozone may be set to exit recession.

The latest flash Purchasing Managers’ Index tracking Eurozone manufacturing and services hit an 18 month high.

That is good, but especially encouraging was that the July index was 50.00, which is good news because 50 is seen as the key level. Anything below 50 is supposed to correspond with contraction; anything above signifies growth. Okay, a reading of 50 is not that remarkable, and this is just the flash reading, meaning that it is an early estimate. But it is a good sign, nonetheless.

Markit, which compiles the data, said: “Manufacturers reported the largest monthly increase in output since June 2011, registering an expansion for the first time since February of last year. Service sector activity meanwhile fell only marginally, recording the smallest decline in the current 18-month sequence and showing signs of stabilising after the marked rates of decline seen earlier in the year.”

In Germany output rose at the fastest rate for five months. Service sector growth hit a five-month high while manufacturers reported the steepest monthly increase in output since February of last year. Overall job creation hit the highest since March.
As for France, the PMI hit its highest level since March 2012. It’s not the only good news out of France of late. An index showing that morale in the industrial sector recently rose for the fourth month running, led the French Finance Minister Pierre Moscovici to say: “Nous sommes en sortie de recession,” or “We are out of recession.”

On the other hand, the index measuring French industrial morale is still below the historic average. The PMI was up, but at 48.8 still pointed to contraction, and in any case, France has to enforce much more substantive reforms to its labour market before it can claim its struggle is over.

Ben May, European economist at Capital Economics, said: “There are some signs that the euro-zone economy is on the mend and might perhaps soon exit recession. Nonetheless, the PMI and other business surveys have signalled several false dawns in the recent past. What’s more, with banks still reluctant to lend and demand for credit remaining weak, it is still too soon to conclude that the region is in recovery mode.

© Investment & Business News 2013

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It has been a drip drip of okay news on Spain. There’s nothing sensational; nothing yet to quieten the euro-sceptics, but enough to offer some hope.

The latest PMI for Spanish manufacturing from Markit hit 50 in June, which is the highest reading in 26 months, and suggests the sector is no longer contracting; rather it is now flat. Spain posted its first trade surplus ever in March, with exports rising 2.7 per cent, and finally Spanish unemployment fell in May, with 98,286 joining the Spanish work-force.

Okay, none of this data provides a reason for the bulls of the investment world to start charging all over the market bull rings. A reading of 50 for the PMI still suggests the economy was flat, ie not growing. Sure the balance of trade went positive, but the main reason for this was falling imports, and Spanish unemployment remains at frightening levels.

But then this week (July 23 to be precise) the latest figures on Spanish GDP were out and they gave some reason for cheer.

In Q2 the Spanish economy contracted by 0.1 per cent, after contracting 0.5 per cent in Q1 and by 0.8 per cent in Q4 last year. Year on year growth was minus 1.8 per cent.

So Spain is still in recession, but it needs only a very modest improvement to leave recession and that surely has to be celebrated.

Ben May, European economist from Capital Economics, is not so sure, however. He said: “We expect weak demand in Spain’s major export destinations to mean that the boost from the external sector will fade over the coming quarters. And with the fiscal squeeze, housing slump and private sector deleveraging set to continue for some time to come, domestic demand is likely to contract significantly further.

Based on this, we still expect GDP to fall pretty sharply next year, perhaps by as much as 1.5 per cent.” If Capital Economics is right, and the recent good(ish) news proves to be a one-off, then expect another bond crisis, and more calls for help in 2014-15.

© Investment & Business News 2013