Thursday’s bulky European dataset — which included PMI, unemployment and retail sales — appears to have confirmed that Europe is in for a two-track recovery: France and Germany are leading the advance, while Spain and Greece are falling by the wayside.
The Spanish data was perhaps the most disappointing.
Danske Bank summed up the situation quite nicely, emphasis FT Alphaville’s:
The recovery in Euroland is becoming more uneven with Spain and Greece in particular lagging behind France and Germany. Our outlook for both Spain and Greece is rather pessimistic. Spanish manufacturing PMI declined from 47.2 to 45.8 in September and new orders fell back from 51.3 to 48.7. The decline in orders is caused by a weakness in the domestic market as export orders increased. Employment expectations fell back from 44.2 to just 42.0. The weakness of the Spanish economy is also emphasised by the current account data published yesterday. Spain’s massive current account imbalance is evaporating in an abrupt adjustment as imports decline at a much sharper rate than exports. Spanish imports are down 29.5% y/y while exports are down “just” 15.8% y/y.
Greek manufacturing PMI declined from 51.1 to 48.5. New orders declined massively from 54.1 to 49.1, despite an increase in export orders. This is really bad news about domestic demand in Greece. Employment expectations also fell back after five months of uninterrupted increases. The softness of the Greek domestic demand is underlined by retail sales published yesterday. Retail sales were down 10.2% y/y in real terms in July. Greek GDP figures gives a more flattering picture of an economy that has not even been in recession. I would look for a major downward revision here.
On Germany and France, meanwhile, they noted:
French final manufacturing PMI was revised upward by 0.5 to 53.0 while Germany is unchanged at 49.6. France currently appears to be doing best in the recovery race, but we still believe that Germany has a fair chance to win when it’s hard-hit export base recovers. The sentiment was also echoed by Barclays Capital, who wrote:
…this latest batch of survey data does further underscore the divergent developments that are apparent within parts of the euro area: while the new orders and output balances in Germany and France are both above the 50 “no-change” benchmark, the equivalent balances in Italy and Spain are all below that 50 benchmark. These readings therefore support our view of a ‘North/South’ divergence in euro area growth prospects.
As expected, Spain continues to be the primary source of weakness in the euro area labour market with unemployment having increased there by a further 87k m/m in August (taking the unemployment rate up to 18.9%, from 18.5% in July). While the contribution from Ireland to the euro area aggregates remains minimal (a rise of just 3k m/m) the small absolute size of the Irish labour force means that the Irish unemployment rate climbed by another 0.2pp to 12.5% in August. Elsewhere in the euro area, the German unemployment rate (Eurostat measure) was stable at 7.7% for the third consecutive month (with modest back-to-back declines in the level of unemployment in July and August), while the French unemployment rate increased by 0.2pp to 9.9%.
Related links:
Spanish house prices fall 7.7 per cent in Q2 - FT Alphaville
Something is rotten in the state of Denmark. And Ireland. And Spain. – FT Alphaville
Are Spanish banks hiding their losses? – FT Alphaville