Europe’s Economic Recovery Gasps for Air

Rising stock markets and PMI surveys has mainly been used as basis by the consensus to posit for a so-called European economy recovery which I have been a big skeptic of.

In questioning the mainstream premises, I pointed to several evidences. 

Just how will a recovery occur when countries like France have been strangulating commerce with exorbitant taxes? In Greece, economic stagnation has prompted for a call for coup by army reservists. Also Europe’s car sales plunged in August.

Sanguine PMI surveys departed with bleak actual industrial output in July. Industrial production based on the chart from Eurostat turned lower as of August while September output has deteriorated further.

Importantly why would the ECB cut rates if the recovery has been for real?

Well it appears that, as I suspected, the Eurozone’s statistical recovery has been gasping for dear air.

From Bloomberg

The euro area’s recovery came close to a halt in the third quarter as German growth slowed, France’s economy unexpectedly shrank and Italy extended its record-long recession.

Gross domestic product in the 17-nation euro area rose 0.1 percent in the three months through September, cooling from a 0.3 percent expansion in the second quarter, the European Union’s statistics office in Luxembourg said today. That’s in line with the median forecast in a Bloomberg News survey of 41 economists. Growth in Germany, the region’s largest economy, eased to 0.3 percent from 0.7 percent.

The slowdown comes as the currency bloc struggles with the legacy of a debt crisis now in its fifth year and just after it emerged from its longest-ever recession in the second quarter. Unemployment (UMRTEMU) stands at a record 12.2 percent and inflation slowed to the lowest level in four years in October, leading the European Central Bank to cut its benchmark rate to a record low last week.

I would call this growth dynamic, in stock market lingo, a fading dead cat's bounce.

Nevertheless for the Eurozone’s stock market speculators it’s been a “don’t worry, be happy” ambiance as the German Dax hit fresh landmark highs, while the French CAC and the Eurozone Stoxx 50 has passed 2010 highs.

And as the Eurozone’s stock markets swiftly race forward, corporate debt in both financial and nonfinancial sector has similarly been ballooning.

Media will continue to spin the Eurozone’s parallel universe with fables

European Economic Recovery? July Industrial Output Sinks Far from Consensus Expectations

The resumption of the RISK ON environment has been mainly premised on a supposed recovery by the economies of the US, Europe, China and Japan. The belief is that these countries will do the weightlifting for emerging markets-Asia and relieve the latter from the pressures of the Fed’s “tapering”.

Europe has reportedly been lifted out of recession in the 2nd quarter from improved consumption and production.

chart from economic design

European PMI surveys (Purchasing Managers Index—an indicator of the health of the manufacturing sector through 5 variables; specifically new orders, inventory levels, production, supplier deliveries and the employment environment) supposedly posted significant gains in July and in August.

Well it turns out that expectations and actual performance have once again severely diverged as European industrial output miss by an ocean: the parallel universe.

From Bloomberg: (bold mine)

Euro-area industrial output contracted more than economists forecast in July as manufacturers struggled to shake off the legacy of a record-long recession.

Factory production in the 17-nation euro area fell 1.5 percent from June, when it gained 0.6 percent, the European Union’s statistics office in Luxembourg said today. That’s more than the 0.3 percent contraction forecast by economists, according to the median of 33 estimates in a Bloomberg News survey. (EUITEMUM) In the year, output fell 2.1 percent.

The euro-area economy’s return to growth in the second quarter from its longest-ever recession has been restrained by record unemployment and inflation has remained below the European Central Bank’s 2 percent ceiling for seven months. That may help to explain why economists in a Bloomberg News survey see growth slowing to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June.

The industrial-output “data call into question the region’s recovery,” said Chris Williamson, chief economist at Markit Economics in London. “There is clearly a risk that GDP could contract again in the third quarter, as some of this second-quarter growth proves to have been only temporary.”…

Production in Germany, Europe’s largest economy, declined 2.3 percent in July after a 2.2 percent gain in June, today’s report showed. Output in France fell 0.6 percent, while Italian industrial production unexpectedly declined 1.1 percent, signaling that the euro area’s third-biggest economy may still be stuck in its longest recession since World War II.

Some recovery.

Not to worry, European stocks represented by the STOX50 have been rising since the last quarter of 2011 and have presently been drifting at 2 year highs… 

GDP annualized

GDP by quarter

…even as the Eurozone has been mired by a continuum of negative growths (based on annual and quarter growth) for the entire 2012 until the 1st quarter 2013.

Who says stock markets reflect on the state of the economy?

Gold Reclaims $1,900 level

As Europe equities endures another bout of paroxysm today, gold prices race back to reclaim the $ 1,900 level.