While laughing at the amusing
exchange of letters between the CEO of Titan and
Arnaud Montebourg, Minister of Industrial Renewal of France, I awaited the latest
PMI report on France, expecting findings to be horrific.
The PMI reports are out today, and inquiring minds will note the Markit Flash
France PMI shows the decline in French private sector output
accelerates further to reach near four-year record.
Key points:
- Flash France Composite Output Index drops to
42.3 (42.7 in January), 47-month low
- Flash
France Services Activity Index falls to 42.7 (43.6 in January), 48-month
low
- Flash
France Manufacturing PMI climbs to 43.6 (42.9 in January), 2-month high
- Flash
France Manufacturing Output Index rises to 41.2 (40.8 in January),
2-month high
Summary:
Latest Flash PMI data indicated that the downturn in French private sector
output deepened in February. January’s Markit Flash France Composite Output
Index , based on around 85% of normal monthly survey replies, slipped from
42.7 in January to 42.3, its lowest reading since March 2009.
The steeper fall in overall output was driven by an accelerated decline in
the service sector where activity contracted at the fastest pace in four
years. Manufacturers signalled a slightly slower decrease in production
compared with one month previously, albeit still sharper than signalled in
the service sector.
New business placed with private sector companies in France fell again in
February, extending the current sequence of contraction to one year. The rate
of decline quickened slightly since January and was only marginally slower
than December’s 45-month record.
Service providers indicated that new business fell at the sharpest rate for
just under four years. Survey respondent s commented that difficult business
conditions and intensifying competitive pressures had conspired to depress
inflows of new work.
France Economic Output
Expect GDP to follow the PMI far more than economists expect.
Eurozone Aggregate PMI
The Markit Flash Eurozone PMI shows steepening downturn in
February.
Key Points:
- Flash
Eurozone PMI Composite Output Index at 47.3 (48.6 in January). Two-month
low.
- Flash
Eurozone Services PMI Activity Index at 47.3 (48.6 in January).
Three-month low.
- Flash
Eurozone Manufacturing PMI at 47.8 (47.9 in January). Two-month low.
- Flash
Eurozone Manufacturing PMI Output Index at 47.5 (48.7 in January).
Two-month low.
The Markit Eurozone PMI® Composite Output Index fell to 47.3 in February from
48.6 in January, according to the flash estimate. The decline signals a
steepening of the economic downturn, contrasting with the easing trend seen
in the previous three months. Business activity has now declined throughout
the past year-and-a-half, with the exception of a marginal increase in
January last year.
Output rose for the third month running in Germany, albeit at a slower rate,
contrasting with accelerating, steep rates of decline in both France and
across the rest of the Eurozone on average. French businesses were
particularly weak, reporting the largest monthly drop in output since March
2009. Outside of France and Germany, the rate of decline was the fastest for
three months, though it was weaker than the downturn seen in France.
New orders fell for the nineteenth month running, with the rate of decline
gathering pace having eased to the weakest for 11 months in January. However,
the overall rate of loss in February remained less steep than that seen
throughout much of 2012.
Chris Williamson, Chief Economist at Markit said: "A steepening rate of
decline in February is a disappointment, and suggests that the eurozone is on
course to contract for a fourth consecutive quarter in the first three months
of the year. Digging into the data shows increasing schisms within the
eurozone. National divergences between France and Germany have widened so far
this year to the worst seen since the survey began in 1998. Germany is on
course to grow in the first quarter, recovering from the 0.6% GDP fall seen
in the fourth quarter, possibly expanding by as much as 0.4%. In contrast,
France’s downturn is likely to deepen, bringing the euro area’s
second-largest member more in line with the periphery than with the now
solitary-looking German ‘core’.”
"Core" of Europe vs. Periphery
Recall that the "core" of Europe was once Germany, France, and
Italy. Italy went down the tubes long ago and the "core" became
Germany and France. The "core" is now Germany.
Rotten to the Core
Last month the eurozone composite PMI rose from 47.2 to 48.6.
Chris Williamson, Chief Economist at Markit offered this interpretation:
"The eurozone is showing clear signs of healing, with the downturn
easing sharply in January and the region moving closer to stabilisation in
the first quarter."
I offered a completely different interpretation on February 7 in Illusions of Stabilization.
No Signs of Healing
I disagree with Williamson. Those divergences show the eurozone is getting
sicker, not healing.
If there was any healing, and certainly if there was any rebalancing,
manufacturing and export growth would be picking up in Spain, in Italy, and
in France at the expense of Germany.
Illusion of Eurozone Stabilization
There is no real stabilization and there is no healing. Rather, the policies
of Hollande are so disastrous that some output has shifted to Germany and
elsewhere, (coupled perhaps with some inventory replenishment and a temporary
stimulus-fueled increase in demand in Asia).
Even that cannot last. How can it?
US growth has stalled (at best) and 2% payroll tax cuts will tip the US into
recession (assuming it's not there already).
With employment sinking in France, Italy, and Spain, precisely who will buy
German exports?
Properly rebalancing will require a shift in production
from Germany to the rest of Europe as well as a shift towards more
consumption in Germany from the rest of Europe. That cannot and will not
happen with the destructive polices of Hollande, and the lack of reforms in
Spain and Italy.
Something has to give. And it's something very few people see coming.
Germany Will Pay a Steep Price
One way or another Germany will pay a huge price.
These are the only two eurozone recovery options
- Germany
gives (not lends) more bailout money to the rest of Europe
- The
eurozone breaks up
Until one of those things happens, signs of stabilization are nothing but an
illusion.
There are no other options, and no other choices. Meanwhile, imbalances grow
and German taxpayers keep funneling tax dollars to the Southern states to
keep them afloat.
How long German citizens are willing to put up with this sorry state of
affairs remains to be seen.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
