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By HaleStewart March 12, 2014 11:05 am
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The EU Is Still Very Sick

There are several important articles today on the overall health of the EU economy.  First, Martin Wolf at the FT has written a very thorough piece arguing the ECB is far too complacent regarding deflation.   His post links to an IMF blog post that argues weak inflation readings are indeed a danger sign the ECB is not heeding.  And finally, a Bloomberg interview with George Soros highlights his concern that, without major policy changes, the EU is in for 25 years of stagnation.  While the length of time is debatable, the point he makes is right on target; the EU economy is still limping along 5 years after the big crash.

There are several pieces of economic data that highlight the obvious malaise currently embracing the EU economy.  First, consider this chart of overall industrial production:

Overall IP dropped from a reading of ~110 to ~90 during the great recession -- a contraction of 18%.  And IP has only recovered about 50% of that drop.  Just as importantly, the overall level of IP has been moving sideways for the better part of three years -- hardly a ringing endorsement of current policy.

And then there is M3:

The pace of money creation in the EU region has been declining for nearly a year.  While still positive, this decline is concerning.

 

The two graphs above show businesses loan demand (top chart) and consumers loan demand (bottom chart).  Business loan demand is still contracting.  And while households' demand is somewhat higher, it is still hovering near 0% growth.

And finally, the total number of employed people in the region (which is a coincident economic indicator like IP) is still declining.

All of the above statistics paint the picture of a region that is still incredibly sick from an economic perspective.  Most importantly, the ECB appears to have little interest in correcting the problem through extraordinary policy.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

 

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