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By HaleStewart February 11, 2015 8:39 am
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Just How Sick is the EU?

            For what seems like forever (which, in reality is actually a few years) I have been extremely bearish on the EU.  There are several reasons for this: their continued obsession with austerity despite the clear proof it doesn’t work, the inability to work together to solve their overall problems and the lack of overall political will.  But, over the last few weeks, several statistics have been issued that have got me wondering if, in fact, the EU is going to start growing at a more substantial rate.

            Let’s start with consumer credit:

 

While this statistic is still negative on an annual growth basis, the rate of decrease has clearly increased to the point where it is almost positive.    This has occurred at the same time as a slight increase in the YOY rate of growth in retail sales:

            And consider the following charts of the PMIs of the four largest economies

Germany’s manufacturing and service sectors continue to grow, although both briefly dipped into negative territory at the end of last year.

France’s manufacturing sector continues to print numbers showing a contraction, but the service sector has had several readings in expansionary territory.

Italy’s manufacturing sector fell into contraction last year, but the latest reading was almost positive. And the services numbers has remained largely positive over the same time.

And finally there is Spain, which is firmly in expansion mode.

The downturn at the end of last year can be seen as a reaction to Russian sanctions starting to bite.  But since then, the euro has continued to fall, which should add some momentum to export orders.

     Of the charts, France is clearly the weakest.  But its numbers are just barely negative; they don’t show a massive downward move into recession, but instead an overall malaise.  On the positive side is Spain, which is clearly back in a growth mode (which it desperately needs given its sky high unemployment rate).  Germany is also positive, but just barely so, while Italy is negative, but just barely so.   The combination of the above charts point to a region whose growth is soft, but could easily be kicked into a higher growth mode with the right policy initiatives.  And consider that, despite the talk of a "grexit," the financial markets have been relatively calm (save for Greece's).

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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