Fri. Apr 19th, 2019

The European manufacturing industry is experiencing its biggest contraction since 2012

La industria manufacturera europea vive su mayor contracción desde el 2012


Hand brake put. The manufacturing industry
European is experiencing its biggest fall in six years, since 2012 when it was coming out of the debt crisis
sovereign that hit the Old Continent. This is reflected in the IHS Markit indicator - one of those taken as reference by the European Central Bank-, which fell by 1% in March and stands at 47.5 (below 50 means there is a contraction).

Sponsored Ads

Advertise Here

East indicator it has been falling for eight months in Europe and is at the level it had in the summer of 2013. It is true that this index is usually volatile and that the weight of services in the European economy It is still superior to manufacturing, but it does not stop being an alarm signal indicative of the current situation, since the IHS Markit Global Manufacturing Purchasing Index It is based on the results of surveys that cover more than ten thousand purchasing executives in dozens of countries, more than half of which come from USA, Japan, China, Germany and France.






Negative context

The problems accumulate: commercial war, populism and Brexit

The reasons for the decline in Europe are varied. "Concerns about trade wars, tariffs, increased political uncertainty, Brexit and, above all, deterioration of the economic climate both domestically and in exports," explained Chris Williamson, chief economist at IHS Markit.

"Europe is currently the weakest point of the global economy," Christopher Dembik of Saxo Bank told Bloomberg. "There is a horrible set of new data for the euro area confirming the risk of lower than expected growth," he added.

"Much of this contraction is attributable to Germany. And Germany is going bad, because China is not doing well as before. For decades it has been able to sell in Asia but there the slowdown is more severe than the official data indicate ", comments to this newspaper the international economic policy expert of the Graduate Institute of Geneva, Charles Wyplosz.


Monetary politics

There is already talk that the ECB could reactivate the debt purchase program

In fact, Germany is the country where the manufacturing contraction is most evident and in addition intrinsic difficulties of the automobile sector and the impact of regulatory changes are added. For example, unlike their European counterparts, there is "a broad and accelerated decrease in new orders and a collapse of sales abroad." Both indicators registered their biggest fall since 2009, when Europe was at the epicenter of the financial crisis.

As for Spain, it is in a better situation compared to the rest of the countries in its surroundings, when the index is above the fateful level of 50 (50.9). However, the picture is mixed. "For a winged, the category of consumer goods recorded strong increases in production and employment. In contrast, the operating conditions of equipment assets continue to deteriorate. " And the manufacturing activity, with a rickety expansion, shows "a stagnation and the scarce contribution to economic growth".





Industrial production in Spain

Industrial production in Spain
(Rosa M.ª Anechina)

How to get out of the pothole?

For Wyplosz, "the positive aspect is that consumer confidence, the pillar of 60% of European wealth, does not decline as in the industry. The problem is rather the lack of confidence of companies and investments. In this context, companies are somewhat scared. "

There are two ways that analysts suggest. One is for governments to act and decide to implement fiscal stimulus policies. The other is that the ECB will intervene again. "The margin is very narrow. But in Frankfurt it is already talking about reactivating, if necessary, the purchase of public bonds and private debt, "says Wyplosz.

The vice president of the European Central Bank (ECB), Luis de Guindos, yesterday limited himself to point out that the weak growth in the eurozone is weighing on prices and slowing the rise of inflation to levels close to 2%, which justifies that maintain an accommodative monetary policy. "Data from the beginning of 2019 suggest that the moderation in economic growth will extend this year," he said.





The only positive note came from the United Kingdom. Great Britain represented an anomaly, with the growth of manufacturing indicators at an unexpected 13-month high, but neither can it be considered good news in the strict sense. In effect, the island's manufacturers reported a sudden increase in commercial activity in March as the companies increased their preparations for possible interruptions related to the Brexit. A statistic that seems more like a sample of British humor.







Source link

Leave a Reply