A Stream Of Poor Economic Reports From The Eurozone May Be More Than
Just The "Putin Factor"
Location: Tokyo
Date: 2014-08-07
A slew of negative economic surprises across the Eurozone is
pointing to significant challenges the area faces on its road to
recovery. Three of these surprises are listed below:
1. Italy's GDP unexpectedly contracted last quarter putting the
nation into a third recession in since the financial crisis.
WSJ: - Italy has slipped into its third recession since
2008, data showed Wednesday, in an unexpected setback that
threatens to restrain the broader euro zone's fitful recovery.
Italy's economy contracted at an annualized rate of 0.8% in the
quarter ending June 30, according to a first estimate by
national statistics institute Istat—the latest sign of how parts
of Europe are still struggling to escape the legacy of the
global financial crisis. It was the second successive quarter of
falling Italian output, which meets the common international
definition of a recession.
2. The area's retail sector took an unexpected turn for the worse
last month.
Markit: - The eurozone retail sector started the second half of
the year on a weaker footing. The fragility of consumer spending
was exposed by the PMI, particularly in France and Italy where
the data showed sharper downturns in sales. Even in
Germany, the one area of relative strength, there was an
appreciable slowdown from June’s recent peak. Retailers
underperformed relative to their targets to the greatest extent
since March 2013, leading to further accumulations of unsold
stock and the prospect of greater discounting ahead.
3. German factory orders contracted at the fastest pace since 2011.
Deutsche Welle: - German industrial orders fell for the
second consecutive month in June at a rate of 3.2 percent,
following a similar 1.6 percent contraction in May, the
economics ministry in Berlin said Wednesday. According to the
data, orders contracted at their fastest pace since
September 2011, disappointing analysts who had
predicted gains of 0.9 percent in a consensus forecast.
While many are blaming these economic headwinds on the uncertainty
related to Russia/Ukraine as well as the sanctions, some analysts
are pointing to problems closer to home.
The Telegraph: - After what was dismissed as an irregular
drop last month, Germany’s factory orders have seen another
surprise fall in June. But the downturn has not been
solely down to German exposure to ongoing tensions in Russia and
Ukraine. Much of the poor performance is explained by crumbling
demand from eurozone peers. Evelyn Herrmann, European economist
at BNP Paribas, said that “the weakness was mainly driven by
orders from within the eurozone” which fell by 10.4pc in June.
Non-eurozone orders were stagnant in that month.
The collapse in German government bond yields accelerated in
response, reaching another record low.
Moreover, the yield curve is beginning to show signs of inversion in
the front end. This is not what the yield curve of a healthy economy
is supposed to look like.
The so-called "Putin factor" has certainly shaken confidence of the
area's consumers and added uncertainty to the corporate boardrooms
(giving Putin additional leverage over western nations). But the
Eurozone's challenges seem to go beyond that. As the ECB prepares
for another meeting shortly, these issues are sure to be brought up.
Draghi's last bullet - direct asset purchases by the ECB - may no
longer be as easily dismissed by the Governing Council.
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