Great Graphic: Italy's Surprise

This Great Graphic depicts the manufacturing PMI for Germany (white), Italy (yellow) and France (green), which are the three largest economic in the euro area.  The chart was made on Bloomberg.  

Not one in a hundred observers would have guessed that the June manufacturing PMI was higher for Italy than Germany and France.  Germany in fact is flat to lower in recent months, while France and Italy are seeing a cyclical recovery.  Incidentally, while Bloomberg's data base does not appear to track Spain's PMI, it was even higher than Italy (50 vs 49.1).  

This does not mean that the contraction in Italy (and Spain) is over, or that Germany is once again the "sick man" in Europe.  It simply means that there is a cyclical recovery under way in the manufacturing sector in Italy and Spain.  This can only serve to reinforce the sense that the bar to additional dramatic action at this juncture by the ECB is quite high.  Yes, access to credit for small businesses and unemployment remains intolerably high, but the policies to address these are not a cut in the refi rate or a negative deposit rate.   

We do suspect that the external sector is playing an important role and in this regard, a weaker euro is part of the solution for the euro area.    There has been dramatic improvement in the current account balances of the European periphery, including Italy and Spain over the last couple of years.  Part of this is a function of the compression of domestic demand, but exports are also improving.  
Great Graphic: Italy's Surprise Great Graphic:  Italy's Surprise Reviewed by Marc Chandler on July 01, 2013 Rating: 5
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