Monday, September 25, 2006

The Eurozone Is Slowing

Despite all the apparent optimism you can find round and about, the Eurozone is in fact slowing, the latest industrial output data from France seem to make this abundantly clear. What I find hard to understand is how so many people can have been wrong-footed on this. Claus Vistesen has a useful review of the arguments on the blogs, and New Economist has also been suitably cautious, but the rest seem to have missed the big picture. (Just as they have done with Japan really).

The worst offenders are definitely over at Morgan Stanley. Steven Roach leads the way, but Eric Chaney isn't far behind. And Brad Setser - and in particular his guest poster Charles Gottlieb of the Center for European Policy Studies (CEPS also seems to be way off target here) - seems to have fallen hook line and sinker.

Are we all putting our credibility on the line here gentlemen?

French Business Confidence Falls After Output Drops

French business confidence fell in September from a five-year high it reached in July, after industrial output declined.

Insee's index of sentiment among 2,000 manufacturers in Europe's third-largest economy dropped to 107 from 109 in July, the national statistics office said today in Paris. Economists expected the index to fall to 108, according to the median of 22 estimates in a Bloomberg News survey.

``This summer hasn't been that good, and things aren't as exuberant as they were in the first quarter,'' said Laurence Boone, a Paris-based economist with Barclays Capital. ``As we go towards the autumn, confidence is weakening.''

France's economy, which expanded at the fastest pace since 2001 in the second quarter, may be cooling as the cost of oil and the euro's gain against the dollar threaten purchasing power and exports. There already are signs growth in Europe has peaked after the European Central Bank raised its key interest rate four times since early December. Slower U.S. growth may also damp demand.

``According to entrepreneurs, past business has slowed down in the manufacturing sector,'' the report said, with orders from abroad thinning. Executives from the car industry remain the most pessimistic, the survey showed, after automobile production fell 1.4 percent in July.

French industrial production unexpectedly fell for a second month in July as manufacturing of cars and electronic equipment slumped, adding to evidence that economic growth may slow.

Incidentally, this Bloomberg piece is another classic example of how to get it wrong:

Europe, Japan Wean Themselves From Dependence on U.S. Consumers

Europe, Japan and emerging economies around the world are weaning themselves from dependence on the American consumer, and economists say it's just in time.

Demand in the world's largest economy is slowing as the U.S. housing market falters, a development that the International Monetary Fund on Sept. 14 called a key risk to global expansion. If so, it's a risk that the biggest exporting nations are better prepared to weather now than five years ago.

``Domestic demand in so many other parts of the world is picking up,'' says Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London. ``If there ever was a good time for the U.S. to slow, this is it.''

Wishful thinking is not a substitute for sound economic analysis.

Difficult Times Ahead?

I have a post on Afoe about the dangers of contamination across Eastern Europe following the recent turbulence in Hungary.

Now one of the worries that must arise in these circumstances is whether a sudden downturn in some of these 'Lynx' economies could produce a haemorrage of you educated people outwards in search of work. If this were to happen this short-term crisis could have important long term supply-side consequences. Again, something else to watch for.

On this topic, the FT have details of an interview they had with Romanian Prime Minister Calin Tariceanu. Tariceanu is really at pains to re-assure Western Europeans (especially in the UK) that there will not be a sudden influx of Romanians after EU accession. My feeling is that the West Europeans have little to fear here (as he says the educated Romanians will head North, and the less educated ones will head South, and this doesn't seem to me to present any kind of problem). What he maybe should be considering is the impact of this on Romania itself: needless to say, in the current climate I think his growth expectations for the Romanian economy are way too high.

Romania dismisses EU emigration fears

Romania will win approval on Tuesday to join the European Union on January 1, but the country’s prime minister has denied that it will spark a massive wave of emigration from the Black Sea state.

Calin Tariceanu claims his country is in the middle of an economic boom that could see its gross domestic product double within 12 years, drawing migrant workers to Romania.

Speaking to the Financial Times, Mr Tariceanu also appealed to the British media and public – racked by a debate about the recent arrival of hundreds of thousands of migrant workers from Poland and other new EU member states – to remain calm: “People with higher educational levels might go to the UK but I don’t see too many.”

He said most poor Romanians would head to Italy and Spain, where they would have less trouble with the language, and only those with better schooling would go to the UK.

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