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Europe's Economic Contraction Continues As Core Succumbs To Peripheral Weakness

Tyler Durden's picture




 

This morning there was a round of European economic data which showed that regardless of whether Italian and Spanish bonds trade up or down by 100 bps on any given day, the continent remains deeply mired in recession. First we got Dutch June Industrial Production (a AAA country), which slid from -0.3% to -0.6%, on expectations of an increase, then this was repeated with Italian June Industrial Production which also missed estimates printing at at -1.4% in June, a drop from +1.0%, and below the estimate of -1.05%, followed by UK Industrial production which collapsed, IP sliding from 1.0% to -2.5%, the biggest one month drop since November 2008, but modestly better than expectation which is what apparently drove the GBP higher - the market: always the optimist. And then the cherry on top was German factory orders which plunged from 0.7% to -1.7%, missing expectations of a -0.8% print. Completing the sad economic picture was Italian Q2 3GDP which which was essentially unchanged at -0.7% compared to Q1's -0.8%. Goldman was certainly not happy with Italian data: "The recessionary dynamic is likely to mechanically weaken tax revenues this year, creating hurdles for the fiscal consolidation that is otherwise well underway... We believe that the domestic economy - in particular private sector consumption and investment - currently faces strong headwinds (fiscal adjustment, financing conditions) that may end up harming sequential growth dynamics by more than we currently foresee."

More from Goldman's take on Italy's relentless implosion.

BOTTOM-LINE: Italian real GDP growth disappointed in the second quarter, at -0.7%qoq non-annualised (0.1% above BBG consensus, and 0.2% below GS forecast) after an already weak -0.8%qoq in the first quarter. The yoy contraction stood at -2.5%. This creates a very weak base for the 2012 growth figure, and mechanically shifting our expectation of a more significant inflection point from Q3 onwards, the "automatic" adjustment of our forecast yields an expected contraction of real GDP of 2.1% in 2012.

1. Real GDP contracting at a sharp pace since the beginning of the year (Chart). Real GDP contracted by 0.7%qoq in Q2, after -0.8%qoq in Q1, a fourth quarter of negative quarterly growth rates. The Q2 figure was a negative surprise that compounds an already bleak performance in Q1. Looking forward, leading indicators do not point to any significant improvement in Q3.

2. No details on GDP components, but decline likely to be broad based. ISTAT does not publish the details of its first GDP estimate, but stated that activity contracted in agriculture, industry and services. Given past developments, we will pay particular attention to private sector investment, which has declined significantly in Q1 (from -2.6%qoq in 2011Q4 to -3.6%qoq), stuck at around 25% below its 2007 peak.

3. Industrial Production disappointed in June. Released earlier this morning, the June industrial production figure turned out weaker than expected (-1.4%mom sa, -1.7% for Q2 as a whole, and a steep -8.2%yoy sa). The negative dynamics was almost evenly shared across non-energy industrial sectors (consumer, investment and intermediate goods).

4. Italy under close macroeconomic scrutiny over coming quarters. The recessionary dynamic is likely to mechanically weaken tax revenues this year, creating hurdles for the fiscal consolidation that is otherwise well underway. Looking forward, we will be very vigilant about the GDP components when the second GDP estimate is released. We believe that the domestic economy - in particular private sector consumption and investment - currently faces strong headwinds (fiscal adjustment, financing conditions) that may end up harming sequential growth dynamics by more than we currently foresee.

 

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Tue, 08/07/2012 - 07:06 | 2684052 bigwavedave
bigwavedave's picture

ALL GREEN BABY. Well except STAN which is soon to be renamed FIBU - "First International Bank of Uganda"

Tue, 08/07/2012 - 07:11 | 2684054 malikai
Tue, 08/07/2012 - 07:12 | 2684057 Hype Alert
Hype Alert's picture

Bullish!  New market highs, on their way.

Tue, 08/07/2012 - 07:14 | 2684058 northerngirl
northerngirl's picture

I love the use of, "Negative Surprise", "Disappointment", and "Harming sequential growth dynamics by more than we currently foresee."  The news coming out of Europe is always a surprise, and unforeseen, really?

Tue, 08/07/2012 - 07:18 | 2684060 Pretorian
Pretorian's picture

Forbes:  The Court of Justice of the European Union-If you’re on vacation and get sick, you’re entitled to schedule another vacation.To qualify, you must be employed in Europe. The best of the bunch.

http://www.forbes.com/sites/larahoffmans/2012/06/26/europe-takes-a-vacat...

 

Tue, 08/07/2012 - 07:26 | 2684066 LongSoupLine
LongSoupLine's picture

Dutch sportscar maker Spyker NV is suing General Motors Co for more than $3 billion on behalf of its subsidiary Saab, accusing the U.S. automaker of deliberately bankrupting the Swedish group by blocking a deal with a Chinese investor. - Reuters

 

LOL! You can't sue the US Govt and its union lobby run businesses.  Silly Dutch...

Tue, 08/07/2012 - 07:30 | 2684068 Vegetius
Vegetius's picture

 

“There are three types of lies -- lies, damn lies, and statistics.”

  - Benjamin Disraeli

Tue, 08/07/2012 - 08:08 | 2684077 virgilcaine
virgilcaine's picture

When does rioting season officially start in the Eu again?  Queens Anniversary..chk, Wimbledon..chk, Olymps..chk.  Commence Rioting.

Tue, 08/07/2012 - 07:47 | 2684080 orangegeek
orangegeek's picture

Deflation is picking up momentum and will spread across Europe quickly.  This will negatively impact US markets.

 

Wave 2 followed by wave 3 down is pending.

 

http://bullandbearmash.com/chart/standard-poors-500-daily-august-06-2012/

Tue, 08/07/2012 - 07:55 | 2684088 magpie
magpie's picture

Huh, if this nonsense rally continues i guess FTSE will shut down next due to a pumping failure.

Tue, 08/07/2012 - 08:15 | 2684115 Snakeeyes
Snakeeyes's picture

Look at the charts of German factory orders and Italian industrial production. Jeez, they are the same!!!

I smell CB intervention!

http://confoundedinterest.wordpress.com/2012/08/07/italy-and-germany-report-bad-economic-news-more-central-bank-intervention/

Tue, 08/07/2012 - 08:32 | 2684157 youngman
youngman's picture

Wierd..so industrial production is down....in the workhorse of Germany...and the markets are up...?????

Tue, 08/07/2012 - 08:49 | 2684199 Gandalf6900
Gandalf6900's picture

Italy vs. Predator

Tue, 08/07/2012 - 09:29 | 2684300 Dareconomics
Dareconomics's picture

A plan is coming together to buy time so that Spain and Italy can reform their economies, but the proverbial fly in the ointment is that the whole continent is slipping into recession. Bond buying programs, firepower, firewalls and bazookas are great, but the economic fundamentals are rapidly deteriorating. The politicians and bureaucrats always seem to be a step behind because they are operating from rosier forecasts than the reality on the ground.

The bottom line is that recessions lead to decreased tax revenues, and every cent in projected revenues that does not materialize is more help that each country needs. 

 

http://dareconomics.wordpress.com/

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