There are some notable reasons for near-term reasons for optimism in the UK. The housing market seems to be picking up, industrial production growth is looking up together with PMI data and the equity market has done well. All these are real and significant signs of a better economy in the UK, but the structural challenges remain.
The notion of a perfect storm is a tired cliché but in Portugal’s case, its use has rarely been more apt. Our view is that the market is underestimating the risks surrounding Portuguese debt roll-over and planned exit from the…
Below is an excerpt from our weekly report from last Wednesday. On Friday, Moody’s downgraded Ukraine to Caa1 (from B3), citing plummeting FX reserves, downside risk from future negotiations with the IMF, and Ukraine’s worsening relations with Russia. Less reported…
Data in the UK have taken an unequivocally positive turn. PMIs for services, construction and manufacturing are at 3 year highs. Furthermore, the underlying picture is healthy, with the new orders to inventory ratio for manufacturing surging to 1.4. This has resulted in growth forecasts being upgraded, including the OECD, which now sees annualized growth in 2H13 of 3.5%, compared to the BoE’s last estimate of 2.8%.
The cyclical recovery in Europe is real and will likely have further to go in the second half of this year. However, amid upbeat cyclical indicators, it is important to keep a close eye on developments in the periphery and in particular Spain. The process of clearing bad debts is far from over in our view and the idea that Spain has, “turned the corner” lacks logic and evidence.
The spotlight remained on Portugal the end of last week as EU finance ministers agreed to give the country seven more years to repay its stock of existing loans. Still, despite the words of praise showered on the country the deficit containment record has been a pretty checkered one. The deficit target for 2013 is 5.5% of GDP will not come under the EU 3% level until 2015 at the earliest.
Germany remains the proverbial strong man of Europe, but we are skeptical that this is a fitting moniker. Looking at exports, it is now clear that Germany and thus Europe continues to see weakness. The total value of German exports has now clearly rolled over from its peak in mid-2012, which coincides with the share of total exports going to China.
France looks increasingly like it is slipping into recession. It is the poorest performing core country – an increasingly inapt label. Highlighting this are the latest PMI numbers. The services PMI, already woefully depressed, slipped lower last month, to 41.9, lower even than Spain’s. The manufacturing PMI was barely much better, falling to 43.9.