The news coming out of Estonia is obviously none too good at the moment. This morning we learnt that both Estonian industrial production and retail sales plunged at the most rapid rate on record in February, giving us very clear evidence that the recession is now deepening. Industrial output (adjusted for working days) fell an annual 30 percent, the biggest drop since 1995, following a 27 percent drop in January, while retail sales, excluding cars and fuel, fell 18 percent, the most since 1994. Month on month, output fell a seasonally adjusted 3.5 percent. And the situation is hardly likely to improve in the short term, since, as Danske Bank point out, all Estonia’s main partners are themselves now in deep recessions, so the possibilities of an uptick in activity – even were the economy competitive – are really pretty restricted.

“Industrial production is in freefall, and we expect a continuation of this trend in 2009,” Danske Bank A/S said in a note ahead of the report. “Only an improved outlook for Estonia’s main trading partners, Finland, Sweden, Germany, could change this trend, but this is hardly feasible before the beginning of 2010.”

In fact, while the crisis is a general one, some countries are obviously faring far worse than others, and Estonia’s industrial production dropped the most in the entire 27-nation European Union in December and January. And even if things do start to pick up again elsewhere in 2010, it is hard to see the Estonian economy benefiting that much, since it will still be grappling with price competitiveness issues (see below).

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Japan’s economy certainly looks to be one of the worst case scenarios globally at the moment. Indeed, as Claus Vistesen puts it (in a very fine and thoroughly argued post – Engine Failure – that you can see here): “Final estimates from Q4 2008 suggested that Japan contracted at an annualized 12.1% which puts Japan in the dubious pole position of biggest GDP declines among industrialised economies.”

This record breaking negative performance seems in danger, not only of being repeated, but even of being surpassed, in the current quarter, since Japanese industrial output slid for the fifth month in a row in February as falling exports gradually took their toll on the entire conomy, with production being down 38.4% year on year. So, as we move towards the G20 meeting later this week, one thing is blindingly obvious: any decisions which don’t address the tricky question of how to get global trade moving again are going to fall well wide of the mark.

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Both the EU Economic Sentiment Indicator (ESI) covering the EU 27 and the eurozone only one declined again in March, though the pace of decline was slower than in the first two months of the year. The indicator fell by 0.6 points in the EU, and by 0.7 points in the euro area, to 60.3 and 64.6 respectively. As a result the indicators for both regions now stand at their lowest levels since the current series was launched in January 1985. Continue reading →