Well don’t any of you ever accuse us of being behind the curve on this blog. The Financial Times is now running a story about how some “whacky politicians” (sorry, members of the the ruling Liberal Democratic party) in Japan are dusting down plans for the government to introduce its own private currency to rival the country’s official one (aka the Yen) issued by the Bank of Japan. To understand what this post is about, and see its relevance to potential events in the eurozone (and in particular in Spain, given the presence of Argentina-style politicians like Miguel Sebastian in the government), see this post here. Of course, maybe they have just been carrying out an extremely literal reading of Gauti Eggertsson’s “How to Fight Deflation in a Liquidity Trap: Committing to Being Irresponsible” right down to the small print. Continue reading →

Industrial production in Germany fell by 4.6 per cent in December, more than in any month since German reunification in 1990, according to the Economics Ministry in Berlin today. This follows a 3.7 per cent fall in November. As a result output fell by a record 12.0% over the December 2007 figure.

On Thursday, the Economy Ministry reported that German new orders fell 25.1% in the 12 months to December, falling 6.9% on the November number. Which means there is worse to come, a feeling which is only confirmed by the German January Purchasing Managers Index which showed that manufacturing contracted at its fastest pace in over 12 years in January as further slumps in demand also lead employers to cut staff at a record pace. The headline index in the Purchasing Managers’ Index fell to 32.0 in January from 32.7 in December, bringing it further below the 50.0 mark separating contraction from expansion.

Spanish industrial production fell by a record 20 percent and bankruptcy proceedings almost quadrupled as the credit squeeze pushed the country’s debt-laden economy toward its worst recession in half a century. The 19.6 percent annual decline in production at factories, refineries and mines in December followed a revised contraction of 15.3 percent in November, adjusting for the number of days worked, the Madrid-based National Statistics Institute said today. The number of Spanish companies starting bankruptcy proceedings in the fourth quarter rose to 960 from 260 a year earlier, a separate report showed.

“It’s like a cluster bomb,” Salvador Bellido, president of the Confederation of Small- and Mid-Sized Companies, said in an interview. “Even the food sector, which shouldn’t really be suffering in such a situation, is suffering.” Spain’s auto industry, which accounts for about 5 percent of GDP, has started laying off workers as sales plunge. Nissan Motor Co. said it would cut 38 percent of workers at a Spanish factory and Renault SA won approval to temporarily lay off as many as 10,311. Vehicle production dropped almost 48 percent on an unadjusted basis in December, today’s report from the statistics institute said. The government has pledged 800 million euros in aid to help the industry weather the crisis. “There will be more mass job cuts in the industrial sector in the coming months,” said Jesus Castillo, an economist at Natixis in Paris. “The year 2009 is going to be a difficult one.”

In spite of a slight improvement between November and January (to 31.8 from 28.2), the latest manufacturing PMI data are consistent with a marked decline in industrial production. However, the pace of the fall is likely to slightly decrease in the coming months.These results confirm the extent of the Spanish recession. The contraction in activity should be more pronounced than expected in Q4 2008 (-0.8% q/q, published on February the 12th). More generally, GDP is likely to fall by more than 3.0% in 2009, after +1.2% in 2008 and +3.7% in 2007.
PNB Paribas

The Second Great Depression seems to have now spread from Ukraine, and arrived in Hungary.

Hungarian industrial production fell the most in December since at least 1991 as a recession in western Europe cut export demand and dragged the economy into its worst decline in 15 years. Production dropped 23.3 percent from a year earlier, the seventh consecutive monthly decline, after falling 9.9 percent in November, the Budapest-based statistics office said, based on preliminary data. Output fell 14.6 percent month on month.

And it only looks set to get worse, since Hungary’s manufacturing purchasing manager index (PMI) fell to a all-time low of 38.6 in January, down from 40.8 in December. Any PMI index figure above 50 indicates expansion while a figure below 50 shows contraction in economic activity. The index hadn’t been below the critical 50 mark for more than three years before it dropped below (to 42.6) in October last year. Gábor Ambrus, economist at 4Cast, in London, estimates that (in part as a result of the gas crisis) output could drop by another 14.6% between December and January, which will give another huge drop in the year on year number.

“What can I say, just terrible. It appears to be weak on both domestic and external sides, but with Hungary a small open economy it is likely to remain under pressure from contracting demand across the globe and the Eurozone in particular……This isn’t just a Hungarian phenomenon however, as German IP today will be weak as will the UK data, albeit not as soft as this number. The business surveys remain weak so it’s difficult to forecast any near term recovery. Consequently, the estimate for GDP growth of -3% this year may soon look on the optimistic side.”
Stuart Bennet, Caylon, London

Maybe many people outside (or even inside for that matter) Spain didn’t especially notice the fact, but last Sunday’s Barça match with Racing de Santander did not go out on regional TV as planned. This caused a few eyebrows to be raised among football supporters and commentators, but little in the way of serious analysis or comment. But the reason the match wasn’t broadcast is perhaps rather more interesting than many imagine, since behind Saturday’s blackout lies a dispute between the Catalan regional TV station and Barcelona football club which goes well beyond that sport where 22 able bodied men run up and down a pitch for 90 minutes and the Germans always win. The details of the present dispute are obscure, and this is not the place to go into them, but the nitty gritty is that Barça are asking local channel TV3 for 30 million euros, and the TV people quite simply aren’t coughing up. Which is in itself unusual, since it wasn’t all that long ago that the then President of the Spanish government, José Maria Aznar, was arguing that football was a question of national strategic interest in Spain. So it is clear (to me at least) that TV3 would pay (at least part of the quantity being asked for) if they could, but they obviously can’t. So why can’t they pay? This is when it all gets interesting, I think. Continue reading →

Spain’s unemployment, already the highest in the European Union, shot up again in January, rising by the most in at least 13 years, marking the 10th consecutive monthly increase as Spain’s recession continues to deepen.

The number of people registering as unemployed was up by 6.4 percent, or 198,838, from December, and the total reached 3.33 million, according to the latest INEM data release. That was the biggest month on month jump since at least 1996. From January 2008, the number of claimants jumped 47.12 per cent (just marginally above last months year-on-year increase of 46.93 per cent) or by more than a million.

The unemployment rate in Spain – 14.4 per cent in December – is already almost double the European average, compared with 7.4 per cent for the EU overall, according to the most recent monthly data from Eurostat.

Youth unemployment in Spain rose to 29.5 per cent, compared with an EU average of 16.6 per cent. Spain’s jobless rate hit an almost 30-year low of 7.95 per cent in the second quarter of 2007 at the peak of a construction boom that allowed the country to create more than half the new jobs in the euro region between 2002 and 2005. It has been rising ever since. It is hard to make precise projections given that we don’t know whether the current rate of contraction in economic activity will remain unchanged, increase, or decrease slightly as the year progresses, but my earlier estimate of around 4.5 million unemployed and a rate of around 20% by December looks pretty realistic at this point. What we dont know is how this will increase in 2010, and I guess projections at this point are premature. Continue reading →

Central Europe’s economies continued to contract in January – lead by their manufacturing industries – under the combined weight of a credit crunch and a slump in demand for their exports. My feeling as all three economies – Poland, the Czech Republic and Hungary – are now in recession. Hungary’s is clearly the worst case, and events are moving rapidly and negatively there, but the slowdown in the Czech Economy is also very pronounced, and Poland seems finally to be falling into line, following some internal financial chaos back in October. Based on back of the envelope type calculations derived from the PMIs I would say their economies were contracting at the following pace in January.

Q-o-Q Y-o-Y
Hungary -1% -4%

Czech Republic -1% -4%

These are only provisional assessments based on the PMIs and Consumer Confidence Indexes. They will be subject to calibration as we move forward and receive the real data, but all this should give us some general idea of what is happening, something which is badly needed in view of the suddenness of the change. Continue reading →

China’s manufacturing contracted for a sixth consecutive month in January as shrinking global demand hit the country’s export-driven economy. The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 42.2 from 41.2 in December. Since any reading below 50 indicates contraction, even though the rate of contraction dropped (and has been dropping since November, see chart below) China’s manufacturing sector (and hence China’s economy) is still contracting. What we don’t know at this point is how quickly China GDP is contracting, we won’t know that till someone with the time and ingenuity devises a way to calculate a rough and ready quarter on quarter (seasonally adjusted) output indicator. Come on, be famous for a day, go out and do it (since the Chinese statistics office apparently have no interest in the matter), I would, but I simply don’t have the time, since Europe, not China, is my focus. However, on a rough and ready, back of the envelope, basis my guess is that this months Chinese reading may be equivalent to something like a quarter on quarter contraction rate of around 0.5%, which means that what we have at this point is a 2% annual contraction rate, but we really need to see some actual data to calibrate all this a bit better I think.

Continue reading →