Eurozone: Negative statistics bring deflation and recession closer

Michel Barnier, Member of the EC in charge of Internal Market and Services, gave a press conference following the adoption by the EC of measures to improve the corporate governance of around 10 000 companies listed on Europe’s stock exchanges. This doesn’t seem though to help much the SMEs which account for 99.8% of EU companies and don’t have access to capital market financing. (EC Audiovisual Services, 09/04/2014).

Michel Barnier, Member of the EC in charge of Internal Market and Services, gave a press conference following the adoption by the EC of measures to improve the corporate governance of around 10 000 companies listed on Europe’s stock exchanges. This doesn’t seem though to help much the SMEs which account for 99.8% of EU companies and don’t have access to capital market financing. (EC Audiovisual Services, 09/04/2014).

An avalanche of disappointing statistics on Eurozone was released during the last two days, supporting the view that the single money zone is stuck in economic stagnation. The Business Climate Indicator (BCI), Economic Sentiment Indicator (ESI), the annual inflation and a euro area bank lending survey, all those statistics for April show that the euro area lacks the strength to definitively exit from the current economic conjuncture, characterized by close to zero growth and inflation.

During the past twelve months, after the second quarter of 2013, Eurozone has stopped receding, but its growth potential doesn’t seem to exceed a few decimal points, while Eurozone seems threatened by falling inflation leading possibly to deflation. On top of that, those few decimal points of overall growth (average) hide the fact that many member states still suffer from deep recession. Let’s take one thing at a time.

According to the Commission’s Directorate General for Economic and Financial Affairs (DG ECFIN), the Business Climate Indicator for the euro area “decreased slightly by 0.13 points to +0.27 in April. Managers’ evaluation of the past and expected production, as well as of the current level of export order books worsened, while their assessment of overall order books improved and their appraisal of the stocks of finished products remained broadly unchanged”. BCI estimates are based on an analysis of answers (aggregate balances, seasonally adjusted) to five of the monthly questions addressed by the EU Commission to Eurozone firms in the context of the monthly industry survey (only employment and selling-price expectations are excluded).

Always decreasing economic sentiment

As for the Economic Sentiment Indicator, it decreased slightly in April in the euro area (by 0.5 points to 102). More precisely, the Commission stresses that “the slight decrease in sentiment was mainly due to a worsening of confidence in services and construction”. In those two sectors confidence still scores below its long-term average. “In industry and retail trade, sentiment remained virtually unchanged compared to March. Confidence among consumers improved. Amongst the five largest euro area economies the ESI declined in the Netherlands (-1.0), Spain (-1.0) and Germany (-0.4), remained broadly stable in France (-0.3) and increased slightly in Italy from a very low place (+0.5).

Deflation remains a prospect

Passing now to inflation, this crucial variable always remains subdued in the Eurozone. According to Eurostat, the EU statistical service, euro area annual inflation is expected to have increased slightly to 0.7% in April, from 0.5% in March. This is the standard flash estimate by Eurostat of the closing month’s inflation rate. The same source observes that among the main components of euro area inflation, “services is expected to have the highest annual rate in April (1.6%, compared with 1.1% in March), followed by food, alcohol & tobacco (0.7%, compared with 1.0% in March), non-energy industrial goods (0.1%, compared with 0.2% in March) and energy (-1.2%, compared with -2.1% in March).”

On many occasions this newspaper has pointed out that price developments in the sector of the ‘non-energy industrial goods’ constitute the main indicator of what happens in the ‘heart’ of every developed economy. After November 2013, consumer price developments in this crucial productive activity are stuck around 0.1% to 0.2%. This is very close to the negative area. The problem is though, that if the ‘Rubicon is crossed’ it will prove very difficult to return to positive grounds. In short, it’s already high time that Eurozone decision makers shaped the right expansionist policies to safeguard the euro area from a return to recession.

No bank credit for SMEs

Understandably, the worst hit business activities by the protracted stagnation in Eurozone are the SMEs in the south. The European Central Bank just released its survey on the access to finance of SMEs in the euro area for the period of October 2013 to March 2014. According to it the “SMEs reported a deterioration in the availability of bank loans, albeit to a lesser extent than in the previous survey round (-4% of respondents, in net terms, after -11% in the previous round). The survey results indicate a marginal decline in the rejection rate for euro area SMEs applying for a loan (11%, down from 12%). The survey results suggest that financing conditions for SMEs continue to differ significantly across euro area countries and are in general more difficult than those of larger companies”.

This is a direct recognition by the most competent source that the SMEs in the south are still facing existential problems being deprived almost completely of bank credit. The fragmentation of Eurozone’s financial market has reached such limits as if the north and the south belong to completely different economic areas. Bank credit is now free-flowing in the core countries, while the peripheral SMEs are been denied loans or charged extravagant high interest rate costs for comparable business risks.

All in all, there is no doubt that the ECB has to act quickly and reunite the euro area financial markets, before the Eurozone suddenly becomes politically impossible.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How we can win the war against antibiotic resistance

Record-breaking heatwaves killed about 1,500 people in France

UN chief condemns air strike that hit school bus in northern Yemen, killing scores of children

Charges against Baha’i in Yemen must be dropped: UN experts urge release of detainees

Better outreach to citizens needed to improve effectiveness of European Commission’s public consultations, say Auditors

This South African lawyer is reading while running marathons – for book donations

Intervene, don’t overthink – the new mantra of systems design

How storytelling can be a force for social change

Brexit talks started with a London handicap and Brussels’ sternness

Why the 33,000 staff European Commission did not have a real contingency plan for the refugee crisis?

MEPs call for EU rules to better protect minorities’ rights

The EU learns about fishing and banking from tiny Iceland

Tougher defence tools against unfair imports to protect EU jobs and industry

Iceland’s slowdown underlines the need to fix structural issues

The COP22 is under full deployment while Donald Trump threatens openly to withdraw the US from the Paris agreement

Britain aligns with EU rivaling US on trade and Iran, abandons bilateral ‘Midsummer Night’s Dream’

The EU Parliament blasts the Council about the tax dealings of the wealthy

Parliaments broadly agree on next steps for economic, monetary union

One million facing food shortages, nutrition crisis after Mozambique cyclones: UNICEF

Zuckerberg, a paella, and the mighty EU questionnaires that would stop Whatsapp acquisition by Facebook?

UN chief ‘alarmed’ by violations of UN-backed ceasefire in Libya

Millions denied citizenship due to ideas of national, ethnic or racial ‘purity’: UN rights expert

Why press freedom should be at the top of everyone’s agenda

ECB money bonanza not enough to revive euro area, Germany longs to rule with stagnation

Erasmus+: an expected budget of €3 billion to be invested in young Europeans and to help create European Universities in 2019

Court of Auditors: EU spending infested with errors well above the materiality threshold of 2%

Why Obama asks approval from Congress to bomb Syria?

A Sting Exclusive: “Regulators and the shipping industry collaborating for a sustainable future”, written by the Secretary General of IMO

Nicaragua ‘crisis’ still cause for concern amid murder, torture allegations: Bachelet

Tax evasion and fraud threaten the European project

Meet Cipta: the comic book hero using her powers to tackle bullying in schools

The Ecofin deceives the SMEs with the EIB €10bn capital increase

What does a good digital ID look like?

“The markets have moved on renewables, policy makers must keep up”, A Sting Exclusive by Erik Solheim, Head of UN Environment

Future of Rohingya refugees in Bangladesh ‘hangs in the balance’ – UNHCR chief

How can batteries become more sustainable? This young scientist might have the answer

G20 LIVE: “Our response needs to be robust…otherwise we will only find the fire we are trying to put out”, UN Secretary General Ban Ki-moon just lit up G20 in Antalya Turkey

The Future of Retail: Changing shopping patterns will mean retailers need to invest in costly and complex solutions

EU and New Zealand launch trade negotiations

Lagarde’s metamorphoses, not a laughing matter

The ‘abuse of food relief in Yemen’ must end now

We know ethics should inform AI. But which ethics?

China greenlights first underwater high-speed railway

EU Youth Conference concludes in Luxembourg with concrete plans on how to create real youth participation

EU Parliament shows its teeth in view of 2014 elections

How to stop data leaks

2019 Innovation Scoreboards: The innovation performance of the EU and its regions is increasing

Youth platforms call on German Government to break down legal barriers for young volunteers and pupils

Economic growth ‘exceeds expectations’ but trade tensions are rising: UN report

Now’s the time to take up cycling – here are 6 reasons why

Much more than a ‘lifeline’ for millions of households, remittances can spur global growth, says UN agency

‘Ticking bomb’ health warning over deteriorating conditions facing Cyclone Idai victims

Rapid action needed for people to meet challenges of changing world of work

UN agency chiefs condemn Saudi-coalition led air strike that killed dozens in western Yemen

UN General Assembly President defends ‘landmark’ migration compact

Antibiotics are contaminating the world’s rivers

How young entrepreneurs should be supported: what assistance should governments provide?

Around 23 million boys have married before reaching 15; ‘we can end this violation’ says UNICEF chief

A dangerously hot climate, simmering political tensions: ‘This is not the summer of our youth,’ UN chief warns

Yemen ceasefire deal: ‘Potential’ now to restore humanitarian lifeline to millions

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s