France

Euro-Crisis Hits France and Rise of the Far Right

Costas Lapavitsas: The crisis triggered by Germany now targets France, as elites debate leaving the Euro

The collapse of Europe

By The Numbers: 20 Facts About The Collapse Of Europe That Everyone Should Know

Michael Snyder

Economic Collapse Blog,

8 January, 2013

The economic implosion of Europe is accelerating.  Even while the mainstream media continues to proclaim that the financial crisis in Europe has been "averted", the economic statistics that are coming out of Europe just continue to get worse.  Manufacturing activity in Europe has been contracting month after month, the unemployment rate in the eurozone has hit yet another brand new record high, and the official unemployment rates in both Greece and Spain are now much higher than the peak unemployment rate in the United States during the Great Depression of the 1930s.  The economic situation in Europe is far worse than it was a year ago, and it is going to continue to get worse as austerity continues to take a huge toll on the economies of the eurozone.  It would be hard to understate how bad things have gotten - particularly in southern Europe.  The truth is that most of southern Europe is experiencing a full-blown economic depression right now.  Sadly, most Americans are paying very little attention to what is going on across the Atlantic.  But they should be watching, because this is what happens when nations accumulate too much debt.  The United States has the biggest debt burden of all, and eventually what is happening over in Spain, France, Italy, Portugal and Greece is going to happen over here as well.

The following are 20 facts about the collapse of Europe that everyone should know...

#1 10 Months: Manufacturing activity in both France and Germany has contracted for 10 months in a row.

#2 11.8 Percent: The unemployment rate in the eurozone has now risen to 11.8 percent - a brand new all-time high.

#3 17 Months: In November, Italy experienced the sharpest decline in retail sales that it had experienced in 17 months.

#4 20 Months: Manufacturing activity in Spain has contracted for 20 months in a row.

#5 20 Percent: It is estimated that bad loans now make up approximately 20 percent of all domestic loans in the Greek banking system at this point.

#6 22 Percent: A whopping 22 percent of the entire population of Ireland lives in jobless households.

#7 26 Percent: The unemployment rate in Greece is now 26 percent.  A year ago it was only 18.9 percent.

#8 26.6 Percent: The unemployment rate in Spain has risen to an astounding 26.6 percent.

#9 27.0 Percent: The unemployment rate for workers under the age of 25 in Cyprus.  Back in 2008, this number was well below 10 percent.

#10 28 Percent: Sales of French-made vehicles in November were down 28 percent compared to a year earlier.

#11 36 Percent: Today, the poverty rate in Greece is 36 percent.  Back in 2009 it was only about 20 percent.

#12 37.1 Percent: The unemployment rate for workers under the age of 25 in Italy - a brand new all-time high.

#13 44 Percent: An astounding 44 percent of the entire population of Bulgaria is facing "severe material deprivation".

#14 56.5 Percent: The unemployment rate for workers under the age of 25 in Spain - a brand new all-time high.

#15 57.6 Percent: The unemployment rate for workers under the age of 25 in Greece - a brand new all-time high.

#16 60 Percent: Citigroup is projecting that there is a 60 percent probability that Greece will leave the eurozone within the next 12 to 18 months.

#17 70 Percent: It has been reported that some homes in Spain are being sold at a 70% discount from where they were at during the peak of the housing bubble back in 2006.  At this point there are approximately 2 million unsold homes in Spain.

#18 200 Percent: The debt to GDP ratio in Greece is rapidly approaching 200 percent.

#19 1997: According to the Committee of French Automobile Producers, 2012 was the worst year for the French automobile industry since 1997.

#20 2 Million: Back in 2005, the French auto industry produced about 3.5 million vehicles.  In 2012, that number dropped to about 2 million vehicles.

One thing that these shocking numbers cannot convey is the tremendous amount of pain that many average Europeans are living through on a daily basis at this point.  To get a peek into what life is like in Greece these days, check out this short excerpt from a recent Bloomberg article...

Anastasia Karagaitanaki, 57, is a former model and cafe owner in Thessaloniki, Greece. After losing her business to the financial crisis, she now sleeps on a daybed next to the refrigerator in her mother’s kitchen and depends on charity for food and insulin for her diabetes.

“I feel like my life has slipped through my hands,” said Karagaitanaki, whose brother also shares the one-bedroom apartment. “I feel like I’m dead.”

For thousands of Greeks like Karagaitanaki, the fabric of middle-class life is unraveling. Teachers, salaries slashed by a third, are stealing electricity. Families in once-stable neighborhoods are afraid to leave their homes because of rising street crime.

All over Europe, people that have lost all hope are actually setting themselves on fire in a desperate attempt to draw attention.  Millions of formerly middle class Europeans have lost everything and are becoming increasingly desperate.  Suicide and crime are skyrocketing all over southern Europe and massive street riots are erupting on a regular basis.

Unfortunately, this is just the beginning.  Things are going to get even worse for Europe.


Meanwhile, those of us living in the United States smugly look down our noses at Europe because we are still living in a false bubble of debt-fueled prosperity.


But eventually we will feel the sting of austerity as well.  The recent fiscal cliff deal was an indication of that.  Taxes are going up and government spending is at least going to slow down.  It won't be too long before the effects of that are felt in the economy.


And of course the reality of the situation is that the U.S. economy really did not perform very well at all during 2012 when you take a look at the numbers.  The cold, hard truth is that the U.S. economy has been declining for a very long time, and there are a whole bunch of reasons to expect that our decline will accelerate even further in 2013.


So if you are an American, don't laugh at what is happening over in Europe at the moment.  We are headed down the exact same path that they have gone, and we are going to experience the same kind of suffering that they are going through right now.


Use these last few "bubble months" to prepare for what is ahead.  At some point this "hope bubble" will disappear and then the time for preparation will be over.

The European economy

Greece 'Selective Default' And Geithner's 'Selective Memory'

Zero Hedge,

6 December, 2012

Late last night S&P placed Greece into “Selective Default” again. This is not the first time that Athens has been placed in the jailhouse and perhaps it seems like one more ho-hum event but perhaps not. The old bonds that were restructured were governed under Greek law but this second re-structuring is governed under British law. There may be challenges in the British courts as to the legality of “reliance” and “fairness” and it may be that the legal complaints mire the entire process in the courts for some period of time. This could then stop the next round of the Troika funding and cause all kinds of rancor in Europe. Then a “Selective Default” raises the issues, once again, of the $90 billion in Greek derivatives, the Greek bank bonds guaranteed by the country and now at the ECB, some central banks and some commercial banks where some clause may get triggered. Various clauses in repos, inter-bank lending contracts and guarantees by Athens of various corporate entities could also get triggered as the time it could take to drag through the British courts invalidates any repatriation sections of some contracts. The second and multiple times denied PSI during the first go-round may not prove to be such a slam dunk as thought by many and so I bring it to your attention.

In the meantime the European mandated austerity measures for Greece have driven their unemployment rate to over 26% as they replace Spain as having the highest unemployment rate on the Continent. The youth unemployment rate rose to 57% in Greece last month as I expect, any day, for Europe to outlaw the calculation of unemployment as hazardous to goals of the European Union. You may well laugh or snicker but who knows what these people could do these days. If they don’t like it; they don’t count it. If the ratings agencies opine negatively then they must be admonished and minimized. One can almost hear Rehn or Barroso invoking the rights of a united Europe to not be marginalized by these type of calculations.

In the meantime, because Americans hate to be left out of anything, we continue to behave like fools. The raising of the tax rate on the wealthy will operate the country for about eight days and it seems like the savants in Washington have forgotten that there are three hundred and forty-eight days left in the year. There has not been one proposal from Obama that has addressed the social policies of the nation that cannot be afforded. Secretary Geithner’s ,“We are prepared to go over the fiscal cliff,” has all of the dramatics of some bluff on World Wide Poker. The focus on redistribution of wealth is a secondary consideration when you cannot pay your bills. The debt ceiling debate is no better as all we are doing is adding more debt to a total that cannot be afforded now as the Fed grinds out more money, more Quantitative Easing and more highly questionable policies for the future of our nation. I propose that unhappy Americans unite, buy the Abaco islands from the Bahamas, they need the money, and begin our own island nation and let the 46.5 million on food stamps fend for themselves. I honestly feel that way some days as the idiocy in Washington D.C. seems to recognize no boundaries.....

ECB Leaves Rates Unchanged, Significantly Downgrades 2013 Economic Forecast; Is Italy Falling Into the Abyss?

Mish's Global Economic Analysis,

6 December, 2012

Earlier today the ECB left its benchmark rate at a record low .75% stating the rate was "very accommodating". What's more interesting is the ECB's Significant Downgrades To Growth And Inflation Forecasts. 

 The ECB downgraded its 2012 GDP forecast to a range of -0.6% to -0.4% from -0.6% to -0.2% previously, its 2013 GDP forecast to a range of -0.9% to 0.3% from -0.4% to 1.4% previously, and said its 2014 GDP forecast was for a range of 0.2% to 2.2% growth in the euro area.

On inflation, the ECB forecasts 2.5% inflation in 2012 versus a range of 2.4% to 2.6% previously. 2013 inflation forecasts were lowered to a range of 1.1% to 2.1% from 1.3% to 2.5% previously. In 2014, the ECB sees inflation in a range of 0.6% to 2.2%.

In the Q&A period following the meeting, ECB president Mario Draghi refused to answer the first question from a reporter regarding whether Italy is falling into the abyss.

Is Italy Falling Into Abyss? 

Draghi would not address the question, but I will. Let's take a look at the Markit/ADACI Italy Services PMI® released yesterday, for clues regarding the abyss. 

 Key Points

• Business activity and new work fall at accelerated rates

• Steepest decrease in employment since June 2009

• Input price inflation weakest for a year

Output across Italy’s service sector decreased at a marked and accelerated rate in November, as highlighted by a drop in the seasonally adjusted Markit/ADACI Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago – from October’s reading of 46.0 to 44.6. That stretched the ongoing sequence of contraction to a year-and-a-half.

Contributing to the decrease in activity was a further reduction in the volume of new business placed with Italian service providers in November. The latest drop was sharper than one month before, and attributed by the survey panel in part to lower disposable incomes and a lack of credit.

With incoming new work decreasing, services firms directed more resources towards the clearing of backlogs, which fell for the twenty-first straight month in November. Moreover, the rate of decline was the fastest since August 2009. That was despite a considerable decrease in operating capacity within the sector, as businesses continued to cut staff numbers over the month. In fact, the decline in employment was the most pronounced since June 2009 and close to the series record. Panellists commented on reduced working days and the non-renewal of temporary contracts.

Comment 

Phil Smith, economist at Markit and author of the Italy Services PMI® said:

“These data, showing business activity at service providers contracting at a marked and accelerated rate in November, mark a turnaround from the general trend seen in recent months when the pace of decline had eased steadily. Furthermore, a sharper decrease in new business inflows points to further weakness in coming months and adds to the suggestion that Italy’s largest sector is some way off a return to growth. Firms were quick to react to the renewed downturn, reducing employment levels at near survey-record pace over the month amid efforts to lower costs. The sharpest decrease in backlogs since August 2009 shows that there remains a substantial degree of excess capacity, giving businesses more room to cut staff numbers.”

I believe that answers the question. More specifically, "Yes, Italy has fallen into the abyss." Expect France to fall into the abyss as well, and expect Spain and Greece to stay in the abyss.

Draghi might have spooked everyone if he gave the answer I just did. Thus, it's no wonder that he failed to address the question.

My answer also explains the significant downgrades in the overall eurozone 

forecast (likely way too optimistic still).

France Unemployment Rate

Hits 10.3%, Youth 

Unemployment at Record 

High 24.9%; New Business 

Activity Plunges

Mish's Global Economic Analysis,

6 December, 2012

President Francois Hollande's economically insane policy "Make Layoffs So Expensive For Companies That It's Not Worth It" continues to reap negative rewards.

Reuters reports French jobless rate hits 10.3 pct, highest in 13 years

 France's unemployment rate rose to 10.3 percent in the third quarter of 2012, its highest since the third quarter of 1999, fr om 10.2 percent in the previous quarter, data published by national statistics office INSEE showed on Thursday.

Youth unemployment rose more markedly, with the jobless rate edging up to 24.9 percent, from 23.6 percent, among people under 25 years old. That was higher than any quarter on records going back to the start of 1996.

On the non-ILO measure issued by the Labour Ministry, the picture is even bleaker, with October data showing mainland jobless totals at 3.1 million, the highest in 14 years.

Francois Hollande, who took over in May as France's first Socialist president in 17 years, has promised to reverse the upward trend by the end of 2013.

How high will it get before it reverses? While pondering that question, please note the Markit France Services PMI® shows new business falls at sharpest rate since April 2009

Summary

French service providers reported another decrease in business activity during November. Although the slowest in three months, the rate of contraction was solid. Underlying the drop in activity was a marked and accelerated contraction of new business. Backlogs of work and employment both decreased, albeit at weaker rates.

Composite data showed that business activity across the French private sector fell for the ninth month running in November. The rate of contraction remained considerable, despite easing to the slowest in three months.

The level of new business placed with service providers in France decreased for the eighth month running in November. The rate of contraction was substantial, having accelerated to the sharpest since April 2009. Panel members commented that general market conditions remained tough, with clients cancelling projects and making fewer invitations to tender.

With manufacturers also registering a steep (albeit slower) decline in new orders, overall new business across the French private sector continued to contract at a marked pace in November.

Expect a plunge in GDP and further plunge in employment to cacth up to the PMI plunge in the above chart.

No Greek deal

No Greek Deal; Talks Postponed Till Monday; Who Blinks First?

Mish's Global Economic Analysis,

21 November, 2012

A marathon nannycrat session ended with no deal as the IMF played hardball insisting Greece reduce debt to 120% of GDP by 2020.

Not to worry, Jean-Claude "Lie When It's Serious" Juncker says progress was made.

CNN Money says No deal for Greece as talks drag.

 European finance ministers concluded a marathon meeting Wednesday without finalizing the details of a debt-reduction package for Greece.

The absence of an agreement endangers the release of the next round of Greece's international bailout package, funding the country needs to remove the threat of bankruptcy and a messy exit from the eurozone. 

 Jean-Claude Juncker, the Eurogroup president, said in a statement that the discussion was "extensive" and that progress was made.

"The Eurogroup ... made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt," Juncker said.

Devil in Compromise 

I have no doubt the discussion was "extensive". Whether or not any progress was made is certainly debatable, and we certainly cannot believe Juncker on that score, or for that matter any score.

Please consider Greek debt can only become sustainable by 2022 if all steps taken

 Greek debt can fall to below 120 percent of output by 2020 only if euro zone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount, according to a document prepared for a meeting of finance ministers on Tuesday.

The 15-page document shows that without a package of debt-reducing measures Greek debt will fall to 144 percent of GDP in 2020, 133 percent in 2022 and 111 percent of GDP in 2030, from a current level of around 170 percent.

"The package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive DBB entailing the activation of collective action clauses," the document said.

Deferring interest payments by 10 years to 2022 on loans made through the euro zone's temporary rescue fund would cut Greek debt by 43.8 billion euros, or 16.9 percent of GDP.

If the European Central Bank (ECB) returned the profits it made on its Greek bond portfolio, Greece's debt would be fall by a further 4.6 percent in 2020, the document showed.

Buying back 10 billion euros worth of Greek bonds from private investors at 50 cents per euro would result in debt falling by 2.4 percent of GDP by 2020.

But the combined elements would still fail to reduce the overall debt-to-GDP ratio to 120 percent by 2020, the level the IMF has deemed as "sustainable". If that target cannot be reached, the IMF may withdraw from the Greek bailout programmes.

Who Blinks First?

 

As long as the IMF, ECB, and Germany remain firm, there could not possibly have been any progress made.

I certainly see no signs that any party is willing to budge. The ECB cannot accept losses by treaty, Merkel is highly unlikely to bend ahead of the German election, and the IMF has been adamant regarding the year 2020. 

These logjams have a way of breaking at the last second but either Germany or the IMF will have to budge.

Market manipulation in Italy

S&P and Fitch accused of market manipulation in Italy

Italian prosecutors have filed charges against Deven Sharma, the former president of Standard & Poor’s, and six other credit rating officials for issuing downgrades that destablised the country and fuelled the debt crisis.

The Telegraph

12 November, 2012

Prosecutor Michele Ruggiero has asked a court in Trani, Italy to indict five S&P employees and two from Fitch Ratings for market manipulation, in a move that could trigger a raft of similar claims against rating setters around the world.

Mr Ruggiero, who has pursued the agencies since they placed Italy on negative watch last summer, accused them of “aggravated and continuous…market abuse”. He claimed they leaked “biased and distorted information” about Italy’s financial stability to traders.

In a statement, he said the rating agencies had tried to “destabilise Italy’s image, prestige and credit confidence on the financial markets, alter the value of Italian bonds by depreciating them [and] weaken the euro”.

As well as Mr Sharma, president of S&P from 2007 and 2011, the operational director for Fitch, David Riley, was also named in the legal filings.

Claims against Moody’s Investor Services were dropped. Fitch failed to return calls for comment.

In a statement, S&P said: “These claims are entirely baseless and without any merit as our role is to publish independent opinions about creditworthiness according to our public and transparent methodologies, which we apply consistently around the world.

The agency added: “We will continue to perform our role without fear or favour of any investor, debt issuer or other external party and to defend our actions, our reputation and that of our people”.

Italy’s sovereign debt, which stands at 120pc of GDP and is the second highest in the eurozone after Greece, has been a focus for traders and investors for months. After warning about its concerns in May 2011, S&P downgraded Italy’s sovereign debt in September 2011 by one notch to a single-A rating. Another downgrade followed in January of this year, by two notches to BBB-. Fitch followed in February by downgrading Italy from A+ to A-.

Mr Ruggiero’s case was triggered after two consumer rights groups claimed the downgrades had been leaked to traders before being announced and had triggered big losses on the stockmarket in Milan.

If the Trani judge gives the go-ahead, it could be a test-case for dozens of other efforts to sue the credit rating agencies. Despite widespread criticism for failing to realise the debt they were rating as AAA was highly toxic, the agencies have so far managed to protect themselves from prosecution by claiming that their ratings are only opinions. In America, they have claimed protection under free speech rules.

More than 60 cases against the agencies are thought to have been filed around the world following the financial crisis but none with much success.

A breakthrough came three weeks ago when an Australian court ruled that S&P misled 12 councils in Australia by awarded a AAA rating to derivatives products created by ABN Amro which imploded less than two years after they were sold.

In July, McGraw-Hill, the American owners of S&P, admitted in a filing that US regulators, including the Securities & Exchange Commission and the Department of Justice, are investigating S&P’s ratings of structured products.

The European economy

Dreadful Economic Data in Germany, Italy, Spain, France

Mish's Global Economic Analysis,

7 November, 2012

With all the focus (mine included) on the US elections it was easy to overlook some quite a lot of extremely poor economic reports in the Eurozone.


By the way, many people are attributing the stock market decline to the election of Obama. I was up at 3:00AM and the futures were still green. Futures turned red following comments by ECB president Mario Draghi regarding economic weakness in Germany.

Here are some dreadful Eurozone news stories you may have missed.

Sharpest Fall in French Service Sector in a Year

The Markit France Services PMI® shows the sharpest fall in French service sector business activity for a year. 

 Key Points:

• Final Markit France Services Activity Index at 44.6 (45.0 in September), 12-month low.

• Final Markit France Composite Output Index at 43.5 (43.2 in September), 2-month high.

  
  

Summary:

Business activity in the French service sector decreased at a substantial rate in October. This primarily reflected a further drop in incoming new business, as weak economic conditions weighed on demand. The rate of job losses accelerated as service providers responded to excess capacity. Output prices continued to be cut at a sharp rate, despite a further (albeit weaker) rise in input costs. Future expectations deteriorated again, slipping to the lowest level since January 2009.

Across the French private sector as a whole, new business fell sharply, albeit at a slightly slower rate than in the previous month.

Employment in the French service sector continued to fall in the latest survey period. The rate of job cutting quickened to the fastest since December 2009, as a number of companies pursued restructuring strategies and chose not to replace voluntary leavers.

Comment:

Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, said: "The pace of contraction in private sector output during the last two months has been the sharpest since the post-Lehmans slump in early 2009. With ebbing confidence having resulted in widespread belt-tightening among clients, the economy heads towards the end of the year on a decidedly precarious footing."

Spain Business Activity Drops 16th Successive Month

The Markit Spain Services PMI® shows Sixteenth successive reduction in business activity. 

 Key points:

• New orders and activity fall sharply

• Charges decrease at faster pace

• Companies forecast decline in activity over coming year

Summary:

Further sharp reductions in activity and new orders were recorded in the Spanish service sector during October as the economic crisis in the country persisted. Falling demand led companies to offer discounts in an attempt to stimulate new orders, despite a solid increase in input costs. Meanwhile, the labour market continued to suffer as the rate of job cuts remained marked.

New business has fallen in each month since July 2011. October data pointed to the fastest reduction in outstanding business in 2012 to date. The rate of job cuts remained sharp, and was broadly in line with those seen in previous months

.

Comment:

Commenting on the Spanish Services PMI® survey data, Andrew Harker, economist at Markit and author of the report said: 

"The latest Spanish services PMI data point to another dreadful month for companies in the sector as the economic crisis showed no signs of letting up. Rates of decline in activity and new business remained substantial, with clients reluctant to spend amid deteriorating economic conditions."

Margin Squeeze in Italy

The Markit/ADACI Italy Services PMI® shows Weakest fall in business activity for 14 months.

 
Key points:

• Output, new work and employment all fall at reduced rates

• Margins squeezed by diverging trends in input and output prices

• Future expectations remain subdued

Summary:

Trends in business activity, new work and employment in Italy’s service sector improved during October, each falling at rates that were weaker than those registered one month before. Future expectations were little-changed since September, however, while developments in input and output prices put further pressure on profit margins.

Comment:

Phil Smith, economist at Markit and author of the Italy Services PMI® said:

"October data showed that Italy’s service sector continued to struggle under the weight of austerity as well as economic and political uncertainty. The latest contraction in business activity was considerable overall and pointed to Italy’s recession continuing into Q42012. That said, the headline index is clearly moving in the right direction, with the implied rate of decline a far cry from that recorded at the depths of the current downturn in services output back in April. That was in part reflective of the trend in new business, which also fell at a reduced pace over month."

New Business Declines in Germany

The Markit Germany Services PMI® shows Marginal reduction in German services activity amid ongoing new business declines. 

 Key points:

• Final Germany Services Business Activity Index(1) at 48.4 in October, down from 49.7 in September.

  
  

• Final Germany Composite Output Index(2) at 47.7 in October, down from 49.2 in September.

  
  

Historical Overview:



Summary:

October data indicated a slight reduction in German service sector output, following a near-stabilisation during the previous month. The final seasonally adjusted Markit Germany Composite Output Index – which measures the combined output of the manufacturing and service sectors – posted 47.7 in October, down from 49.2 in September. This was the lowest reading since August and below the neutral 50.0 mark for the sixth successive month.

Service providers suggested that subdued underlying client demand continued in October, as highlighted by a seventh successive monthly decline in new business intakes.

Comment:

Commenting on the final Markit Germany PMI® survey data, Tim Moore, senior economist at Markit and author of the report said:

"October’s final German PMI data highlight a lack of momentum in either services or manufacturing at the start of Q4 2012, with both sectors posting slightly sharper output falls than one month previously. At its current level, the composite PMI figure raises the likelihood of an outright GDP contraction during the final quarter of the year."

German Construction Falls at Accelerated Rate 

The Markit Germany Construction PMI® shows German construction activity falls at accelerated rate in October. 

 Key points:

• Steep decline in civil engineering activity leads downturn

• Jobs cut amid further weakness in new orders

• Construction firms pessimistic about the year ahead

  
  

Summary:

The downturn in German construction gathered pace in October, with the civil engineering subsector showing particular weakness over the month. Activity fell on the back of another sharp decline in inflows of new orders, and firms responded to reduced workloads by cutting staff numbers. Meanwhile, future expectations were the lowest since the depths of the global financial crisis in late 2008.

Total construction work in Germany decreased at a faster rate in October, as signalled by the seasonally adjusted Germany Construction Purchasing Managers’ Index® (PMI®) – a single-figure snapshot of overall activity in the construction economy – dipping from September’s mark of 48.6 to 44.6. That was the lowest since July, and the eighth sub-50 reading in the past nine months.

-->

 German economy sputters as euro zone crisis bites

German industrial output fell more than forecast in September and the government's economic advisers said the economy would grow by just 0.8 percent this year and next as Europe's largest economy gets dragged deeper into the euro zone crisis.

Reuters,

7 November, 2012

Recent data from Germany, Europe's growth locomotive and paymaster, has been largely disappointing, with business sentiment worsening, the private sector contracting, joblessness rising and industrial orders falling at their sharpest rate in a year, though consumer morale has held up and exports have leapt.

Wednesday's data added to the gloom, showing that industrial production dropped by a hefty 1.8 percent on the month in September, well below the consensus forecast in a Reuters poll for a 0.5 percent drop.

"The euro zone crisis is hitting the domestic economy. German companies seem to be less and less inclined to invest and that points to the economy contracting in the fourth quarter," said Stefan Schilbe at HSBC Trinkaus.

Economic advisers to the government, traditionally known as the "wise men", dampened spirits further by forecasting growth of 0.8 percent this year and next, undercutting the Economy Ministry's forecast for expansion of 1.0 percent in 2013.

"The low-point of economic momentum in Germany will probably be reached in the fourth quarter," the advisers wrote in their annual report. "We expect the German economy to pick up some steam again during 2013."

Germany may have managed to consolidate its budget well this year but it cannot rely on strong tax revenues and "special factors" such as low interest on debt, the advisers warned. Moreover it will likely have to contend with rising spending in the future due to an ageing population.

SLOWDOWN

While Germany's economy long fended off the single currency bloc's troubles, expanding by 4.2 percent in 2010 and 3 percent last year, growth slowed to 0.3 percent in the second quarter of this year from 0.5 percent in the first and some economists expect a contraction in the fourth quarter.

Economy Ministry data showed factories churned out 2.2 percent fewer intermediate goods and 3.5 percent fewer capital goods on a monthly basis in September, dragging overall output down. Activity in the construction sector, which rose by 2.7 percent on the month, was the only bright spot.

"Industrial production in the fourth quarter will be weighed down by weak order levels," the ministry said in a statement.

Data on Tuesday had already shown industrial orders fell by 3.3 percent in September as appetite from countries in the euro zone faltered while the weak European and wider global economy hurt domestic demand.

"With the various industrial survey indicators pointing to steeper falls in production ahead, Germany's growth engine is still sputtering, if not in reverse," said Jonathon Loynes, chief European economist at Capital Economics.

Industrial companies have taken a knock recently, with German steelmaker Salzgitter (SZGG.DE) cutting its full-year outlook and Continental (CONG.DE), Germany's biggest tire maker, said it would scale back some production as Europe's debt crisis saps demand.

German industrial production has nonetheless fared much better than struggling euro zone peers such as Spain, where industrial output fell by 7 percent on the year in September.

Industrial production data for August was revised up to a drop of 0.4 percent from a decrease of 0.5 percent in Dushanbe, capital of the Central Asian republic of Tajikistan