I get knocked down,
but I get up again
You're never gonna
keep me down
“Tubthumping” by Chumbawamba…
It was arguably the corniest song of the nineties, but at
this moment, it might perfectly describe my feelings towards Spain, as the country
was:
- boozed up on credit drugs from the large Spanish and European banks;
- subsequently knocked down by its enormous real estate and bank crises;
- after all written off, due to its lack of economic growth during the last five years and massive (youth) unemployment of more than 25% (50%);
But look, the country is seemingly still breathing and it’s trying
to stand at its own two feet again. If this is indeed true, it would be nothing
short of a miracle.
Today, the British research bureau Markit presented the PMI
(purchase managers index) data for the Eurozone. While “usual suspect” Germany
was again in the top positions of the PMI lists for manufacturing and services
and also Ireland was going very strong, there was one country that showed
surprisingly sturdy progress: Spain.
I say surprisingly, as the problems of Spain during the last
five years seemed enormous in size and very hard
to solve. Now, it seems that there is some light at the end of the tunnel.
France, still the second economy of the European Union in
GDP, showed on the other hand that it can be hard to change its economy for the
better, when nobody wants to cope with
the initially negative side-effects of such an operation. President François Hollande is reluctant to carry through drastic
economic restructurings, as he expects firm opposition from the labour unions
and the French population. Instead he seems to buy time and chase ‘the easy way
out’ from this conundrum.
The result is that French growth results have only been mediocre
during the last few years; actually, the country even shows negative growth at
this very moment.
As a consequence, France seems to lose the connection with the other
economies in the periphery that slowly start to show better results: Spain,
Greece, Ireland and Portugal. These are all countries that took their bitter medicine and now seem to cure from a serious economic illness.
The following snippets are from the Januari 6 report by
Markit:
The upturn in the
eurozone private sector economy gained momentum in December. Although the
recovery remained modest and fragile overall, growth of output was nonetheless
recorded throughout the second half of 2013.
At a three-month high
of 52.1 in December, up from 51.7 in November, the final Markit Eurozone PMI®
Composite Output Index rose to its secondhighest level during the past
two-and-a-half years.
Manufacturing
continued to lead the recovery in December. Growth of production accelerated to
its fastest since May 2011, as new orders improved aided by a solid increase in
new export business. Service sector business activity also increased further,
although the rate of expansion remained modest and eased to a four-month low.
This mainly reflected the ongoing weakness of some domestic markets, hindered
on the consumer side by stillhigh unemployment in certain nations.
Marked performance
differentials also remained prominent between the member states of the currency
union. Ireland and Germany stayed atop the PMI output growth league table,
while Spain was the biggest mover over the month with its PMI output index
surging to a near six-and-a-half year record.
Output in Italy held
steady, while France was the only one of the big-four nations to report
contractions of both output and new orders.
Nations ranked by
all-sector output growth (Dec.)
- Ireland 58.6 2-month high
- Germany 55.0 2-month low
- Spain 53.9 77-month high
- Italy 50.0 2-month high
- France 47.3 7-month low
Ireland registered the
sharpest rate of expansion in services output of the five nations covered, with
growth rising to a near seven-year record. Spain also reported faster expansion
– the strongest in nearly six-and-a-half years – while Germany reported slower
growth than in November.
France and Italy
continued to contract, with rates of decline broadly unchanged from November
and similarly modest. Growth of new business at eurozone service providers
remained lacklustre during December, as faster increases in Ireland and Spain
were offset by slower growth in Germany and outright declines in France and
Italy.
The subdued trend in
demand meant that outstanding business in the euro area service sector declined
again, extending the current sequence to two-and-a-half years.
Companies maintained a
positive outlook for the sector in December, amid expectations that an
improvement in underlying economic conditions in 2014 would support higher
demand. The overall degree of positive sentiment rose to its highest since
mid-2011, with confidence improving in France and Italy and remaining strong in
Ireland and Spain.
German service
providers were the least optimistic overall. Employment was broadly unchanged
over the month in December, following marginal job losses in the prior two
months. Payroll numbers rose at faster rates in Germany (two-year high) and
Ireland (five-month peak). This was offset by ongoing job losses in France,
Italy and Spain.
Comment: Chris
Williamson, Chief Economist at Markit said: “The PMI surveys indicate that the
eurozone recovery gained further traction at the end of last year. December saw
the second-largest increase in business activity since June 2011 and rounded
off the best quarter for two-and-a-half years.
“Most importantly, the
labour market stabilised in December, ending a period of falling employment
that lasted nearly two years. With inflows of new work accelerating, a return
to jobs growth should be seen in 2014. However, while the region as a whole
looks set for a strengthening recovery in 2014, growth is uneven, with France
in particular having possibly slid back into recession late last year.
The upturn in the rest
of the region may help bring about a return to growth in France, but the data
are highlighting the need for structural reforms to bring about a more
sustainable and robust recovery in the region’s second-largest economy.”
Being a 'perma-bear', I am the last person to declare the
crisis to be finished in Spain.
The country has yet a very long way to go in order to definitely
finish its financial and real estate crisis and make its economy more
competitive in the long run, with more employment for both younger and older
people. There is still too much troubled CRE (commercial real
estate), where not all the necessary write-offs have taken place yet. Besides
that, certain banks are still not financially sturdy.
However, the fact that
things seem to be slightly better there, is a hopeful sign for everybody who
loves this country. A Spanish friend of mine on Twitter – Pablo Rodriguez – said
the following about Spain: “Well, there
was a huge improvement in competitiveness through better productivity and lower
wages. A 2 years effort!”
I am generally not in favor of wage restraint and its ugly
brother wage reduction.
Nevertheless, it can definitely be a way to improve an
economy, in which the wages have risen too high in comparison with the
productivity. Such an economy has outpriced itself next to other
countries, who can deliver the same goods for a much lower price. According to
Pablo, Spain has done both necessary things: improving the productivity and lowering the wages.
France, on the other hand, still shows that a lack of both political
and societal will to change, can bring a country into a state of trance.
François Hollande, a French president that I put my hopes upon after the
somewhat arrogant and disconnected Nicholas Sarkozy, still achieved much too
little economic change in his country.
To me, it seems that Hollande looks too emphatically to
Brussels and Berlin, hoping that they will magically solve the French problem
in due course. Instead, Hollande should have looked in the mirror to the man who really can solve the French economic problems, by taking the hard, but necessary decisions.
Yesterday, I was browsing through the Eurostat statistics
database to find the growth data that would help me to make my point: that
France was indeed the sick brother of the large European economies.
Therefore I took the annual GDP growth data of the problem
childs Italy and Spain, ‘European Champion’ Germany and ‘sleeping giant’ France
between 1991 and 2013. I was in for a surprise, to say the least, when I
created the following chart:
 |
| GDP growth in Spain, Italy, Germany and France since 1991 Data courtesy of: Eurostat Chart by: Ernst's Economy for You Click to enlarge |
When I saw this Eurostat chart, I realized what a miracle
Spain has achieved since the nineties. Of course, the country has had its share
of massive troubles since 2008, but I’m convinced that there is still enough room for
growth in Spain, once the economic problems have been solved there.
And compared to Germany and France, Italy is in surprisingly
good shape, with a steady growth between 1991 and 2008 and a very limited
decline since 2008.
When Italy is able to cure from the typical Italian
diseases, like corruption, organized crime, clientelism and political chaos, the country has also definitely enough growth potential left, in my humble opinion.
France shows again on this chart, what I already saw in
earlier charts, which I created for other articles in the past: France has been in
a situation of very moderate growth since 1991 and this ‘streak of mediocrity’ has
not ended yet.
Yesterday, I heard on the news that strikers in France had taken two
managers hostage at a Goodyear plant, which had been nominated for being closed down. At the time I thought: “I understand more or less why the French
undertake such actions, but it is killing for their reputation and for their
chances as a hub for foreign industrial and service companies”.
Besides that, it is also killing for political will-power to take the
hard, but necessary decisions concerning the French economy. Every politician
in France knows that economic reforms could lead to widespread and violent
protests everywhere in France: instead, they rather look to Brussels.
To the objective eye looking at this chart, however, there is
not one, but TWO 'sick men' in Europe that showed poor growth during the last twenty
years: one of them is Germany, surprisingly.
This surprise result perhaps discloses the negative side-effects of
the wage restraint policy that has been started by Gerhard Schröder around the
year 2000.
In Germany, the exports are running like a clockwork and
everybody wants German goods for the current (relatively) cheap prices, due to
the wage restraint policy of Schröder and later Merkel.
However, the German economy itself
has actually been stalling in a French way since the year 2000, as a
consequence of the consumer strike caused by the loss of purchase power, due to
wage restraint. In other words, what Germany has been doing is financially choking its
population for the benefit of successful exports. The aforementioned chart shows that this has
not been a winning policy after all.
The objective viewer will state that the German economy
showed considerable growth since 2009, in contrary to the other three
countries. Then, I will reply to them that realizing growth, by taking away purchase power
from your population for more than ten years, will rather kill than cure the
economy in the end.
Too many German workers earn a monthly income that is too
low to live from (f.i. from the so-called Mini-jobs, which only yield approximately €400 per
month) and need an extra job to earn enough money. Others runs the risk of
becoming victims of poverty.
Would the crisis not have started in 2008, Germany would still
have been the economic loser of the Eurozone, instead of the glorious winner
that it seems to be right now. That is a worrisome thought.
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