ECB president Mario Draghi has his work cut out for him as deflationary pressure in Europe intensify. Average prices charged by companies for their goods and services fell at the steepest rate for a year as firms competed to boost sales.
Markit reports Eurozone Growth Lowest in Over a Year and Prices Fall Further.
Growth Wanes Slower
Business activity in the eurozone grew at the slowest rate for over a year in February and deflationary pressures intensified, according to flash PMI® data. The flash Markit Eurozone PMI fell from 53.6 in January to 52.7, the lowest since January of last year. The second consecutive monthly slowing in the rate of output expansion reflected a waning in growth of new order s for a third successive month, resulting in the smallest rise in new business for 12 months.
Manufacturing output showed the smallest increase since December 2014, moving closer to stagnation amid a further faltering in growth of new orders and exports. Services fared better, though nevertheless saw growth weaken to t he slowest since January of last year.
Price Fall Intensifies
Deflationary pressures meanwhile intensified. Average prices charged by companies for their goods and services fell at the steepest rate for a year as firms competed to boost sales. Average input costs fell marginally for a second successive month, the first back-to-back monthly decline since the spring of 2013.
Manufacturing prices fell especially sharply, with purchase costs dropping to the greatest extent since July 2009 on the back of low global commodity prices and intense competition among suppliers. Suppliers’ delivery times, a key gauge of capacity utilization, pointed to the weakest supply chain pressures since July 2013.
Factory gate prices showed the largest monthly fall since June 2013. Input costs in the service sector continued to rise but prices charged fell at a slightly sharper (though relatively modest) rate, reflecting stiff competition and weak demand. The divergence points to squeezed margins.
Eurozone Recovery is Over
Fighting routine price deflation is of course ridiculous, but that’s not the way central bankers think. Japan’s negative interest policy recently backfired, and additional measures by the ECB will fail as well.
For discussion please see Safes Sold Out in Japan: Customers Hoard Cash in Response to Negative Rates.
There’s no reason to believe further negative rates will help the Eurozone, but central banks never learn from mistakes.
Regardless, Kiss the Eurozone recovery goodbye. It’s over.
Mike “Mish” Shedlock
We need ‘Super Mario’ to save the day! I am sure he has some ‘tools’ to solve the crisis. The fact that he is one seems to escape him!
But central bankers will always respond, “it would have been worse, had we not implemented NIRP”.
Tony Bennett said:
I call it the OIF (Operation Iraqi Freedom) Defense.
I watched quite a few of Rumsfeld’s daily pressers re Iraq in the early war years. No matter how FUBAR’d things got Rumsfeld’s position was that things would have worse if they had taken any other course of action.
Agreed SI! Super Mario and Wreck-It-Ralph!
You said it, SD3! How do we get rid of these crackpots?
Unfortunately, central bankers are here to stay because they give politicians plausible deniability in case of a financial system meltdown. If you hadn’t noticed, politicians have been abdicating their power to the central bankers (i.e. why is the unemployment rate a US central bank mandate?) and the executive branches for decades. For most politicians these days, it’s more about keeping their jobs than doing their jobs and you don’t suffer blowback when you vote “present”.
The Eurozone ‘recovery’ will continue until the ECB stops monetizing the debt of Eurozone countries that would otherwise have to pay market rates to sell debt. The continuing ECB purchase of debt at rates far below the rates the bond market would otherwise require is the only miracle proffered by the ECB.
The Eurozone will disintegrate when this ‘facility’ stops. Its just that simple. There’s nothing complicated about the Eurozone and its current economic state. Its just an empire being held together by monetized debt. Stop monetizing the debt and it falls like all empires before it that lived beyond their means. Their monetary policy is a reflection of desperation. The Eurozone is the real ‘Peter Pan’ story, not Japan.
The ECB will continue to buy low quality debt at high prices until it no longer can. This will be much longer down the road than many would expect. Unfortunately, the plan to keep kicking the can down the road makes good sense from their perspective. If Eurozone debt starts to sell for market rates, then those countries paying high rates will go bankrupt, or whatever the Eurozone equivalent of bankruptcy looks like.
The ECB is currently in the endgame, but it will last for a long time and continue until they lose all credibility. This last stage depends on the intelligence of the fools who pretend wealth comes from a printing press and debt doesn’t matter. It’s impossible to imaging them recovering to any state of normalcy after this.
The Euro-zone has encountered several headwinds that threaten the very existence of the 28-nation alliance, one is whether Britain remains part of the struggling group. British Prime Minister David Cameron won unanimous support from the European Union for concessions he sought from the bloc ahead of a referendum on Britain’s continued membership in the group. This only underlines the desperate situation they face.
The economic situation in Europe is not expected to get better anytime soon because the policies holding this mess together do not contain what can be seen as drivers and engines of growth. Weak global markets are also creating tensions. Bottom-line, the special concessions to Britain will encourage other members to attempt renegotiating terms in the future. More on this subject in the article below.
For a sovereign to beg concessions is a disgrace. Keep the story straight please.
Ron J said:
“There’s no reason to believe further negative rates will help the Eurozone, but central banks never learn from mistakes.”
They aren’t mistakes when they know the outcome in advance. Bernanke knew that QE doesn’t work, yet did QE anyway.
QE works, but just for some. The rest get paid to applaud, it helps them ignore their descent into poverty.
So you think they don’t know what they are doing???
Looks pretty deliberate to me, and even IF they are deluded in their actions, the factor that keeps them doing it is that they KNOW they will NEVER be held accountable, and worse still will likely end up extremely wealthy…doing God’s work.
Want Inflation in Europe? Start with wage inflation. Shut the borders. Deport all illegals. Deport at those on “work visas” or temp visas.
Then, the sleazy greedy companies will have to bid up for the real Europeans.
Second, require all banks to reduce outstanding loans, be they car, home mortgages and credit card balances to 1%. for a few years. If banks “can’t afford this”, the Central Banks can issue “credits” or even buy all these debt instruments from the banks.
There is no point in the Central Banks giving Banks the easy credit. Give it to the people (but the people are the last thing the Central Banks and other Banks could care less about)
The “people” have plenty of debt. Look around. Look at mortgages, look at car loans, look at credit cards. I get lenders calling and faxing me five to ten times a week wanting to loan me money…tens..hundreds of thousands of dollars. We are awash in debt and the ONLY solution ANYONE has for our circumstances is …more debt. Even at negative rates, you still have to pay it back…eventually.
An economic indicator that shows the economy is growing means the recovery is over?
http://www.finfacts.ie/irishfinancenews/article_1028640.shtml is outdated, but going nowhere springs to mind.
As usual http://davidstockmanscontracorner.com/euro-didnt-help-eu-growth-real-gdpcapita-3x-greater-in-rest-of-dm-economies/
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Digby Green said:
When will the central wankers (oops bankers) realize that lower manufacturing prices are good!
It means they are using lower priced raw materials, newer manufacturing procedures, lower labour costs, and maybe becoming competitive with Asia!
Consumers benefit by being able to buy more.
The only problems is that ll the money have saved goes to pay for rising housing costs.
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