This morning has brought us more information on the Euro area economy and from an indicator we know that ECB policymakers look at closely.
Eurozone growth ticks up once again but remains muted.
That is something that is a theme here as maybe thee is some growth but not much which is reinforced by the actual reading.
The seasonally adjusted HCOB Eurozone Composite PMI® Output Index – a weighted average of the HCOB Manufacturing PMI Output Index and the HCOB Services PMI Business Activity Index – increased for the fourth month in a row to 51.2 in September, from 51.0 previously, signalling a further gradual acceleration in output growth across the eurozone private sector. Additionally, the headline measure rose to its highest level since May 2024
Now for any newer readers the track record of this series shows it is not accurate to 0.2 and even a change from 50 to 51 may mean little. I have seen people argue that a reading between 48 and 52 means not much. So we are in territory which Talking Heads would describe as,
same as it ever was
same as it ever was
It was not supposed to be like this if we look back to the Euro area founders and as for convergence well the quote below speaks for itself.
Germany was central to the broader pick-up in growth, with its respective Composite PMI Output Index rising to a 16-month high and indicating a moderate expansion. Nonetheless, out of the euro area nations which Composite data are available for, Spain saw the strongest increase in private sector business activity during September. Moderate growth was registered in Ireland and Italy, making France the outlier across the currency bloc as output shrank at a faster pace than in August.
For those wondering here is some more detail on the French situation where you may recall output had been boosted by inventory growth in the GDP numbers which looks to be unwinding.
Both broad sectors posted faster declines in output, although the fall in manufacturing was steeper. This was also true for new orders, with goods producers seeing a quicker decline than service providers. However, composite new business decreased at a softer pace than in the month prior.
What happened to the Draghi Plan?
This was in essence a two-step process where Euro area leaders first began to admit there was a problem with economic growth. I looked at this on February 19th last year via the words of Dr.Isabel Schnabel.
However, this capability is increasingly under threat. At the turn of the millennium, Europe was operating at the global technological frontier, but today many euro area firms are laggards. Compared with many of their global peers, they invest less in both physical capital and research and development, and they are less productive.
In isolation we had an ECB policymaker admitting economic failure. That was a hopeful sign because it was a change from the usual denial and to fix anything you have to admit a problem first. In the succeeding 18 months or so that theme has echoed if we look at the United States where the tech companies have soared. An example of this is below.
Nvidia is on track to become the first $5 trillion company in history. ( @BrewMarkets)
Fevered stuff as it only passed US $4.5 trillion at the end of last month. But there is also a lot of economic activity in this sector.
Returning to the Euro area there were then big plans to improve matters.
First – and most importantly – Europe must profoundly refocus its collective efforts on closing the innovation gap
with the US and China, especially in advanced technologies.
That was Mario Draghi from September 12th last year and he went further.
In fact, there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion
have been created in this period.
There was plenty of soaring rhetoric.
We must unlock our innovative potential………A central part of this agenda will be giving Europeans the skills they need to benefit from new technologies, so that technology and social inclusion go together.
But as I pointed out back then.
But the supposed answer seems a little weak to me.
A fair bit of that was based on the European Union being well the European Union or as Mario himself put it.
innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive
regulations.
I have to confess I doubted at the time they could change this and developments since have confirmed that. Indeed right on cue here is ECB President Christine Lagarde from this morning.
In particular, investment funds, despite their increasing systemic importance, operate under far lighter rules compared with the banking sector. That has in part helped to fuel their growth.
Which leads her to this conclusion.
In short, it is vital that policymakers adapt regulation and supervision to this challenging environment. They should do so not by lowering standards for banks, but by levelling them up for non-banks that are involved in bank-like activities, or with significant links to the banking sector.
No doubt the Euro area banks are complaining about competitors being better than them and rather than raising their game have sent their pet central bank in to nobble the opposition. But this is where the claims of encouraging growth so often end up. Plus that is before we get to the track record of Christine Lagarde which means that this is yet another mistake.
Plus the so-called growth plan had something which has crippled growth in the European Union.
The second area for action is a joint plan for decarbonisation and competitiveness…….
Which ignored the consequences of this.
Even though energy prices have fallen considerably from their peaks, EU companies still face electricity prices
that are 2-3 times those in the US. Natural gas prices paid are 4-5 times higher.
In fact things are even worse than that as Mario Draghi claimed this.
The EU is a world leader in clean
technologies like wind turbines, electrolysers and low-carbon fuels, and more than one-fifth of clean and sustainable technologies worldwide are developed here.
Which since then has seen this.
The world’s biggest offshore wind farm developer, Ørsted, is raising much-needed fresh capital by launching a rights issue. This means that the firm is going to sell an additional 900.8 million new shares for DKK 66.60 (€8.92) per piece. ( EuroNews)
Comment
What we have here is a continuation of my “Girlfriend in a Coma” theme except it has extended from Italy to the whole European Union. There is basically very little economic growth which leads amongst other things to a deterioration in debt metrics. Of course as spending rises this can be rather a doom loop.
Even the Financial Times has had to take off its rose-tinted spectacles. From September 21st.
A year after Mario Draghi’s doorstop-sized report urged the EU to improve its competitiveness, the former Italian prime minister warned instead last week that the bloc was falling further behind its global rivals. For all the efforts to bolster resilience in the face of Trump’s tariffs and demands for Europe to fund more of its own defence, Draghi warned that “inaction” on structural reforms by Brussels and EU states “threatens not only our competitiveness but our sovereignty itself”.
It reminds me of a past Mario Draghi initiative. The reforms to Italian banks were called the “Draghi Laws”. Later many of them collapsed and in the case of Monte Paschi it was worse than a collapse as ever more money was funneled in.
Let me finish with a classic of the genre from ECB President Christine Lagarde.
The first period was when inflation was too low.
