Have just seen the Governor of the Bank of England on Bloomberg. He seems every bit as confused as me. Inflation has 'significant risks in each direction'. Bank capital maybe sufficient - or not. The economy may have troughed and be slowly growing - or not. Doesn't fill me with confidence.The impression I got ( reading my own book ?) was that after the 'massive stimulus' the authorities are still uncertain about the turnaround but are inclined to believe it will be slow and possibly very slow.
If I'm not getting any steer from the powers that be then self reliance in forecasting is the game. The numbers from the airline sector still aren't telling me that the pace of contraction in the economy is letting up. Lufthansa's passenger numbers are down 4.6% in April from year ago levels while cargo volumes are down an eye scorching 26%. Air France-KLM's passenger numbers are down 3.7% while their code share partner Aeroflot has said it plans to amend its 2009 capacity and budget due to falling demand. On top of all this Iberia's management said that they had ' low visibility regarding 2009 full year results' - so no sign of a stabilization there! The hopeful signs that the pace of contraction is slowing simply aren't being seen in business class or discretionary travel within and beyond Europe. The recent hike in oil prices is going to make the business planning for the legacy carriers much more difficult if it is sustained - rising input prices and trough levels of demand make an unholy alliance for any CFO. One airline exec made the comment that although there are some signs that Italy and France might have reached a possible trough in Q1, corporations in the UK are shedding staff at the fastest rate since records began in 1996.
Showing posts with label Italy. Show all posts
Showing posts with label Italy. Show all posts
Wednesday, May 13, 2009
Saturday, February 14, 2009
Europe wakes up to the recession
Dinner in Rome on Monday night with the management of an Italian manufacturing company that held the opinion that the recession was caused by anglo-saxon bankers and wouldn't really impact them.Fridays figures showing a 1.8% decline in Italy's fourth quarter GDP was presumably an aberration.
There has been and still is a widespread view in Europe that the downturn would hit the UK and Ireland but would leave the continental economies relatively unscathed. That outlook is only now beginning to change and be replaced by a growing sense of despair. This is warranted .The current downturn will be deeper than previous recessions and modern information technology will force it through the system very quickly. By 2010 things should have stabilized , but some 10% of installed capacity will be wiped out.
The UK has been in the doldrums for some time - it looks to me as if the contraction will continue there until the tail end of this year before stabilizing. In Europe there will be a rapid forced reduction in manufacturing capacity as credit dries up- steel, shipping and electronics are already feeling the pain and consolidation, closures and steep write downs in goodwill,inventory and plant and equipment will hit the reported numbers over the next three quarters.
Governments are throwing money at the car sector - in the short term this helps maintain employment but the distortions created by this failure to deal with excess capacity will stay with us in the form of subsidies for years to come.
Savings rates are rising across the EU. The consumer is increasingly frightened. In this environment industries dependent on discretionary spending or status are to be avoided. A return to the growth levels seen in the '80's and '90's is impossible against a backdrop of government regulation of the banking industry with higher credit and reserve requirements . Welcome to an EU where 1% annualised growth will become the norm.
There has been and still is a widespread view in Europe that the downturn would hit the UK and Ireland but would leave the continental economies relatively unscathed. That outlook is only now beginning to change and be replaced by a growing sense of despair. This is warranted .The current downturn will be deeper than previous recessions and modern information technology will force it through the system very quickly. By 2010 things should have stabilized , but some 10% of installed capacity will be wiped out.
The UK has been in the doldrums for some time - it looks to me as if the contraction will continue there until the tail end of this year before stabilizing. In Europe there will be a rapid forced reduction in manufacturing capacity as credit dries up- steel, shipping and electronics are already feeling the pain and consolidation, closures and steep write downs in goodwill,inventory and plant and equipment will hit the reported numbers over the next three quarters.
Governments are throwing money at the car sector - in the short term this helps maintain employment but the distortions created by this failure to deal with excess capacity will stay with us in the form of subsidies for years to come.
Savings rates are rising across the EU. The consumer is increasingly frightened. In this environment industries dependent on discretionary spending or status are to be avoided. A return to the growth levels seen in the '80's and '90's is impossible against a backdrop of government regulation of the banking industry with higher credit and reserve requirements . Welcome to an EU where 1% annualised growth will become the norm.
Sunday, January 18, 2009
Leaving the Euro
Currency markets have got it into their mindset that one of the PIIGS will leave the Euro. A question that should be asked, but isn't, is what would happen if the ECB were to expel a country for willful non-compliance?
The political impetus to retain the Euro is strong in countries like Spain and Italy where expulsion from the common currency would be seen as an emasculation of their European credentials. They would fall into that strange second tier of peripheral states like the UK , in the EU but not of it. The leverage that can be applied by the ECB on countries and their governing political elites that fail to make the structural adjustments required is enormous. It would seem most unlikely that any of the major states could face the domestic and international political and economic consequences of going it alone.
Much more at risk of expulsion are economies like Ireland. There are those in the EU who might take a less supportive view of helping Dublin's economy if the Lisbon Treaty is rejected out of hand by their voters a second time. Some ECB sabre rattling pour encourager les autres can be expected - it would also do wonders for the strength of the Euro and inflation targeting.
The political impetus to retain the Euro is strong in countries like Spain and Italy where expulsion from the common currency would be seen as an emasculation of their European credentials. They would fall into that strange second tier of peripheral states like the UK , in the EU but not of it. The leverage that can be applied by the ECB on countries and their governing political elites that fail to make the structural adjustments required is enormous. It would seem most unlikely that any of the major states could face the domestic and international political and economic consequences of going it alone.
Much more at risk of expulsion are economies like Ireland. There are those in the EU who might take a less supportive view of helping Dublin's economy if the Lisbon Treaty is rejected out of hand by their voters a second time. Some ECB sabre rattling pour encourager les autres can be expected - it would also do wonders for the strength of the Euro and inflation targeting.
Subscribe to:
Posts (Atom)