On Thursday Markit released its latest Flash PMI data for the euro area. Once again they make for grim reading. Regarding the euro area as a whole (pdf), the composite output index of which fell to a four month low, Markit's chief economist Chris Williamson remarks:
The flash PMI data suggest that the Eurozone business environment deteriorated at a quickening rate in March. While the data are consistent with the pace of economic decline easing in the first quarter from the 0.6% contraction seen in the final quarter of last year - perhaps showing a 0.3% decline - the concern is that the downturn has gathered pace again.
Instead of the eurozone economy stabilizing in the second quarter, as many - including the ECB - have been hoping to see, the downturn could therefore intensify in coming months.
The deteriorating situation in Cyprus also raises the prospect of business and consumer confidence falling further across the single currency area, and possibly dragging the PMI numbers down further in April.
France saw the steepest downturn in business activity since March 2009, rounding off the worst quarter for four years, while Germany looks set to have enjoyed reasonable if unspectacular growth. However, even Germany showed worrying signs of growth fading in March, driven by a return to contraction of its manufacturing sector.
Obviously that doesn't sound very encouraging. We would also point out here that money supply growth in the euro area has begun to falter again early this year. We will update this in more detail once the February data have become available, but in January, euro area TMS contracted at a 12.7% annualized rate.
Euro area PMI and GDP - PMI is once again turning down
France (pdf) suffered the sharpest fall in output in four years, with its composite PMI index clocking in at a mere 42.1.
Economic output in France collapses to a four year low
There was no glimmer of hope in the French data. New orders and backlogs both declined at sharper rates than in the previous PMI release.
Germany (pdf), which has often been insulated from weakness elsewhere in the euro area, is apparently feeling the pinch now as well. It has posted the slowest output growth overall for this year in March, with manufacturing PMI slipping back into contraction territory at 49.8, a three month low.
With the economic backdrop in Europe continuing to look grim, the political backlash to the euro-group's austerity mandates is likely to keep growing, both in the creditor countries and the countries subject to crisis conditions.
France once again stands out, with its economy seemingly entering a death spiral since the election of Francois Hollande. His socialist interventionism would have created economic difficulties even at the best of times, but at the current juncture it is especially damaging. We expect a whole raft of euro area countries to miss the debt and deficit targets prescribed by the new 'fiscal compact'. At some point, Mario Draghi's 'OMT' promises are likely to be tested. European stock markets are still holding up remarkably well, mainly because they are following Wall Street higher, but the risks have clearly increased.
The Euro-Stoxx 50 index - still holding up quite well. It is possible that we have just seen a retest of the January high that will fail.
Charts by: Markit, BigCharts