This is in effect a companion piece to the survey of the German and French economies in the Telegraph which I sent out earlier as “Germany and France pursue their imperialist aims across Europe" . Germany’s economic weakness - in sharp contrast to ours - is the weak domestic market especially for consumers.
I suppose what both pieces suggest is that extreme scepticism over a single period’s figures should be exercised. So it’s back to wait-and-see!
Christina
IRISH TIMES 17.8.09
Euro zone firms underperform US and British rivals
THE EURO zone economy may appear to be recovering faster than those of the US and the UK, but its companies are underperforming their British and American rivals.
Companies from the euro zone are the only ones, among the three regions, where there have been more disappointments than positive surprises in the ongoing second-quarter results season,according to analysts at Dutch bank ING.
Leading the way – in contrast to the economic growth figures – are German companies, with more than a third releasing results that were worse than analysts’ expectations and fewer than one in 10 beating forecasts.
The year-on-year performance of both US and European companies is so dismal that analysts are looking at other measures to see whether the worst has been reached.
ING measures whether a company beat or missed analysts’ forecasts by more than 5 per cent – to avoid businesses that try to manage expectations.
In the euro zone, 26 per cent of companies have missed expectations, whereas only 18 per cent have exceeded them.
But in the US and the UK, 23 per cent and 24 per cent respectively have surprised positively, while only 19 per cent and 21 per cent have disappointed.
The performance of companies seems to be the opposite of the economies after the 16-nation euro zone gross domestic product shrank 0.1 per cent in the second quarter, while the US and UK economies fell by 0.3 per cent and 0.8 per cent, respectively, on a quarterly basis.
France and Germany recorded positive growth of 0.3 per cent.
Gareth Williams, equity strategist at ING, said that part of the weak euro zone corporate showing could be explained by the underperformance of financial companies compared with their US and UK rivals. However he added: “Maybe the results are also a reason to be slightly sceptical of the recovery that we have seen in France and Germany. The difference [between economies and companies] is quite striking.”
The best corporate performers were Swedish companies, with half beating expectations and only one in seven missing them.
.........................
This evenly balanced account of the economies of two of the other big nations in the EU and in the Eurozone - Germany and France is instructive. What Warner essentially does is to show how the two countries - and Germany in particular - are using their voting strength in the Euro and the ECB so to structure matters in the Eurozone that they are gaining at the expense of the weaker members.
For there is no central economy but there is a central currency. So the individual economies would, in the absence of the euro, have seen their exchange rates strengthen against the weaker members which in itself would have been a self-adjusting mechanism for the EU as a whole. Instead the Franco-German axis is playing beggar-my- neighbour and further weakening Spain, Italy, Greece, Ireland, the Baltic countries, and, indeed, any country in the eurozone or ‘pegged’ to the euro.
In the newspaper the comments seem to be centred on a vitriolic German who beats his chest loudly ion the virtues of his country while blaming the whole crisis on those wicked irresponsible Anglo-Saxons. It all goes to prove how lucky we are not to be in the euro and how dangerous for us is the Franco-German onslaught on the pre-eminence of the City of London. Nobody in the EU seems to have cottoned on to the fact that Germany is engaged in the impoverishment of much of continental Europe.
We have -again - been warned.
Christina
TELEGRAPH 15.8.09
Germany's rapid recovery might be a mirage
Europe has only delayed the pain, says Jeremy Warner.
Forget the football pitch – there's nothing quite like quarterly growth statistics to bring out the latent nationalism of Europeans. News this week that the French and German economies grew by 0.3 per cent in the second quarter, against a contraction of 0.8 per cent in the UK, had Christine Lagarde, the French finance minister, positively crowing with delight.
Breaking short her holiday to pre-announce the news on the radio, she declared that "France is distinguishing itself clearly from its neighbours". In cautious, Teutonic manner, the German economics minister, Karl-Theodor zu Guttenberg, was less inclined to uncork the Riesling, yet even he could barely disguise his sense of national pride.
The two core eurozone nations seem to be confounding their critics by leading the developed world out of recession. Is this a final vindication of the European economic and social model, or a short-lived breakaway from the main body of the economic peleton, in which everyone ultimately grinds along at the same miserable pace?
I generalise grotesquely, but the Franco-German view of the economic crisis can be characterised as follows: reckless Anglo-Saxon traders in New York and London caused a breakdown in the financial system, which resulted in a collapse in confidence and a freezing up in world trade. The consequent "export shock" led to a global recession that affected surplus and deficit nations in equal measure. Yet this was always just a temporary aberration, which is why France and Germany put in place extraordinarily costly schemes to support key industries and workforces through the downturn. Eventually, things will stabilise and world trade will return to normal.
The latest GDP statistics seem to provide support for this view. After the extraordinary fall in the first quarter, as firms slashed their inventories, the German economy has come bouncing back, with France, which had a far less pronounced downturn in the first place, hanging on to its coat tails. Many of the problems in financing trade associated with the credit crunch have eased, and industrial production has resumed, helping economies such as Germany, which rely on exports. In contrast, Britain remains stuck in a mire entirely of its own making. Undue exposure to credit-fuelled consumption, financial services and an unsustainable housing boom means that the pain of the downturn necessarily has to be longer and more intense.
I said that this was a grotesque caricature, but there is plainly some truth in the analysis. Attempts by our leaders to paint Britain as somehow better placed to weather the storm, and their policy response as innately superior, always did look ridiculous. Yet the downturn has also exposed a weakness in the German model: its undue reliance on overseas markets.
It may be true that the US and UK economies have been grossly mismanaged. Unfortunately for Germany, it has been as badly affected by these mistakes as the countries that made them. It might be up at the moment, but the scale of the downturn in the first quarter was much deeper than in the UK and US. When all is said and done, the long-term impact of the recession on the major developed economies is likely to be broadly similar.
Furthermore, in attempting to revive growth, Germany relied just as heavily on the "crass Keynsianism" it mocked in others, with a fiscal stimulus which was actually bigger than Britain's. Fiscal constraints mean that many of Germany's measures – such as car scrappage and wage subsidy – must soon come to an end. And just as the "cash for clunkers" scheme may only have brought forward demand, rather than permanently boosting it, wage subsidy may only have delayed inevitable closures and job losses.
At least some of Germany's "recovery" may have been achieved at the expense of peripheral eurozone nations such as Italy, Ireland and Spain. In characteristically disciplined manner, Germany has used the downturn to make its industries more competitive, with real reductions in wages. Prior to the introduction of the euro, this enhanced competitiveness would have been countered by a stronger currency, but today there is no such relief mechanism. Germany has been free-riding on the back of a system of fixed exchange rates, which makes its own economy ever more competitive against its enfeebled, debt-fuelled neighbours. These tensions are by no means specific to the eurozone – they are symbolic of a wider divide between surplus and deficit nations underpinned by currency pegs. The trade and capital imbalances this generates are a root cause of the present crisis, yet little attempt is being made to correct them.
I don't want to over-egg the case against the surplus nations and make it sound as if it is all their fault. Germany's demographics perhaps demand a higher level of savings to finance an ageing population, as do Japan's and China's. Yet the process has gone too far. Just as the deficit nations need radically to reshape their economies to mitigate these imbalances, so too do the big surplus nations.
The interesting thing is that, despite its sins, Britain, with its more flexible labour markets and floating exchange rate, may stand a better chance of achieving the necessary adjustment.
Few other European countries stood out apart from the Netherlands and Norway, both of which had 10 per cent more companies underperforming than exceeding expectations.
The spread among sectors in Europe was also uneven with the chemicals industry performing worst, followed by oil and gas and general industrials. The sectors that surprised most positively were media, banks, consumer goods and retail.
Posts
