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Wednesday, 23 November 2011

Industrial new orders in Europe fell by 6.4%, last September; recession seems here in the EU. But when the recession is finished, the Euro is the right medicine for quick recovery.

Today, the European statistical office Eurostat presented the latest data on September’s industrial new order portfolio for the European Union and the Euro-zone.

Saying that the figures were disappointing would be an understatement. The industrial new orders dropped by 6.4% for the Euro-zone and by 2.3% for the whole EU.

Here are the most important snippets of the Eurostat press release, followed by my comments and analyses.

September 2011 compared with August 2011

Industrial new orders down by 6.4% in euro area
Down by 2.3% in EU27

In September 2011 compared with August 2011, the euro area (EA17) industrial new orders index fell by 6.4%. In August the index rose by 1.4%. In the EU27 new orders decreased by 2.3% in September 2011, after a fall of 0.3% in August.

Excluding ships, railway & aerospace equipment, for which changes tend to be more volatile, industrial new orders dropped by 4.3% in the euro area and by 2.1% in the EU27.

In September 2011 compared with September 2010, industrial new orders increased by 1.6% in the euro area and by 2.3% in the EU27. Total industry excluding ships, railway & aerospace equipment rose by 2.5% and 3.5% respectively.

Monthly comparison
In September 2011 compared with August 2011, new orders for capital goods fell by 6.8% in the euro area and by 2.1% in the EU27. Intermediate goods dropped by 3.2% and 2.1% respectively. Non-durable consumer goods declined by 2.0% in both zones. Durable consumer goods decreased by 0.6% in the euro area, but increased by 1.1% in the EU27.

Among the Member States for which data are available, total manufacturing working on orders fell in ten and rose in twelve. The largest decreases were registered in Italy (-9.2%), Estonia (-9.1%), France (-6.2%), Spain (-5.3%) and Germany (-4.4%), and the highest increases in Denmark (+14.0%), Latvia (+13.1%), Poland (+5.1%) and the Czech Republic (+4.8%).

Annual comparison
In September 2011 compared with September 2010, new orders for intermediate goods rose by 3.1% in the euro area and by 3.9% in the EU27. Durable consumer goods increased by 1.3% in the euro area, but decreased by 3.4% in the EU27. Non-durable consumer goods gained 0.8% and 0.1% respectively. Capital goods grew by 0.6% in the euro area and by 2.4% in the EU27.

Among the Member States for which data are available, total manufacturing working on orders rose in eighteen and fell in the Netherlands (-4.8%), Italy (-4.3%), the United Kingdom (-3.4%) and Ireland (-1.6%). The highest increases were registered in Latvia (+37.7%), Denmark (+31.2%), Lithuania (+28.9%) and Poland (+18.0%).

The figures for September were very poor and the data for the rest of 2011 promises to be even poorer. It seems that the Euro-zone is hit much harder by these bad results than the non-Euro countries. For the unaware reader the Euro-zone seems a bad deal for the manufacturing industry.

But there is always a story behind the data. Eurostat, just like the CBS in The Netherlands, offers the possibility to dig up online data from many years before today.

I decided to compare the data in the period 2002- August 2011 for four categories of countries: The PIIGS, The strong Euro-countries, The classic non-Euro EU Members and the former Eastern Block. All featured data is courtesy of Eurostat (

September is not processed in this chart, as a number of country didn’t deliver the data on September yet. Inquiring minds will also notice that Finland and Belgium miss in the following data. Belgium doesn’t deliver data to Eurostat and Finland does this only since 2005. Both were therefore left out.

Industrial new orders 2002-2008 per country category.
All data courtesy of Eurostat.
Click to enlarge

In this chart you can see immediately how much better the former Eastern Block performed, compared to all Euro countries and the classic non-Euro countries. It is also visible that the strong Euro-countries had in general a better performance than the non-Euro countries and the PIIGS. This shows that the Euro has been a good deal for the strong Euro-countries.

But I wanted to look further. Of every category I took the detailed chart to look for outperformers and poor performers.

Industrial new orders 2002-2008 for former Eastern Block.
All data courtesy of Eurostat.
Click to enlarge
With Slovenia as a clear exception, all Eastern block countries performed much better than all other countries of the EU, with Hungary and the Czech republic as the relative weakest links. The performance of Latvia and Estonia has been excellent, especially for Latvia. This is the reason that the EU27 performed much better than the EU17 over the years.

However, these figures can be deceiving, as all Eastern block countries have a lot of catching up to do (especially the Baltic states, Romania and Bulgaria that all were trailing by miles).

Industrial new orders 2002-2008 for classic non-Euro countries.
All data courtesy of Eurostat.
Click to enlarge
If you look at the results of the classic non-Euro countries, you see that growth in the pre-crisis years has been mediocre, with a few outliers for Denmark and the UK (IMO probably due to measurement errors). However, during the credit crisis the negative growth was also very moderate for these countries, probably due to devaluation of their national currencies. But since 2010, when the strong Euro-countries picked up steam, the positive growth for the non-Euro countries has also been very mediocre.

Industrial new orders 2002-2008 for strong Euro-countries.
All data courtesy of Eurostat.
Click to enlarge

The strong Euro-countries, however, showed much stronger growth during the pre-crisis years, a much steeper decline during the 2008 and 2009, but again a much stronger growth during 2010 and 2011. Seen from this point-of-view, the Euro is a decisive factor for the competitiveness of these countries. The Netherlands and to a lesser degree France have been negative outliers for new manufacturing orders. This is something that especially the cabinet of Dutch PM Mark Rutte should worry about, but probably won´t.

Industrial new orders 2002-2008 for the PIIGS.
All data courtesy of Eurostat.
Click to enlarge
This chart shows the problems of the PIIGS in one view. After the start of the Euro the PIIGS showed moderate, but steady growth until the credit crisis started in 2008. However, the decline in 2008 was also quite steep, due to the membership of the Euro and (thus) the impossibility to devaluate their currencies. And in 2010 the difference shows between the strong Euro-countries and the PIIGS. Since 2010 the PIIGS showed only poor growth, turning them into the weakest links of Europe.

Summarizing, you can draw the following conclusions:

-      The countries of the former Eastern Block are currently in a class of their own where it concerns industrial growth and might even be the economic motor for Europe in the years to come.

-      In 2008, the Euro made the declines in manufacturing steeper than in the classic non-Euro countries. But in general, the Euro has been a prosperous solution for the strong Euro-countries, as it enabled those countries to recover much faster than the classic non-Euro countries.

-      The PIIGS suffered harder from the economic crisis in 2008, due to their lagging growth in the years before and cannot find the right track since then. In my opinion this should trigger the other Euro-countries to start a Marshall plan for the PIIGS, as this is the only possibility to not only let the Euro-zone survive, but to turn it into the economic motor for the world.

Whatever the UK and US say about the Euro, in theory and partially in practice it is a good solution for the countries that take part in it, with the precondition that countries must be strong and financially solid. And that is where the PIIGS failed, unfortunately.

But now it is time for EU politics to forget about the troubled start of the Euro and to show some courage towards the countries that are the wrong side of the line: the PIIGS. To get there, the Euro-zone has to go together.

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