Expectations have been pretty high that the lower value of the Euro versus the U.S. dollar and some other current economic trends were going to make a real difference in Europe. As it turns out, that impact has not really manifested as yet. Thus far, an market reaction has not been enough to offset the other problems, which is setting off another round of soul-searching analysis from economists and policy-makers struggling to devise a plan for Europe to exit these persistent doldrums.
The flash version of Markit Economic’s Purchasing Managers’ Index (PMI) brought bad news this week. The overall Flash Eurozone PMI, of which final statistics for the month are due in two weeks, slipped to 53.5 from 54, and most of that erosion can be laid on France. Last year was an unmitigated disaster for French economic growth and there has been some expectation that 2015 would be better. However, the level of the French PMI has fallen to 50.2, dangerously close to contraction territory.
The rest of the EU had hope that the Germans would gain ground as the euro lost value and made their exports cheaper. The problem for Germany and a Europe that, as a whole, relies upon German success, is that many of the nations it traditionally exports to are in trouble as well--that affects demand. The United States is far from the only country that moves Germany’s needle.
Europe faces a major dilemma. It is simply not clear what the EU can do to break out of the pattern of the last few years.
- Chris Kuehl, Ph.D., NACM economist