Bellwether Euro economy picks up

 Austria, an entrepôt economy at the centre of Europe, is a good bellwether for the whole European economy.  It's one of the first final PMIs to be released (the other early releases are "flash" or provisional, based on available responses, usually 85-90% of the normal sample).

After a mid-year slowdown last year, it's started to rise.  It's still not above the 50% recession line, but I'm becoming more and more confident that the European economy is above to start growing again.  They will certainly need it: military spending will have to increase by 1 to 2 % of GDP.  A bit of growth elsewhere will make the pain of that less onerous.

Data through Feb 2025

Austria PMI rebounds; Europe picks up

 Austria is in a sense an entrepôt economy.  It's at the centre of trade in Eastern Europe, bordering Germany, Italy, Czechia, Switzerland and Slovakia, and close to Poland, and its economy closely parallels the pan-Europe economy.  The rebound in the PMI over the last few months is much more obvious in Austria than in Europe, which suggests to me that Europe is at last moving towards economic recovery.

What will happen with Trump throwing a spanner into the works with his sharp tariff increases is hard to tell.  But a jump in tariffs on imports from Europe into the USA will slow growth, and the response of governments and the ECB will be to roll out stimulatory measures to offset that.

Extending PMIs back in time

For many countries, the PMI indicator is very useful.  They are released on the first few days of the months for the previous month, and they give a very good idea of the business cycle in each country.  For some countries, I have PMI data going back 25 years, for others just 10, or less, either because the people who compile the PMI indicators (S&P Global) haven't been doing it for longer than that, or because I just don't have the data (you have to be a subscriber to get back data).  But if you want to analyse economic cycles, it helps a lot to have a long run of data.   

What you can do is use other business surveys to estimate back data for the PMIs.  

The chart below shows business confidence for Austria compared with the PMI data.  You can see the close correlation.

Here's a similar comparison for Turkey, where the business confidence time series goes back to 1987, but the PMI (my data) only goes back to 2012.

I'm working on similar analyses for other countries, which will allow me to include a few other countries in my small-country world PMI  ("Small 11", which will soon expand to the "Small 14")

Incidentally, the charts show that Austria's economy is falling more slowly (remember, the PMI/Business confidence surveys lead), pointing towards an upturn in Europe later this year, while Turkey's economy is slipping into recession after their Central Bank raised rates dramatically after the president was re-elected. (He wouldn't permit it before.)  Interest rates in Turkey are far from peaking.

Austria points towards deep Euro recession

 As always, the PMI for Austria is one of the earliest released for the latest month.   Austria is so embedded in the economy of the whole of Europe that what happens there is a good guide to what's happening in Europe as a whole.  

Austria's PMI fell again in July, deeper into recession territory.

S&P Global's commentary is illuminating:

Austria's manufacturing sector endured a difficult start to the third quarter, according to the latest UniCredit Bank Austria PMI® data produced by S&P Global, registering a sharp and accelerated drop in production levels alongside a nearrecord fall in factory gate charges. The decline in backlogs of work across the sector meanwhile gathered pace as demand continued to fall, which in turn led to increased pessimism among firms towards the outlook and a pick-up in the rate of job losses. 

The seasonally adjusted UniCredit Bank Austria Manufacturing Purchasing Managers’ Index® (PMI®) – a single-figure gauge of performance calculated from measures of new orders, output, employment, supplier delivery times and stocks of purchases – edged deeper into sub-50 contraction territory in July, falling from June's 39.0 to 38.8. This was its lowest reading since April 2020. The drop in the headline index reflected faster declines in output, employment and stocks of purchases. 

The rate of decline in production in July was the quickest seen for over three years. Where output schedules were scaled back, surveyed firms generally attributed this to reduced inflows of new orders and an associated drop in backlogs of work. 

A fifteenth straight monthly decline in new orders was recorded in July, amid reports of customer destocking, tighter financial conditions, weaker demand from the construction sector and general client hesitancy. Although easing slightly from the previous month, the rate of contraction remained sharp and was still quicker than that of output. Contributing to the decline in total new business was a sustained sharp downturn in international sales. 

A lack of incoming new orders to replace completed projects saw manufacturers' backlogs of work continue to fall during July. Furthermore, the rate of depletion accelerated to the quickest since May 2020.

 

[And so on .....] 

You can see from the graph in S&P Global's report that Austria's PMI is heading back towards 2009's GFC (Global Financial Crisis) lows.   Across Europe, services are still holding the overall economy up.  But only just --- and services are starting to slide too.  Not to mention that the ECB (European Central Bank) has just raised interest rates.  Again.  

Austria's PMI heading for GFC lows

 Austria's PMI for June continues to slide deeper into recession territory.  (The June PMI for Europe in the chart is provisional ("flash") and may be revised.) 

In the chart below, I have extreme-adjusted the original data.  This reduces the downward spike of the Covid crash at the beginning of 2020.  Strictly speaking, both Europe's and Austria's PMIs fell to deeper lows during the crash than where they are now, but that downturn lasted for just 2 months.  The GFC downturn lasted for nearly a year.  So my extreme-adjustment program reduces the Covid crash decline, but not the GFC and not the current decline.  Both series are now well below the 50% "recession line".

It is important to remember that it is Europe driving Austria's economy, not the other way round.  Austria's weakness is because Europe is slipping into a deeper recession.

The ECB (European Central Bank) will probably raise rates again.  It is clear to me that they have raised rates by more than enough, but it may not be clear to them.  The economy takes time to respond to changing interest rates, and its response to the rate increases which have already occurred is not yet over.

As in US data, we have seen a little uptick earlier this year as services grew because of pent-up demand after Covid.  But that uptick has faded.   Recession is deepening.

Austria's temperatures 3.5 degrees C above 1800s

 From a toot by O=C=O

#Vienna - with temperature records since 1775.

#showYourStripes

https://showyourstripes.info/c/globe

This year or next, the average temperature for the globe will have risen 1.5 degrees C above pre-industrial levels.  But that is the average, and it includes oceans.  Even though the world's seas are warming terrifyingly fast, they're still cooler than the land.  Austria's temperatures have risen 3.5 degrees since pre-industrial times.  Isn't it time to start panicking?  Why do we drift along, comatose with stupidity, phiffing and phaffing, instead of taking resolute and effective action?

Austria: PMI vs Business Confidence

 I mentioned in my last post that business confidence and the PMI in Austria are well correlated.  

Here's the chart.

click on image to see it more clearly

Austria's PMI slumps to a new low

As I've mentioned before, the state of Austria's economy gives a good guide to how the whole of Europe's going.  Exports equal 56% of Austria's GDP.  If manufacturing is slumping in Austria, it's mostly because Europe is sliding.  Compare the difference here with large continental economies like the United States. 

After extreme adjustment, Austria's PMI is now lower than during the Covid crash.  That's because my extreme-adjustment algorithm regards a downward spike lasting just 2 months as an aberration (outside the 2 sigma limit for the error term, if you want to get technical).    Business confidence, which, as you'd expect, correlates reasonably well with the PMI, recovered in December, January and February, paralleling the bump in the PMI, but fell again since then.   

I remain convinced that there will be a European recession.  We've had a mini bounce in the European economy, and that's now over.

[See also Austria: PMI vs Business Confidence]

Click on chart to see a clearer image.

Austria's PMI falls again

 As I've commented before, Austria is an entrepôt economy, at the centre of Europe.  If Austria's PMI falls, it's pretty likely that this reflects weakness in Europe as a whole.  We have Austria's April PMI (down) and Europe's provisional (flash) PMI for April (also down).  I've no doubt that the final PMI for Europe will confirm the provisional estimate.  The brief rebound is over (though not in services, not yet).

Europe makes up ±18% of the world's GDP.   The other biggies are the USA (21%) and China (these days, prolly ±15%, though the data are rubbery---I need to revise the weights I use.)  China's post-covid rebound appears to be fizzling.

Click on chart to see clearer image.

Austria PMI falls in March

 The PMI for Austria is the first release of "final" PMIs each month.  Its importance isn't because it's a large economy: it makes up just 0.5% of the world economy, and about 2.2% of the EU economy.  It's an entrepôt economy, in a sense, a sort of "canary in the coal mine".  If Europe does well economically, so does Austria, and if Europe slumps, Austria does too.  So the fall in Austria's PMI is significant.  (As it happens, the "flash" PMI for Europe fell in March too.)  

Europe's 'recovery' stutters

 As often, Austria, a European entrepôt economy, is strongly correlated with overall Euro Zone economic activity.  A little uptick in economic activity has stuttered.  Even though natural gas prices have plunged, Europe is starting to respond to the ECB (European Central Bank)'s monetary tightening.

Austria's PMI is the actual number for February; Europe's is the "flash" (preliminary) estimate.

Austria PMI good indicator of Euro econ

 Because Austria is an entrepôt economy, at the heart of Europe, its PMI has a good correlation with overall European industrial production.   

Austria's PMI strongly correlates with Europe's PMI.  So far, we only have the provisional estimate of the EURO zone's PMI, but I have no doubt its sharp decline in August will be confirmed when the final numbers come out.

More PMI slippage

 Austria's PMI comes out a couple of days before Europe's.   It fell in May, and Europe's 
flash" estimate did.  It's well correlated with Europe's PMI, because it is an entrepôt economy which is embedded in Europe, and because like Europe it depends on international trade.  As such, the key is the rise in inflation, which is affecting demand.  Bank Austria's/IHS Markit's headline was: Manufacturing sector continues to lose momentum as sharply rising prices hit demand 

Central Banks can either ignore this rise in inflation, arguing that it is temporary, or they can tighten policy against it.  I'm sure that this rise in inflation is more permanent, because of the breakdown of supply chains due to Covid and war.  Even if it isn't, rising inflation will reduce real incomes, leading to a recession.  And if CBs respond to inflation by upping rates, that will also lead to a recession.  The last time we had commodity prices rising this strongly (and it's not just fuel and gas; it's also food prices) in 1972/73, we had a deep recession in 1974.  It's going to be an interesting ride.

Euro economy comes off the boil

 The Austrian PMI comes out first among Europe's PMI.  It's well correlated to pan-Europe's PMI which is logical given its economy's entrepôt nature.   Remember that the PMI is a diffusion index, i.e., it's closer to a rate of change than a level.  In other words, even if the PMI  is declining, the economy may be advancing, just more slowly. 

Austria's PMI fell in October, as did the provisional ("flash") Euro PMI.  Key factors according to IHS Markit: 

• slowest rise in new orders since January
• longer lead times on materials and components
• output price inflation hits a new record high as cost pressures intensify.

We are still not back to "normal" after the Covid Crash.  And normal will mean slower growth than we've seen over the last year, so expect Europe's PMIs to drift lower over the next few months.

Austrian bellwether

As I've mentioned before, Vienna, a former imperial capital, and centre of numerous trade routes in Europe, is an entrepôt city, so Austria's PMI is a useful early indicator of the state of the European economy.  The country's PMI fell in March to levels after tentative signs of an upturn.

A little uptick in Austria's PMI

As I've mentioned before, Austria is an excellent guide to the pan-European economic cycle.  In August, Austria's PMI ticked up, mirroring the uptick in the preliminary ("flash") pan-Europe PMI.  Is this the beginning of an upturn?  Most likely not:  US stimulus has just started; European stimulus hasn't started, and anyway, there's little that they can do given that the ECB's discount rate is zero; China is still slowing (the text accompanying the news release of the Austrian PMI says new orders fell again, as did export orders, while the order backlog is falling faster than at any time since 2009); the trade war is biting. 

Euro econ slides again in July

The first real (as opposed to prelim/"flash") PMI we get for Europe is for Austria.  It correlates very well with the pan-Europe PMI, which is what you'd expect given the entrepôt nature of Vienna/Austria's economy.  It's pretty clear that Europe is still slowing.  There were some signs of a dead cat bounce in Europe a couple of months ago, but that's fizzled.  Both PMIs are well below the recession line, i.e., where more than half respondents say that their sales/production/employment/new orders are below last month's.

Still sliding

I've mentioned before how entrepôt economies, such as Hong Kong, Singapore, and Vienna  accurately reflect the economies of their region.   To all intents and purposes, Austria is tantamount to Vienna.  And Austria's PMI fell again in June. 


We have the provisional PMI for the whole of Europe, for June, which had a tiny uptick, and has been flat for a couple of months.  This might suggest that the end to the European slowdown is in sight.  I don't think it is, because monetary policy hasn't shifted and fiscal policy is constrained.  On the other hand, the Euro has fallen against the US$, and that will provide some stimulus, with a delay (that fall has recently stopped). 

The fit between the Austrian and pan-European PMIs isn't exact, but its continued decline is a pointer towards a further slide in Europe's economy.

Austria points the way

I've talked before about how entrepôt regions or cities reflect the economies of the regions and countries they service.   Austria is linked into all its surrounding economies, and faithfully reflects economic shifts in them.  It's a classic entrepôt region.  So a continued decline in Austria's PMI points very clearly towards continued European recession.   (We have the preliminary PMI for Europe, which is down, but not the final figure, which won't be released until June 3rd) 

We're heading back to the lows of the Euro crisi in 2012.  Only this time, there's no crisis.  Not good.

Austria April PMI down again

We have a "flash" (i.e., partial) estimate for pan-Europe PMI, which ticked up in April.  But Austria's PMI, which correlates very well with the PMI for Europe as a whole, fell to new lows in April.  It'll be interesting to see whether the uptick in the "flash" estimate is revised away when the full data set becomes available.  Austria's PMI is now below 50%, indicating that recession has begun.  Europe's PMI has been below 50% for a couple of months now.

For what it's worth, I don't think the European slowdown is ending.   Momentum is down, the US and the rest of the world are slowing, and any moves by the ECB haven't yet had a chance to work.