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Industrial Output Increases for Major EU Economies but Not the Weakest

June 16, 2011
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By now, it is pretty clear that Greece is in a fairly desperate situation, as it is negotiating a second bailout and protesters have taken to the streets of Athens (for a comprehensive roundup of yesterday’s events, visit the BBC’s report and NPR story).  At the same time, the Greek Prime Minister has decided to force a confidence vote on the austerity measures, as support for them has collapsed.  The Economist has decided that Greece will eventually have to default and the Euro fell 1.5% today to €1 = $1.4088.

Source: Eurostat

Coincidently, Eurostat recently released the latest data on industrial output across the 27 EU member states (while many countries have reported their April 2011 numbers, since some are missing, I will stick with the complete March 2011 data) and it shows some striking trends.  Figure 1 above shows two sets of data.  The blue bars represent industrial output standardized compared to output in 2005 (i.e. a country’s 2005 output equals 100).  For both the Eurozone and the total EU, output has barely risen above 2005 levels (the numbers are 101.4 and 101.3 respectfully).  In fact, both sets of countries did not even reach 100 (i.e. 2005 levels) until November 2010.  Furthermore, the discrepancy in growth is huge across the EU, as Slovakia’s output has risen to 151.8 while Greece has dropped to 78.7.  This means that Greece’s output is barely more than three-quarters of its output six years ago!

Admittedly, most of the countries whose output is still significantly above 2005 levels are post-communist countries whose economies had been booming before the start of the Great Recession and this blue bars hide some of their troubles.  For instance, while Poland is the only EU member not to experience a recession, Romania is just coming out of a severe recession itself (it had even borrowed money from IMF just to be on the safe side).  Similarly, Estonia’s economy was growing rapidly, shrank rapidly between 2008 and 2010, but is now growing again.

The red dots in Figure 1 compare March 2011 industrial output with that of one year ago, and again the data is not encouraging.  Of the three countries who have received bailouts, all had negative industrial output growth in March 2011, with Greece falling 7.9%.  Figure 2 (below) shows the change in Industrial output for a select group of EU members for November 2010 through April 2011.  This chart shows that industrial output growth for the EU and the Eurozone is still growing, although there has been a consistent slowing since November.  Also, the three largest Eurozone economies (Germany, France, and Italy) have seen continuous growth during this period, helping them recover (although both France and Italy have not yet returned to 2005 levels).

Source: Eurostat

As for the “PIGS” (Portugal, Ireland, Greece, and Spain), the data is less encouraging.  Ireland stand outs as it has seen strong growth except for March 2011.  Strangely, it announced its bailout in November, and that month industrial output grew by 17.1%.  This supports the claim that while Ireland’s finances are still in trouble, much of the underlying economy is sound, but the housing bubble just overwhelmed the rest of the economy.  The indices for Spain and Portugal are less encouraging, as their growth rates have been negative the last two months (Portugal received its bailout in early April 2011).  In addition, these economies now have the additional problem that European consumers are now shying away from Spanish fresh vegetables.  And then there is Greece, where industrial output has declined every month for the past six months.  Figure 3 compares the “PIGS” for the last year using the 2005 base year methodology.  As a result, it does not look like Greece will be able to pay for its debts for a while unless the economy starts to make a major turnaround.

Source: Eurostat

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