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Europe’s Imbalances Widen


While the latest European PMI is showing some improvement it has become apparent that imbalances are growing ever-greater in the zone:

Germany – output grew at the fastest rate for just over a year- and-a-half – contrasting with ongoing downturns in France, Italy and Spain. Output in France fell at the steepest rate of these four countries, registering the fastest monthly decline since March 2009 and causing the gap between the headline indices for France and Germany to increase to the widest in the survey history.

This harps back to the original issues within the Eurozone, in which German domestic policies were a major catalyst for imbalances that began to grow after the adoption of the euro. As I mentioned again earlier in the week, France was always vulnerable under the fiscal compact given the structure of its economy, and the latest PMI data shows that is now coming home to roost:

Final Markit France Services Activity Index(1) at 43.6 (45.2 in December), 46-month low.
Final Markit France Composite Output Index(2) at 42.7 (44.6 in December), 46-month low.

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