Pictet’s Four Horsemen Of The Euro-pocalypse

Euro area industrial production decreased in November, for the third month running, and reached its lowest since April 2010. Indeed, industrial production fell by 0.3% m-o-m in November, worse than the 0.2% m-o-m rise expected. The October figure was revised up marginally from -1.4% m-o-m to -1.0% m-o-m.

Industrial production plunged for all periphery countries
In terms of country, the industrial production figures were mixed with 8 out of 12 countries experiencing negative m-o-m growth. It is worth noting that all periphery countries recorded a sharp monthly decrease: Italy: -1.0%, Spain: -2.5%, Greece: -1.5%, Portugal: -3.4% and Ireland: -1.1%. As a result, the rate of recovery in the periphery remains well below the average. As for core countries, industrial production increased slightly in Germany (0.1% m-o-m) for the first time since July 2012. France and the Netherlands also posted positive growth, 0.5% m-o-m and 1.0% m-o-m respectively.

Trough in Q4?
Recent business surveys (PMIs, Ifo, Insee and Isae) have confirmed a stabilisation in activity, albeit in negative territory. So there is still hope that Q1 could see some improvement in core countries, but yesterday’s result are more evidence of further contraction in Q4.

Deeper contraction in Q4
On average, October and November industrial production combined plunged 2.4% compared to Q3, significantly lower than the 0.3% q-o-q recorded in Q3. This tends to confirm our scenario of a strong contraction of overall economic activity in Q4. Therefore, we are standing by our forecast of -0.4% q-o-q real GDP growth in Q4, -0.4% for the whole of 2012 and -0.3 % for 2013 (consensus -0.1%).

Current optimism likely to be challenged by poor economic data
Despite hope of an improvement in activity in Q1 2013, the overall picture remains very gloomy, especially for the periphery countries. Without external help (ECB unorthodox measures, fiscal federalism, etc.) these countries are likely to remain entrenched in recession. As a result, doubts about their ability to service their debt are likely to resurface and therefore to dent the optimism currently prevailing on financial markets.