By Walter Kurtz, Sober Look
Here is a quick follow-up to an earlier post on Germany’s weakening economic activity. The convergence between the Eurozone core and the periphery in terms of economic growth is now clearly visible in the PMI data.
We may be looking at a situation in which some periphery nations have become a cheaper option for manufacturing (and other business activity), as companies shift some of their production out of the Eurozone core. In response, France for example is now taking steps to improve competitiveness and try to keep businesses and jobs from leaving. The latest idea is to provide tax incentives to companies, paid by an increase in VAT and cuts spending.
Under 50 means contraction (source DB)
WSJ: – A day after the release of a highly anticipated government-commissioned report that sounded the alarm on French companies’ declining competitiveness, Socialist Prime Minister Jean-Marc Ayrault unveiled €20 billion worth of tax breaks over three years that will allow domestic firms to cut labor costs.
The resulting shortfall in the government finances, equivalent to about 1% of gross domestic product, will be funded in equal parts by spending cuts and by an increase in the value-added tax. During his election campaign, Mr. Hollande had ruled out a VAT increase, a move that was strongly advocated by his predecessor, Nicolas Sarkozy.
In effect the painful periphery adjustments are forcing the core to adjust as well, contributing to the convergence.
Read Some Related Articles on Pragmatic Capitalism -
Deutsche Bank: Ignoring Food Price Pressures Could be a Mistake
Economists and central bankers tend to be less focused on what consumers pay at the grocery store because food and energy prices have historically been more volatile - remember, it's ...read more
The "Secular Stagnation" Theory is Massively Overblown
The bears on global growth have blown the "secular stagnation" theory out of proportion. ...read more
Today's (not so) Pretty Picture: The Europe vs US Divergence
No comment necessary on this one. ...read more
Update on VIX Curve Inversion
A few weeks ago, we noted the relationship between an inverted VIX curve and declines in the S&P500 (see here). Taking a longer-term view, we see that the last ...read more