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Europe Could Stagnate if Periphery Follows Germany

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Europe Could Stagnate if Periphery Follows Germany

The European Central Bank let interest rates unchanged and continues to attempt to use rhetoric as opposed to action to spur on economic growth. It seems counterproductive for a central bank that governs so many countries to use hope as an economic tool. Additionally their comments with regard to inflation seem philistine as their concern over energy inflation is overblown.

Europe is caught in a deflationary cycle. Producer prices have fallen 1.7% year-over-year in February, which is the largest decline in the past 5-years. The core inflation rate which is not targeted by the ECB has been below 1% for the past 6-months. Without raising asset prices, Europe is hoping that a global rebound with lift all ships, without Europe increasing headline inflation at hope.

Thursday EU PMI was slightly weaker than expected but the periphery’s gains were offset by German losses. The German PMI printed at 53.0 from 55.9 in February which confirms what the manufacturing PMI and other surveys suggest which is that the German economy has already reached its apex. Spain’s continued to trend higher to 54.0 from 53.7. Eventually if Germany continues to falter, the balance of Europe will follow. If the ECB plans to be behind the curve, they have definitely positioned themselves correctly.

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