Courtesy of The Automatic Earth.
Natl Photo Mailman with “The Flying Merkel” motorcycle 1915
I don’t want to make it a habit to talk about other people’s writing, I don’t find that terribly interesting, but after yesterday’s In The Lie Of The Beholder, please forgive me for doing one more.
This morning, two reports came out of Europe that look pretty bad. Germany’s June manufacturing data fell 3.2% month-on-month (4.1% on exports), and Italy fell back into a recession. So you would think that finance writers try to explain to their readers what is going on, and what the consequences, for them, for the world, could be. CNBC’s Katy Barnato, however, chooses an entirely different path:
Germany Stumbles But Not ‘Canary In The Coal Mine’
Weak manufacturing data for Germany has heightened concerns that the country is losing economic steam, hit by an aggressive Russia …
Not wasting any time to start bashing, and on unfounded grounds: as we’ll see, weak German manufacturing in June had very little, if anything, to do with Russia. But the tone is set.
… and a slow recovery in the euro zone. German manufacturing orders fell 3.2% month-on-month in June – the largest decline since September 2011 – while the annual rate slumped 2.4%. This was worse than expected, despite warnings from the country’s central bank, the Bundesbank, that the economy had stalled in the second quarter. Business confidence data and forward-looking indicators have also suggested a softening trend.
The economy stalled in Q2, April, May, June. That is, before MH17, and before the stronger sanctions. Confidence data and forward-looking indicators suggest a softening trend.
Manufacturing orders from abroad fell 4.1% in June, which the German Economy Ministry linked to sanctions against Russia amid the Ukrainian crisis. It cited “geopolitical developments and risks” as the dominant factor in the “clear reticence in orders”.
That makes little sense. The pre-MH17 sanctions wouldn’t have been strong enough to cut manufacturing orders by anything close to 4.1%. By now I’m thinking the author – and not just her – tries to skirt the real issues. Note that orders both from abroad and from inside Germany fell, the latter a bit less than the former.
“We have had the Malaysian airlines tragedy and the escalation of sanctions since then (June) – so it is reasonable to assume that the geopolitical impairment to business activity may well get worse still before it gets better,” said Derek Halpenny of Bank of Tokyo-Mitsubishi in a research note after the data was released.
The “geopolitical impairment to business activity” may get worse, or it may not, but we were talking about the June manufacturing data. The author tries to lead the reader away from her topic, and towards “something else”. And continues with that:
In July, the European Union and the U.S. announced new penalties against Russia, including barring its biggest state-run banks from raising finance in the West’s capital markets. Europe has also banned selling arms to Russia, along with certain types of oil exploration technologies. German companies including Adidas and Lufthansa have already complained about the impact of Russia sanctions on their business. Russia is also the principle source of energy for Germany, with 31% of its gas imports coming from the country.
We know about the gas imports, but they have absolutely nothing to do with June manufacturing data. The imports were never in danger, and they didn’t get more expensive.
Germany also has the highest exposure to eastern Europe among the larger euro area countries, exporting around 15% of its goods to the region, although exports to Russia account for only 3.3% out of this, according to Societe Generale. “In this sense, Germany is not the canary in the coal mine, unless the sanctions indirectly also hit on eastern Europe more broadly,” said Societe Generale’s Anatoli Annenkov in a note on Tuesday. “This also explains the German government’s decision to stop a defense contract worth €120 million ($160 million) this week, suggesting confidence that sanctions will not hurt the economy materially in the medium-term.”
Now we may be getting somewhere. Demand in eastern Europe may indeed have faltered (unrelated to Russia, sanctions or the plane crash). A $160 million contract is peanuts, and probably elected because of that: full publicity value (defense contract!), with little money involved.
NOTE: Placing Russia in eastern Europe in just plain strange: “exporting around 15% of its goods to the region, although exports to Russia account for only 3.3% out of this.”
Moreover, if the author herself contends that Russia accounts for just 3.3% out of the 15% of German exports that go to the eastern Europe “region”, then what part of the 4.1% OVERALL export manufacturing slump can possibly be blamed on Moscow?
Concerns are rising that Russia will retaliate against the sanctions, however – a prospect that Annenkov and some other economists warned was more problematic. A Russian business newspaper reported on Tuesday that the country was considering banning European airlines flying through Russian airspace, and Moscow has already begun to target iconic Western food brands, including McDonald’s. “In our view, the direct impact from the sanctions on Germany will be rather limited. It is rather the possible reaction from Russia, which could affect German growth in the second half of this year,” warned ING Economist Carsten Brzeski in a note on Wednesday.
Dear author, all this may or may not be, but this is forward looking, and you still haven’t done anything to explain why German June manufacturing data fell.
In addition, Wednesday’s figures showed Germany suffered a 10.4% decline in orders from the euro area in June. “Today’s data shows that downside risks for the German economy do not only come from geopolitical tensions but also from longer-than-expected weak demand from euro zone peers,” said Brzeski.
Hold on, the author merely waited until the last paragraph, after an almost entire article full of innuendo, Russia bashing and confused and confusing dates and data, to reveal to her reader what is really happening. That reader by then already has such a head full of everything suggested – but not true – that the actually relevant information – mostly – escapes him/her. And it’s not as if a 10.4% decline in orders from the euro area in June is some small additional detail either, it’s the only piece of data that explains the falling manufacturing data.
This risk was highlighted on Wednesday by disappointing gross domestic product (GDP) data for Italy. The euro area’s third-biggest economy contracted by 0.2% quarter-on-quarter between April and June. “Italy’s provisional GDP data provide a timely reminder that the euro zone economy is still deep in the mire,” said ADM ISI Chief Economist Stephen Lewis in a note.
And there we go: the author knew all long what is relevant, and what isn’t. She just chose to hide the real data behind a wall of nonsense. The Eurozone is “deep in the mire”, Italy’s in a recession, the demise of Espírito Santo may cost Portugal, as we saw yesterday, 7.6% or so of its GDP, France – the EU’s 2nd economy – is doing very poorly, Greek bank stocks fell off a cliff today, etc. etc.
But apparently one can focus on other issues, especially if one doesn’t know, or chooses not to know nor mention, that any June data were subject to the first, weak, batch of sanctions only. Author, author!
That things can be done differently is shown by, of all places, the Daily Telegraph today. Same topic, same data, same look on life, but a completely different article.
Second Fall In German Factory Orders As Eurozone Flags – But Don’t Blame Russia
After what was dismissed as an irregular drop last month, Germany’s factory orders have seen another surprise fall in June. But the downturn has not been solely down to German exposure to ongoing tensions in Russia and Ukraine. Much of the poor performance is explained by crumbling demand from eurozone peers. Evelyn Herrmann, European economist at BNP Paribas, said that “the weakness was mainly driven by orders from within the eurozone” which fell by 10.4% in June.
Non-eurozone orders were stagnant in that month. Ms Herrmann said that overall the data “was very soft” and raises concerns about “the loss of steam in the German manufacturing sector”. The monthly data series is historically volatile, but Ms Herrmann said that “the bulk of today’s downward surprise is likely to be more than noise”. The powerhouse of the euro area, Germany saw total factory orders plunge by 3.2% in June, their worst performance since September 2011. That follows a 1.6% fall in May, according to data released by the Bundesbank this morning.
In both months, analysts had been expected to see growth in factory orders. Ms Herrmann said that “market consensus and us had expected a dull, but at least positive 1% rebound” in June after May’s weakness. Berenberg’s chief economist Holger Schmieding said that even before recent escalations over Ukraine that eurozone companies “were probably applying some extra-caution in their investment decisions”.
Mr Schmieding said that this “Putin factor”, and the introduction of even soft sanctions “probably raised alarm bells in many boardrooms” as firms prepare for the possibility of escalating tit-for-tat sanctions. Up to May, much of the weakness in second quarter data could be attributed to a particularly mild winter, which saw a downward bias introduced to the second quarter’s seasonally adjusted data. “This effect really should have faded in June,” said Ms Herrmann. Germany’s domestic orders were also weak in June, off by 1.9% after a 2.4% decline in May.
How simple do you want it? Or should I say: how hard was that, Ms Barnato? I know, I know, the Telegraph can’t help itself from bringing up the “Putin factor” either, but at least they start off with the relevant info, instead of hiding it on page 16, next to the obituaries. And only then do they veer off into insinuations and conjecture.
