Hope for Turnaround in Europe

Markit experts commented that the numbers indicated a 0.3% improvement in gross domestic product (GDP) for the first quarter. They also mentioned that the huge trillion-dollar bond-buying plan of the European Central Bank should push the recovery ahead more. Falling oil prices should also add more power to the recovery, although that was not central to the Markit analysis.

The odd thing about the improvement is that it was partially driven by the PMI of Spain and Italy, which until recently were causes of grave concern. Germany also contributed. However, as the strongest and largest economy in Europe based on GDP, its advance should not be unexpected.

Germany’s services PMI reached 54 in January. The Italian ADACI hit 52.2. The business activity index in Spain reached 56.7. The only disappointment was France, where the number was 49.4, a signal of contraction.

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U.S. companies have become anxious about Europe, particularly multinational companies that rely on countries in the eurozone for a large portion of their sales. As the American firms have made 2015 forecasts, trouble in Europe has been a marker for caution about earnings this year.

The PMI numbers from Markit, however, do not mitigate the fact that unemployment in some parts of Europe are in the double digits. In Spain and Greece the figure in close to 25%, with youth unemployment about double that. Even with strong PMI trends, it will take years for demand for goods and services to drive these numbers to “normal” levels.

There is also a debate about whether austerity has strangled a recovery in the past two years. Certainly the political shift in Greece means austerity measures may be strongly opposed by Europe’s financially weakest nations. Nearly 100,000 people in Spain recently gathered to protest the effects of austerity measures there. If the theory that a loosening of austerity measures will help economic growth, the January PMI data show there is a recovery foundation to start from.

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