Purchasing managers index (PMI) data for the eurozone continued to be awful in June, although research firm Markit reported that numbers got slightly better. The improvement was no cause for celebration. The region continues to show sign after sign that it is in deep recession. Upticks mean nearly nothing when overall circumstances are so poor. The data argues, once again, for stimulus packages for the most troubled nations, which now include every large economy outside Germany.
Markit reported on the eurozone manufacturing PMI:
The seasonally adjusted Markit Eurozone Manufacturing PMI rose to a 16-month high of 48.8 in June, up from 48.3 in May and slightly above the earlier flash estimate of 48.7. Over the second quarter as a whole, the average reading for the headline PMI (47.9) was the highest since Q1 2012. The PMI has nonetheless remained below the neutral 50.0 mark since August 2011.
The adds up to two years of poor PMI figures and offers no hope that the recession in Europe will end soon.
While arguments for stimulus grow in number, they have not caused any major change in policy among the International Monetary Fund (IMF), European Union (EU) and European Central Bank. That means that, even if stimulus arguments have started to become persuasive among this group, none has acted to press for an end to austerity measures. When the Organization for Economic Cooperation and Development (OECD) issued revisions in forecasts for most of the region recently, its management said that a worsening of the recession should be reason for a change in the approach to recovery methods. The European Commission (EC) also has started to admit that some stimulus should be applied to the economically weakest nations:
A major challenge is to tackle rising unemployment, especially youth unemployment, by increasing the use of active labour market policies or by reforming education and training systems to make sure jobseekers are equipped with the right skills for the jobs we have. More can also be done to create the conditions for businesses to invest and create jobs, including by improving competition in product and service markets and promoting investment in research, innovation and resource efficiency. Moreover, fiscal consolidation should continue, albeit at a different pace, while remaining pockets of vulnerability in the banking sector need to be addressed.
Once again, the EC opinion does not carry the necessary weight to counter the current austerity plans.
One of the hurdles to a move toward stimulus is the German national elections set for September, the results of which will determine whether Angela Merkel stays as head of the government. All evidence points to a German electorate that believes its government already has contributed more than enough to help its neighbors, although new PMI data for the Germany in June shows manufacturing has fallen off. If the recession in the EU continues, and it will, Germany may be unable to stop from being dragged in by its gravity.
Even though all information about the economies in the region continue to be very negative, the powers that be still have not set any plans to reverse the problem. That means a recovery will be years off. Austerity has not worked, and there is not one bit of reasonable support that it will miraculously start to.