Spanish and Italian car sales collapse in August

 

We knew that August would be a bad month for car sales, but nobody expected anything like this. There is consumer weakness everywhere in the euro area, but it is all so much worse in Spain and Italy, where car sales registered a dramatic decline. See the FT for a summary article. Spanish car sales fell by 41.3% year-on-year in August, a sign that the housing downturn is now affecting the real economy. Passenger car sales in France were down by 7.1% year on year. Car sales are generally considered to be a good coincident indicator of consumer sentiment.

 

 

El Pais has further details about the extraordinary contraction in Spanish car sales, which came despite a government programme to sponsor new car sales. El Pais concludes that in a time of a credit crunch, falling economic indicators, and a general consumer confidence collapse, the car drops down the list of family purchases.

 

 

Il sole 24 ore has the latest Italian car sales, which showed a 26.4% decline in August, year-on-year, and a 10% decline against July. Fiat’s car sales during the first eight month were down a little over 10% compared to the same period in the previous year.

 

 

Early indicator shows further weakness

Frankfurter Allgemeine reports that the DZ Bank euro area indicator has fallen to the lowest level since 2001. In Germany, confidence is starkly down among exporters and consumers, while the mood of purchasing managers has held up relatively well in August.  

 

 

 

A reality check for French economic policy

 

The FT reports that French PM Francois Fillon revised downwards the 2008 growth forecast from 1.7 to about 1%, in recognition of the economic downturn. The article says that France may actually breach the Maastricht deficit target of 3% as early as this year, and that this downturn would threaten to derail President Sarkozy’s economic reform programme.

 

 

A stimulus package for France

It is no accident that of all countries in the euro area, France would be the first one where public pressure towards a fiscal stimulus grows loudest. Writing in Le Monde, Lionel Stoleru sets out his idea of a base budget for 2009, plus a supplementary budget to deal with a negative growth shock. (It is always interesting to us how one can make such a detailed presentation as this, without even a reference to the Maastricht Treaty, which France is likely to breach next year, even without a supplementary budget.)

 

 

 

Euro high against sterling

It was only a matter of time until the picture of currency stability would give away to more volatility inside the EU. The euro yesterday reached a peak against sterling after comment by UK finance minister Alistair Darling who said in a newspaper interview that the crisis would be long and ugly, and the UK was facing a major downturn. See the Financial Times for more details. The forex were spook by these comments (although there is substantively nothing surprising about them except perhaps that he would admit this so openly), as a result of which the pound fell to 0.81 cents. (It was always our assumption that the British would join EMU if and when we have nominal parity.)

 

 

The limits of a current account deficit

Writing in Vox, Harald Hau and Helene Rey take a look at the sustainability of the US current account deficit, which depends on foreigners’ willingness to holding US assets. They present new micro-econometric evidence that equity funds rebalance in reaction to increased exchange rate risk. In short, there is a limit to foreigners’ holding of US assets; the US will either have to run a trade surplus in the future, or the dollar must fall to deflate the value of foreigner’s holdings.

 

 

George Magnus on the Fed

Writing in the Financial Times, George Magnus hits out at those who warn that the Fed’s monetary policies are inflationary. If that had been the case, inflation expectations should by now be much higher. Second, there is still a big risk of financial contagion. Third, consumers’ purchasing power is now eroding very fast. Forth, government activism is essential in crises based on solvency issues that threaten a deep economic downturn. Much more should be expected. He concludes that unusual events merit unusual solutions.

 

 

A criticism of supply side economics in Germany

Lucas Zeise, writing in FT Deutschland, takes issue with supply side economics, which still dominates the German political debate on economics. As the German economy falls into recession, there is no again the usual demand for wage restraint through which Germany tries to seek a competitive advantage. The German version of supply side economy is not to strengthen the supply side of the economy, but to lower the price of the factors of production. Supply side economics is not a predominantly conservative  obsession, but is pursued with vigour by consecutive Social Democrat governments.

 

 

Eurointelligence wishes to thank the Collegio Carlo Alberto for their support to help us maintain eurointelligence.com a free public service.

 

---