ECB facing Continental conundrum over diverging recovery prospects

The gap is widening between the pace-setters and the laggards in the race to European recovery, according to the latest European edition of the Business Trends report from accountants and business advisors BDO LLP.

Both the German and French Business Trends output indices are above the critical 95.0 mark, suggesting increasing output and signifying that these markets are advancing on the road to recovery. This contrasts with the output indices of Italy and Spain which register 87.7 and 92.0 respectively; signalling continued contraction for these economies.

Spain is failing to return to growth as the collapse of the property sector continues to dampen economic performance.  Alongside this, new industrial orders continued to fall in August by 0.2 per cent, following a 2.5 per cent decline in July.

In contrast, France’s balanced economy has left it less exposed to the downturn, and early indicators suggest it is advancing towards recovery.  The Output Index increased to 95.1 from 90.7 over the last quarter, showing short-run turnover expectations have rallied considerably. 

Peter Hemington, Partner, BDO LLP commented: “Although the Eurozone’s recent rate of recovery has outstripped that of the UK, the ECB has a tough balancing act on its hands. 

“The big challenge will be to find a way forward that balances the need for a tight monetary policy for the likes of Germany and France, with the much looser policy needed by Italy and Spain as they take much longer to drag themselves out of recession.”

- Ends –

Note to editors: 

The BDO Business Trends Report Indices are calculated by taking a weighted average of the results of all the UK’s main business surveys carried out during the last month.

The Euro area indices are calculated by taking a weighted average of the results of the Europe’s main business surveys. They incorporate the results of the German IFO surveys, French INSEE surveys, Italian ISAE surveys, plus the main business surveys from the Austrian WIFO, Belgium National Bank, Spanish MCYT, Greek Foundation of Economics and Industrial Research, Irish Economic and Social Research Institute, the STATEC survey from Luxembourg, the Confederation of Finnish Industry and Employers, the Dutch central Bureau of statistics and the Portuguese INE surveys as well as the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services for Europe.

Methodological notes:

The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the centre for economics and business research (cebr).

Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.

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Email: laura.gainsford@bluerubicon.com