Global manufacturing momentum may revive over coming months – see previous post – but not with any help from the Eurozone, where leading indicators look increasingly grim.
The first chart shows six-month growth of Eurozone industrial output together with a forecasting indicator derived from the OECD's leading index. The indicator has been negative for some time but recently took a further turn for the worse. Current weakness looks ominously similar to late 2007 when output was still expanding but a recession loomed.
Shorter-term indicators confirm a significant loss of momentum. The earnings revisions ratio (i.e. the number of upgrades to company earnings forecasts minus downgrades expressed as a proportion of the number of analyst estimates) moved deeper into negative territory in June, reaching its lowest level since July 2009. The ratio correlates closely with the PMI manufacturing new orders index, which may soon slip below the 50 breakeven level – second chart. Of the major economies, Italy posted the weakest reading this month but downgrades are now dominating even in Germany.
