Hale Stewart

About the Author Hale Stewart

Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM from the Thomas Jefferson School of Law in domestic and international taxation where he graduated Magna Cum Laude and is also a Chartered Asset Manager, Chartered Wealth Manager and Chartered Trust and Estate Planner from the American Academy of Financial Management. He is the author of the book US Captive Insurance Law. You can read him daily at the Bonddad blog (www.bonddad.blogspot.com).

Just How Sick Is The EU?


For what seems like forever (which, in reality is actually a few years) I have been extremely bearish on the EU. There are several reasons for this: their continued obsession with austerity despite the clear proof it doesn’t work, the inability to work together to solve their overall problems and the lack of overall political will. But, over the last few weeks, several statistics have been issued that have got me wondering if, in fact, the EU is going to start growing at a more substantial rate.

Let’s start with consumer credit:

While this statistic is still negative on an annual growth basis, the rate of decrease has clearly increased to the point where it is almost positive. This has occurred at the same time as a slight increase in the YOY rate of growth in retail sales:

And consider the following charts of the PMIs of the four largest economies:

Germany’s manufacturing and service sectors continue to grow, although both briefly dipped into negative territory at the end of last year.

France’s manufacturing sector continues to print numbers showing a contraction, but the service sector has had several readings in expansionary territory.

Italy’s manufacturing sector fell into contraction last year, but the latest reading was almost positive. And the services numbers has remained largely positive over the same time.

And finally there is Spain, which is firmly in expansion mode.

The downturn at the end of last year can be seen as a reaction to Russian sanctions starting to bite. But since then, the euro has continued to fall, which should add some momentum to export orders.

Of the charts, France is clearly the weakest. But its numbers are just barely negative; they don’t show a massive downward move into recession, but instead an overall malaise. On the positive side is Spain, which is clearly back in a growth mode (which it desperately needs given its sky high unemployment rate). Germany is also positive, but just barely so, while Italy is negative, but just barely so. The combination of the above charts point to a region whose growth is soft, but could easily be kicked into a higher growth mode with the right policy initiatives. And consider that, despite the talk of a “grexit,” the financial markets have been relatively calm (save for Greece’s).