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Conclusion: European Manufacturing PMI and German retail sales show a negative inflection, in line with our call for European data in August to roll. We expect a decline in consumer consumption across Europe post the exuberance of the World Cup and in response to the enactment of austerity measures that should induce individual belt-tightening and hamper confidence. Also, we continue to favorably view Germany’s fiscal austerity; however we recognize its negative impact on select industries and overall growth.


European PMI – Manufacturing

Of the 16 countries reporting PMI this morning:

  • 9 countries fell month-over month: UK, Spain, Italy, Switzerland, Norway, Sweden, Ireland, Hungary, and Turkey
  • Germany was flat at 58.2 and the Eurozone average improved only 10bps month-over-month to 55.1
  • 5 countries rose month-over-month: Russia, Poland, Czech Republic, France, and Denmark

 German Retail Sales

  • fell -0.3% in July M/M, versus a decline of -0.3% in June M/M
  • Year-over-year, sales were up +0.8%

German Austerity

Today, Chancellor Angela Merkel and her cabinet approved budget cuts and revenue-raising measures worth 80 Billion Euros ($102 Bill.) through 2014, following an initial outline in June. The draft legislation will now go to the lower house of parliament for consideration. (Upper-house approval isn’t needed).

A decision on the controversial issue of the “nuclear tax” or the tax on nuclear-fuel rods was postponed to later this month. The tax remains a contentious issue opposed by utility companies that run the country’s 17 nuclear power plants, but a possible bargaining chip to extend the running life of nuclear power in Germany.  Germany’s largest operators include:  E.ON AG, RWE AG, EnBW Energie Baden Württemberg AG, and Vattenfall Europe AG.

Expectations of the levy have sent utility stocks plummeting, including for DAX-listed E.ON AG and RWE AG, down -24.3% and -24.8%, respectively, year-to-date. 

Germany’s austerity measures include:

-Financial tax on banks of about 2 Bill. EUR per year beginning in 2012

-Air passenger tax

-Welfare cuts

-Reductions in defense spending

-Delay in the rebuilding of Berlin’s royal palace

Matthew Hedrick


Europe’s August Woes and Germany’s Austerity Bill - rolling over