Industrial production in February fell by a year over year 2.8% in France. Which actually looks good in comparison to a 3.8% drop in Italy and a 6.5% plunge in Spain. Meanwhile the bailout plan for Cyprus projects that the country will return to growth in 2015.
While the yield on the U.S. 10-year Treasury has moved up to 2.49% from 1.93% a month ago, the yield on the Spanish 10-yer government bond has climbed 0.31 percentage points this week to 4.9%. The yield on the Italian 10-year bond has climbed to 4.6%.
That’s indeed a big move higher in a short time but it leaves bond yields for Spain and Italy a long way below the danger zone of 6% and above
Government numbers released this morning show that Spain’s unemployment rate hit 27% in the first quarter of 2013. The 6.2 million unemployed is the highest on record. Spain’s economy contracted by 1.9% in 2012 and is projected to shrink by another 1.6% in 2013. The government of Prime Minister Mariano Rajoy is expected to respond to the slowdown and the increase in unemployment by introducing another round of government budget cuts tomorrow
Today Portugal. Tomorrow Spain? Today Portuguese Finance Minister Vitor Gaspar told parliament that the country’s GDP could shrink by 2% in 2013. That’s a huge step down from the 1% contraction that the government had been predicting
What seems to have really rattled the markets today is political news from both Spain and Italy that threatens to produce weak governments that would not be able to continue the programs that have stabilized the European debt markets. In Spain the threat comes from a corruption scandal that has already led to calls for the resignation of Prime Minister Mariano Rajoy. In Italy it’s the continued surge of Silvio Berlusconi
In news this morning Spanish retail sales fell by a stunning 10.7% year over year in December. That was worse than the 7.8% drop in November. The all time record for a monthly drop was set at 11% in September. Retail sales in Spain have now dropped for 30 months in a row. The big fall in retail sales certainly suggests that Spain did not make its target to cut the budget deficit in 2012 to 6.3% of GDP
I know all eyes are on Washington today in the run up to the 3 p.m. meeting at the White House, but spare part of an eyeball for Europe where the economic bad news points toward a renewed debt crisis later in 2013.
