EU Indexes: Germany Lags/Italy Leads

In March, the overall EU Commission index of activity in the EMU rose to 96.3 from 95.5 in February, posting its strongest value since December. March saw gains (or no change) in all five major indexes, a change from February when three of the five sector indexes fell. Also in February, 11 member countries showed declines in sentiment month-to-month compared to only 5 member countries showing declines in their March indexes. The breadth of month-to-month performance improvement in March is more impressive than where the gains have taken the various country or sector indexes compared to historic values.

Around mid-2020, Italy emerged as having the strongest reading among the four largest economies in the monetary union. Conversely, Germany, beginning around mid-2023, began to lag and has consistently been the weakest economy among the major 4 since that time.

The sector chart seems to show quite different results than what we see from the chart at the top that looks at the four largest economies and how they are progressing. The four largest economies tell a tale of stabilizing and improving economic performance apart from Germany. German performance has been weakening, but across recent months it has stabilized.

In contrast, when we look at total community-wide sector performance, we see ongoing improvement only from consumer confidence. It has been moving up steadily since late-2022. The service sector, which is a particularly important sector of the economy and the source of job growth, has been relatively flat. It reached its lowest point in the recovery cycle in late-2022 and it improved but since then it has faltered and fluctuated and currently is riding only the most minor of discernible uptrends. Declining since late-2021- and still weak- is the industrial sector; it hit its lowest post-Covid low after mid-2023 and made a very minor rebound. It has been stuck near its lowest reading. For retailing, activity bottomed out around late-2022, made a rebound that has since eroded and has continued to erode. Construction shows continual erosion from late-2021 with only a vague tendency towards stabilization from late-2023 to date but currently it's riding a slight downtrend.

Taken together the sectors are not very reassuring; even consumer confidence that has the clearest uptrend is only back to a very weak standing, at its 23.9 percentile, looking at it in broad context. The service sector, which is extremely important, is showing more stability since swooning in middle to late 2022, but it still is only registering a level of activity that would be weak by the standards set prior to COVID. The standing for the service sector is at its 45.9 percentile, below its historic median. The only sectors above their longer run historic medians are construction and retailing and they are still riding weakening trends.

The headline of this report shows that there's a rebound of sorts underway over the last few months. However, the standings of the sectors and the countries as well as of the overall EMU index make it clear that activity within the European Monetary Union remains weak; while it may show some sign of life, it isn't showing any sign of vigor.