CECIMO Statistical Toolbox
INTRODUCTION – CECIMO STATISTICAL TOOLBOX – April 2012
***New in this issue: glossary of key economic indicators***
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OECD’s Business Confidence Index for Europe, with its high correlation with CECIMO’s machine tool orders’ index, serves as an early indicator of the market’s sentiment. From the beginning of 2012 the index has been growing, pointing to the upcoming rebound in machine tool orders in Europe. The other market indicators do not look promising, though, reflecting the fact that the European economy is allegedly undergoing a mild recession.
Apart from BCI, few market indicators give any reasons for optimism. Decline in interest rates which was a reaction to the extraordinary liquidity measures provided by the European Central Bank proved to be a temporary relief. Markets are now afraid of the financial situation in the other indebted European countries. The uncertainty amid market participants that prevailed before Greek’s default has not disappeared.
The heavy austerity measures that Europe has embarked on hamper the economy’s ability to get back on the growth path. The policy aimed at bringing the national budgets to the equilibrium appears to be the only option. Growing unemployment coupled with high energy prices puts the demand in Europe under a sever pressure. As a result many sectors focused on the European market are suffering. One of them is the car market, which is predicted to show this year a fourth consecutive decline.
For both car and machine tool sectors, Europe remains the biggest market but it is exports which provide the vital growth. As shown in this issue of the Toolbox, Asia only has consumed last year 5 bn Euros of European machine tools. This makes up roughly one fourth of CECIMO’s last year output. Total CECIMO non-European exports accounted for roughly half of the production, which clearly shows that exports markets are as important as sales at home.
Ironically the European’s dire straits affect the markets worldwide. China, the single biggest overseas customer of CECIMO, is refocusing its economy from investments and exports to a more consumption oriented model. The shift was partly inevitable amid the post-crisis recession in the western world, the key buyer of Chinese goods. The reorientation of the world’s second biggest economy will not happen overnight. This long process could leave some sectors affected. Nevertheless the growth in China at forecasted pace of at least 8%, with a focus on the quality of this growth, guarantees that the country will remain the prominent machine tool consumer in the future.
1.2 Peter Meier’s forecast
Overall situation:
Please note that the OECD has changed the scale of some of its indicators in April 2012. The Business Confidence Indicator now ranges between 102 and 96 (rather than between 105 and 90 as before).
Business confidence has increased in all major markets. In the US and Japan business confidence hovers cautiously above the 100 points line (which means expansion). In Europe business confidence is moving upwards again and stands at the threshold to expansion. Leading indicators show a similar picture. While US and Japanese indicators have sustained their upwards movement, indicators in Europe have reached what seems to be the bottom of a trough. The stock market has calmed down during the past months, but still reacts sensitive to bad news and is expected to stay nervous during the coming months.
Overall, it seems now quite clear that the current contraction is a dent, but not a deep recession. The downturn is due to an industrial cycle. Recovery however remains slow. During the coming two quarters, the overall machinery industry might see further lateral movement. Some sectors particularly sensitive to business cycles (like Machine Tools) may be facing some further reduction, while others may already experience an increase in new orders.
Business Confidence:
The OECD Business Confidence Indicator for Europe has increased during the first quarter 2012 and stands now at 100 points, the threshold for expansion (see thin blue curve). New orders have increased during the 4th quarter 2011 (thin black curve). But the latest indicators suggest that this increase was temporary only and we expect machine tool demand to decrease in the first quarter 2012. The Business Confidence Indicator usually has a lead of three to six months to machine tool demand.
CECIMO 8 Forecast:
The demand for machine tools has increased in Q4 2011 compared with Q3 2011 (quarterly values). The short term outlook however points downwards and the coming months will likely see a decrease in new orders, which is expected to last until summer 2012. According to the latest economic indicators recovery will be slower than expected in last quarter’s forecast.
2.2 Interest Rates – EURIBOR
Market interest rates in the Eurozone declined substantially in the first quarter of 2012 following the massive intervention of the European Central Bank. The ECB has recently borrowed to the European banks more than 1 trillion Euros at a rate of 1%. Consequently the 3 months Euribor shrunk from 1.5% at the end of 2011 to 1.04% on average in the first quarter of 2012. 12-month Euribor declined from 2.05 to 1.67% respectively. Apart from increasing the money supply on the interbank market, analysts estimate that the part of the sums borrowed from ECB has been spent on buying the sovereign debt in the Eurozone, which in turn led to lowering the cost at which countries finance their budget deficits. Yet the relief was temporary. Recently the interest paid by highly indebted countries in Europe has soared again.
2.4 Industrial production
Industrial production in the EU has been gradually slowing down since August 2011. Since the decline is rather moderate, the moving average is still strong, posting 100.1 points over the first two months of 2012. From the monthly perspective, in February 2012 compared with January 2012, seasonally adjusted industrial production grew by 0.5% in the euro area and by 0.2% in the EU27. In January production remained stable in both zones. In February 2012 compared with February 2011, industrial production dropped by 1.8% in both the euro area and the EU27.
2.8 Foreign Exchange Rates
Euro weakened against major foreign currencies over the 1Q2012. As Swiss Franc and US Dollar remained broadly stable during the first quarter, Japanese Yen reversed the rising trend in March. Japanese currency reached its top value in January with the value of less than 100 Yen per 1 Euro. In March Yen was nearly 9% weaker at 109 JPY/EUR. Strong currency has been heavily affecting the bottom line of the Japanese companies, where some of them have already decided to move more of their operations outside Japan. In this case strong currency facilitates the investments in other currency zones.
3.1 Business Confidence Index
Composite leading indicators (CLIs) designed to anticipate turning points in economic activity relative to trend, continue to point to a positive change in momentum in the OECD as a whole but with some divergence between major economies. The CLIs for Japan and the United States continue to show strong signs of regained momentum in economic activity. The assessment for Brazil, India, Russia and in particular China, shows stronger positive signals compared to last month's assessment.
The CLI for the Euro area indicates a potential turning point but with diverging assessments for the four major European economies. The CLIs for Italy and France point to continued sluggish economic activity. In Germany and the United Kingdom the CLIs continue to show signs of a positive change in momentum but these are weaker than in last month's assessment, the OECD reports.
3.2 PMI Index
Eurozone manufacturers suffered a miserable March, with a renewed downturn in production wiping out marginal gains seen in the first two months of the year. Prospects for April also look poor, with companies reporting steeper rates of decline for both new orders and backlogs of work. At the same time firms saw their production costs rise sharply, largely as a result of high oil prices. Increasing numbers of firms therefore resorted to cutting employment to control costs, meaning employment fell overall at the fastest rate for two years, Markit Economics reports.
The global PMI was little changed in March and remained at a relatively low level consistent with subdued growth in goods expenditures. The growth of global manufacturing, which has been strong relative to the PMI due to the recovery in flood ravaged Thailand and the resulting restoration of supply chains, is poised to moderate as implied by the PMI.
4. MTIX
MTIX showed another increase in March 2012, regaining largely the value lost in the second half of 2011. The index bottomed out in the closing quarter of 2011 at less than 130 points. The latest value of 165 points is nearly 30% higher and reflects the investors’ confidence in machine tool sector. Many machine tool producing companies in Europe and across the world reported strong figures for 2011 despite spreading uncertainty about the future prospects of the world’s economy.
5.1 Trade
Total CECIMO exports amounted to 16.5 bn Euros in 2011, which is 30% higher than in 2010, the summary of the latest Quarterly Trade Indicators shows. The most important destination for these exports are other CECIMO countries (6.1 bn Euros) followed by Asia (5 bn Euros). Exports to Americas grew at the fastest pace (50%) with sales to the US growing by two thirds. The US plus BRICs remain CECIMO’s top 5 external customers.
Meanwhile CECIMO total imports rose by 41% in 2011 to 8 bn Euros. CECIMO countries purchased the most internally (63% of total imports). Japan and Taiwan were traditionally the most important overseas suppliers. Deliveries from both countries increased by two thirds compared to 2010. Deliveries from South Korea, CECIMO supplier no 5, grew by an impressive 139% in 2011 vs. 2010, reaching almost 300 m Euros. CECIMO exports to this country were relatively flat (8% increase).
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CECIMO Statistical Toolbox - Updated: April 2012
