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Bumpy Ride Ahead in Europe & Elsewhere

If you're doing business in Europe, you may want to brace yourself. We're still in for a bumpy, uncertain ride.

News coming out of Europe this week is anything but happy. In addition to dealing with stock slides stemming from talks led by Germany and France to save the crisis-wracked EU from further debt problems, manufacturers may find themselves hyperventilating into paper bags over the PMI report for October.

The Markit Eurozone Manufacturing PMI report led with this piece of information: “Eurozone manufacturing downturn accelerates in October.” This is what followed in quick succession:

  • The October manufacturing PMI came in at 47.2, below the 47.3 estimate. That index is at a 28-month low and has remained below the neutral mark of 50.0 for three months.
  • Job growth weakened, with employment rising only in Germany, France, and Austria.
  • Signs of weakness are becoming increasingly apparent in the core nations, and the periphery remains mired in recession.
  • The PMI for German manufacturing, one of the main drivers of the earlier recovery in Europe, indicated contraction for the first time since September 2009.

A report from Reuters made it clear the slowdown is not specific to Europe. Other regions are also feeling a slowdown, according to the report. “The world's manufacturing economy stagnated in October with the crisis-wracked euro zone by far the worst performing region, according to a business survey that showed new export orders declining at the fastest pace in almost two-and-a-half years.”

A blip of hope that came in the form of an announcement from the Semiconductor Industry Association. Chip sales are “tracking 2.2 percent above 2010 levels,” the group said, and worldwide third-quarter sales jumped by 3.5 percent from the second quarter.

However, a closer look at the charts showed that Europe's semiconductor sales fell into negative territory. September sales rose 2.1 percent from August but fell 3.1 percent from September of last year, and three-month moving average sales slipped 2.4 percent.

Yikes! Here we go again, huh? Maybe we had expected to see this kind of dip and a return to manufacturing contraction. Signs have been pointing that way for a while. But actually seeing proof that Europe is falling off a proverbial cliff again — just barely after some regions had a fleeting but sweet taste of better times — is disheartening.

Now that companies like STMicroelectronics have reported a down quarter, and {complink 4267|Royal Philips Electronics NV} is trying to get on track with a significant restructuring, we can only cross our fingers that others, such as Infineon and Siemens, will report better financial results in the coming weeks. It's not likely, but I suppose hope dies hard. (See: ST’s Q3 Results Signal Broader Market Problems and Questions for Philips.)

Of course, Europe isn't alone in this dire state. The trend stretches across oceans and spans continents. Misery may love company, but that's getting to be an old excuse in a global community where extraordinary things happen all the time. Stable markets are falling, and many business leaders, politicians, economists, and citizens are at a loss to find viable and sustainable solutions. Bailouts, layoffs, reorganizations, and demonstrations from Puerta del Sol in Madrid to Occupy Wall Street in New York only go so far in actually bringing about change.

How will the technology industry — known for creating things we all fall in love with — re-engineer itself out of this one?

7 comments on “Bumpy Ride Ahead in Europe & Elsewhere

  1. FLYINGSCOT
    November 3, 2011

    It was only a couple of weeks ago that USA was reporting that we were definitely not going into recession again and that the green shoots were clearly visible.  Now we are all back to doom and gloom.  I also read this week about how trading firms pay extra for the fastest comms lines so they can buy and sell in milliseconds (I repeat milliseconds) and thus benefit from the smallest market swings.  This practise of course results in making the swings more severe and adds fuel to the flames.

  2. Ariella
    November 3, 2011

    Yes, one of the things enabled by technology is to place transaction at such a precise time to take advantage of the slightest movement. But such forms of trading, while they make money for the firm or its clients, are not necessarily good for the economy.

  3. Anand
    November 7, 2011

    “a closer look at the charts showed that Europe's semiconductor sales fell into negative territory.”

    @Jennifer, Surprised to see +ve growth in Japan's “Month-to-Month” and “Three-month-moving-average” sales number. Any particular reason for this growth ? How long do you think Japan can sustain this growth ?


  4. Jennifer Baljko
    November 7, 2011

    Agree to some extent.. the US economy seems to have some bright spots, but in an interdependent global economy it's hard to say how long that will hold or what will wag the tail. Despite stock trading practices, though, many global economies still haven't settled firmly into a long-term recovery period. If Europe's performance is still swinging off balance, US-based companies that have operations here will also feel a pinch a few quarters out.

    Here's an updated report from Reuters talking about some of this

    http://in.reuters.com/article/2011/11/04/us-markets-global-weekahead-idINTRE7A33RY20111104

  5. Jennifer Baljko
    November 7, 2011

    Hi Anandvy,

    Thanks for the question, and for mentioning Japan's growth. I haven't been tracking Japan's  particular situation lately as I'm following Europe more closely than Asia. I'm hesitant to speculate without researching it more. In the meantime, you may want to direct this question to EBN Asia Time's Marc Herman as he's following the region more closely. 

  6. Anand
    November 7, 2011

    @Jennifer, thanks for the response. I will try to contact Marc Herman to get insight into Japan's growht.

  7. Ms. Daisy
    November 8, 2011

    Jennifer, what do you feel will be the impact of leadership changes in Europe on the supply chain? First Greece now Italy, should we be hopeful or head for the hills?

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