A hopeful start to 2012 has been belied. The West is slipping back into recession, as Table 1 shows. The US and Germany remain strong, but many other powerhouses — even the UK — have begun to contract. And, as Table 2 makes clear, there is little hope for a recovery soon. The Purchasing Managers’ Index (PMI) for the euro zone, for example, are solidly below 50 for both manufacturing and services — even for German manufacturing. A PMI below 50 indicates a contraction; it is clear that producers’ sentiment across Europe is still very weak. A rally seems unlikely.
The US’ numbers appear more healthy, but its recovery is slowing, too. Jobs growth had begun to look healthy but, as Table 3 shows, has tailed off sharply in the past few months – especially in April. Meanwhile, the problems associated with peripheral euro-zone countries like Greece are spreading. The UK’s and Spain’s fiscal deficit-to-GDP ratio — as shown in Table 4 — are worrying investors. And Italy and Portugal have debt-to-GDP ratios that are similarly of concern, as Table 5 indicates. (Click here for tables)
As it becomes increasingly clear that these problems are not going away, an initial decline in sovereign bond yields for Spain and Italy — following solid support for their banking systems from the European Central Bank — has ended. They are now, as Table 6 shows, back near the dangerous 6 per cent mark.
For India, the continuing weakness of the West is a very real problem. Its own external vulnerability increases along with its imported fuel bill; exports have not kept up with the increase in imports. As Table 7 documents, what appeared to be a steady increase in exports in 2011 has now stagnated. With no end to the North Atlantic crisis in sight, strong export growth might be too much to hope for.