EUROZONE GLOBAL OUTLOOK

By Chris Anderson

Quarter 2 of 2023 started not very well for the manufacturing side of the Eurozone. Apart from Greece, all seven other EU countries had a PMI in contraction.

Greece 52.4 2-month low

Spain 49.0 3-month low

Ireland 48.6 35-month low

Italy 46.8 6-month low

France 45.6 35-month low

Netherlands 44.9 35-month low

Germany 44.5 35-month low

Austria 42.0 35-month low

In France, manufacturing production fell at the sharpest pace in almost three years in April. The demand for goods was down markedly. New orders and production fell at sharp and accelerated rates, and new export orders were down for the 14th month in succession. Germany showed modest production growth in April, but new orders continued to fall, albeit at a slower rate.

Germany In China

“The Economist’s” correspondent recently accompanied Germany’s foreign minister on her first trip to China. The visit started at Flender, the Mittelstand firm that makes parts for wind turbines in Tianjin, not far from Beijing. Germany - China business is important. China is Germany’s biggest trading partner, thus, an important destination for foreign investments in several industries that are the backbone of the Mittelstand. But as the value of trade increased for the seventh consecutive year in 2022, the bilateral deficit widened. German imports from China increased by one-third compared to 2021 to 192 billion euros, whereas exports to China rose by only 3% to 107 billion euros.

Germany needs China’s business but would also like to strike a balance between boosting the business and reducing Germany’s dependence on imports of critical raw materials from China. Some of Germany’s largest companies rely greatly on Chinese customers and suppliers. These include its three big auto companies (VW, Mercedes-Benz, and BMW), BASF in chemicals, and Bosch in car parts. BASF is investing 10 billion euros in a new production site, and VW has announced a joint venture with a Chinese firm for self-driving cars, involving an investment of 2.4 billion euros. More and more German companies are producing in China, for China.

Flender’s factory in Tianjin serves only the Chinese market. The survival of its large carmakers and chemicals firms may depend on access to China. China supplies 95% of the solar cells installed in Germany, 80% of laptops, and 58% of the circuit boards in other electronic goods. Not to mention rare earths, antibiotics, and other important medicines.

Germany and

China

are economically joined at the hip. It would take an awful lot to change that. n

JUNE 2023