Blog: Dave LeggettEurope – are things better than they look?

Dave Leggett | 30 June 2011

Rioters on the streets of Athens, severe looking austerity packages, mountains of sovereign debt and talk of Lehman-style contagion risks to the banking sector are all casting some gloom in Europe at the moment. But are things really that bad? A couple of things lead me to ask that question.

One is the apparent strength of the euro currency (although there was a blip in May, it recovered in June and has appreciated around 8% versus the British pound since the beginning of the year - which, granted, perhaps says something about Britain's economy too...). It is maybe a little surprising given events in Greece that the euro is as strong as it is versus other currencies. Why would that be?

A major part of the explanation seems to be in the export-driven strength of the German economy. It is something of a contrast with what is observed in some countries, but the northern part of the EU is performing pretty well economically and is pulling much of the euro-zone with it. In June, the IMF raised its growth forecast for the euro area this year while lowering it for the US, Britain and Japan. The European Central Bank has already edged interest rates up and that will bring capital inflows that support the currency (Chinese with their huge reserves also reckoned to be preferring euros to dollars right now).

There is also some evidence that the European economy isn't doing too badly in the latest commercial vehicle sales data issued by ACEA. Some analysts view CV sales as a better indicator of what's going on in the 'real' economy of goods and services than car sales. The numbers look pretty strong this year.

Also, the European car market will likely be flat this year (a mixed picture by country). But flat isn't down and flat is not too bad when you consider that government scrappage schemes that pulled sales forward have now been switched off. And some European auto companies are continuing to do very well around the world.

Yes, there are some serious economic worries out there still of course, but maybe it's not quite as bad as it has been looking in the headlines lately.

EU: Commercial vehicle market up 25% in May


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