The economic picture in the rest of the world is improving, but the situation remains poor in Europe. In this article, Jens Larsen, the chief economist at a sell-side firm, mischaracterizes the information from this survey. Now, we have to be easy on poor Jens, because he is paid to say these things, but it is important for the rest of us to understand the European economic situation.
You can’t be very confident yet it will turn into very strong macroeconomic growth, but from a market perspective the fact that it’s clearly stopped getting worse is really important.
The economic picture in Europe has not stopped getting worse. Any number below 50 indicates a contraction in activity, so a rise from under to 48 to above means that manufacturing is still shrinking just at a slower rate. A number of 50 will indicate that it is no longer getting worse.
The author of this article ignores the real story of the data. Examining the chart above, we learn that Germany is accounting for most of the improvement in PMI. The rest of the Eurozone is still struggling mightily.
The main problem of the euro is that it has created huge imbalances between the two types of countries that compose the Eurozone. The data shows that these imbalances are persisting despite all of the measures enacted in 2012. As long as there are two Eurozones, the Eurocrisis will continue.