European economic reality #1: Italy’s public deficit nearly doubled to 5.3% of GDP in 2009 as the economy contracted 5.0% last year, its worst performance since 1971 and equal to the contraction experienced by the UK. That’s slightly worse than the 4.9% first estimate made last month. Italy’s deficit was 2.7% of GDP in 2008, so it effectively doubled in 2009. But others are worse: Greece is struggling with a 12.7% share; Spain 11.4%; France 8.2%. Italian public debt jumped to nearly 116% of GDP last year, according to figures from the country’s statistical agency. Unemployment rose 0.1% to reach 8.6% in January (Australia’s was 5.3%).

European economic reality #2: Sweden has become the first major economy to dip back into recession in the current crisis (what’s Swedish for double dip?). The country’s statistical agency said fourth-quarter growth fell 0.6% after third-quarter growth was revised down from the initial 0.2% growth to a negative 0.1%. Spain, Greece, Italy and Ireland are also struggling, while German fourth-quarter growth slumped to zero. Sweden’s economy contracted 4.9% in 2009. So what do we make of yesterday’s performance of manufacturing survey for Sweden that showed continuing strong growth, with the reading topping 61? That was higher than similar upbeat readings from the UK, Europe, Australia and China.

European economic reality #3: Hold the sherry. A day or so after 4th quarter growth for the UK jumped by a surprise 0.3%, the country’s currency was attacked by speculators and other ‘investors’ looking for weak points. The Euro was savaged last month on those woes in Greece, which may be about to be resolved with a support mechanism for Greek bond issues put in place by Germany, perhaps France and the European Central Bank. But in London, sterling fell below $US1.50 a barrel, for the biggest daily fall in Europe since the start of 2009. Not helping was the news the Prudential insurance group is proposing to pay $US35 billion for the Asian assets of the sick AIG of the US. Prudential will have to find $US25 billion in cash and that means the insurer will have to sell that amount of sterling in coming months, a big weight for the currency after yesterday’s savaging.

America’s mixed figures. Wall Street rose on higher commodity prices, an upbeat manufacturing survey and what appeared to be solid personal spending figures for January. But the 0.5% rise from December raised more worries for those analysts who can remember back to 2004-07. The higher spending came despite a rise in income of 0.1%, so Americans dipped into their savings, which fell to 3.3% from more than 4% in December and over 6% nine months ago as consumers hunkered down. Thoughtful analysts point out American bank lending and credit card usage are still falling, meaning American consumers are using up their savings merely to live, not to rebuild their lifestyles. Rising spending, falling savings, moribund income growth and high unemployment are not in the recipe for solid economic recovery and growth. Keep an eye out for the dip…

And in Australia… Despite yesterday’s bigger than expected current account deficit, the Reserve Bank’s latest commodity price index has definitely turned up, for the better. The central bank said early estimates suggest the index rose 0.6% in February (on a monthly average basis) in SDR terms (that’s Special Drawing Rights), after rising 2.5% in January (revised). The largest contributors to the rise in February were increases in the prices of beef and veal, coal and iron ore in SDR terms. The prices of aluminium, copper and crude oil fell. In Australian dollar terms, the index rose by 1.9% in February, following a decrease of 0.1% in January (revised). Just wait until iron ore and coal prices rise from April 1.

Still in Australia… Figures today from ABARE (the Australian Bureau of Agricultural and Resource Economics, confirm the rebound in the RBA index. ABARE sees a 15% rise in commodity export income in the 2010-11 year to $186.8 billion, from the $162.5 billion in the year to June 2010. The 2011 figure will be within sight of to record $197.45 billion achieved in 2008-09. Next year’s forecast total will be the second highest on record and will see an estimated $24 billion in extra income flowing into the economy. A new record $201.2 billion in commodity export revenues is forecast for the 2011-12 financial year.

Video bust: Blockbuster, the US video rental chain, was once a high flier. These days it’s heading south. Another poor earnings report for the fourth quarter — usually its strongest given winter and the Christmas-Thanksgiving period — has seen the company shut 253 outlets across the US in January, with plans to cut a further 150 next month and up to 545 for all of 2010. Blockbuster shut 374 stores in 20120 and looks like ending 2010 with just under 3,000, down more than 20% in two years. The company lost $US435 million in the fourth quarter as revenue fell 20% to just over $US1 billion. Blame Netflix, VOD, DVD rental kiosks (Redbox) and declining demand overall for DVDs.

Banking incredible: HSBC Holdings has survived the credit crunch and recession, but at a terrible price. The bank reported its 2009 results overnight and the most salient point wasn’t the profit of $US5.83 billion, up from $US5.73 billion in 2008 (but $US2 billion under market estimates). No, it was the distressing loss and impairment charge estimate of $US26.5 billion. That took total losses and impairments to more than $US70 billion. That’s a figure beyond most comprehension, even after the losses at Citigroup and UBS. But the bank says losses will fall as economies improve. Underlying profit was up 56%, with 40% of that being earned through the bank’s Hong’s Kong retail business. It fled Hong Kong years ago for London, buying Midland and then went into the US where it bought Household Finance for just over $US15 billion, which it has lost more than two times over with dud home and consumer loans in America. One of the disasters of recent financial history.