It’s Official: Europe Goes Negative

Eurostat today came out with the latest “flash estimates” for euro area GDP growth. “Flash estimates” is Eurotalk for what the United States calls preliminary results. The EU description has more panache.

But it’s looking ugly. The entire European continent is a hairsbreadth away from recession. It’s GDP shrank by -0.2%. Europe appears headed for it’s 2nd recession in 2 years.

Europe would be in official recession right now if it hadn’t skidded by in the first quarter with 0% growth. The technical definition of a recession is two strait quarters of negative GDP growth.

What is the Damage?

Today’s Markets at Europe’s Close (Source: Financial Times)

So how did European equity markets react to bad news? They nonsensically went skyward, of course!

Both the DAX (+0.8%) and FTSE 100 (+0.5%) started hot and closed with decent gains. They had one of those “its not as bad as we thought” moments. Stock markets are a total mystery sometimes.

In monkey-see, monkey-do fashion the U.S. DOW and S&P 500 started their trading day up +0.3%.

The Downer Side

Overall European Union GDP Growth (Source: Eurostat)

The bad part is that no matter how you slice the pie, GDP has gone south of the border for Europe.

There are two fundamental parts to the European Union:

  1. The entire 27-nation union (EU27)
  2. The 17-nation currency union (EA17)

The powerful 17-nation currency union uses the euro for all their commerce. Though officially called the EA17, it is best known as the eurozone. It is the group with that massive Greek economic headache.

The whole European Union is called the EU27, or more commonly as just the EU. It includes England and nine other countries using their own currencies.

The 2nd quarter eurozone GDP was down -0.2%. Compared to last year it was down even more… -0.4%. The whole EU GDP was down -0.2% no matter how you look at it.

Some EU countries did well. Sweden topped that short list with +1.4  GDP growth. On the down side Greece, predictably, was the worst at -6.2% compared to last year.  Other bottom feeders in descending order are Spain, Czech Republic, Italy and Portugal.  Ireland’s GDP is not yet available.

Conclusions

Europe’s economy has been in steady decline since the first quarter of 2011 and looks like it may stay negative for more quarters. There is no good news on their horizon.

Greece sinks ever closer towards default. Economic indicators released yesterday suggest Greece is behind in meeting the terms of their latest bailout to qualify for more funding.

For several years the fear has been that Europe will drag the rest of the world economy down with it. It is a major trading partner with both the United States and Asia. The United States is barely holding on now and the Asian economies are rapidly cooling off.

These latest GDP figures only add fuel to the fire.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 14, 2012, in culture, economics, EU, Europe, eurozone, Life, news, Opinion, Politics, Thoughts. Bookmark the permalink. 3 Comments.

  1. Me thinks the world is in a world of hurt!

  2. The Eurozone is implementing Austerity, and you can see the results, recession and depression. In the US we tried the stimulus approach and used lots of debt, we are still growing although in very lackluster ways and we are still in a jobs depression, fewer people working today than at the peak in 2007. So austerity gets a grade F, and stimulus and debt gets a grade of D at best. And all of the countries are printing money like crazy. So Conservatives on Fire is correct–no matter Romney or Obama, the world is going to be in a world of hurt for sometime. This is a modern day depression although no one really wants to use the phrase. If either the EU or the USA went to a doctor they would be described medically as having minor depression. Lets hope we do not go all the way to major depression. One day all this will turn around just like after World War 2 where so much stuff was so decrepit it had to be replaced. Pent up demand will one day fix this situation, but these days that is far off as my car will easily make it 10-15 years.

    • It is hard to know which came first, the chicken or the egg.

      Did overspending cause recession and depression in both Europe and the United States or did austerity? To me the data clearly points to reckless spending causing recession first. Austerity appears to be the bitter, but necessary cure.

      Once back on a sound fiscal footing, then increased demand supported with further stimulus can be applied for prosperity to return.

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