I didn’t get around to the European economic numbers on friday which is inexcusable because in many ways they may have been the biggest news item of the day. The data is simply ghastly, and that may be putting it too mildly.
From the Economist:
The euro area is falling into such a deep hole that the recovery, when it eventually comes, will be a long, hard journey. Figures released on Friday May 15th showed that GDP in the 16-country currency zone fell by 2.5% in the first quarter, an annualised rate of some 10%, far worse than many analysts had feared. Germany, the largest economy in the group, fell even harder: its GDP shrank by 3.8% in the three months to March and has plunged by almost 7% since its recession began a year ago. Italy’s GDP fell by 2.4% in the quarter; Spain’s by 1.8%. The 1.2% fall in France, large by any normal standards, almost counts as a boom.
Here are the quarterly figures for select countries:
» Germany -3.8%
» Austria -2.8%
» Netherlands -2.8%
» Spain -1.8%
» France -1.2%
» U.K. -1.9%
» Italy -2.4%
You should note that these are not annualized rates but the actual decline in the economy for the quarter. In the U.S. we report on an annualized basis, so the 6.1% decline in GDP for the first quarter was actually an actual decline of about 1.5%. If you translated for example Italy’s decline in to an annual rate, it would be 9.6%, Germany would be 15.2% — nearing depression levels.
The Economist article points out that many of the European countries didn’t have credit or housing booms but that they’re suffering as much or more than the United States and the U.K. It may be true that they didn’t have housing busts but they certainly participated in and benefited from the credit bubble. They effectively leveraged themselves against the U.S. consumer and just as China has discovered that seemingly perpetual motion machine really wasn’t one. They created the problems which they now have to solve.
The infamous second derivative argument is now in full bloom in Europe. Things are getting worse at a declining rate, but that’s really the only good news. Like Asia, a number of European countries do have to make some hard decisions about how to restructure their economies to a reality of diminished demand from the U.S. However, many of the European countries do not have the financial flexibility of China and certainly all are more constrained by internal politics than is China.
Europe has a very deep hole to climb out of.