Europe: Contraction Continues and Stress Rises

September 4th, 2012
in econ_news, syndication

euro-symbol-shatteredSMALLEconintersect:  German export orders fell by the fastest rate since the Great Recession in August, adding to the economic woes which keep piling up in the Eurozone.  In spite of the deterioration, an article in Spiegel says that German GDP is still likely to show a growth around 1% for 2012.  Things will have to stop getting worse because the first half of the year did not reach that level, with 0.5% in the first quarter and 0.3% growth in the second quarter.  There must be at least a little growth in the second half of the year to get to that 1% marker.

Follow up:

German small and medium-sized business sentiment fell for the sixth month in a row in August.  What Der Spiegel calls "the country's most important leading indicator", the Ifo business climate index, fell for the fourth consecutive month in August, as well.

An article by Ralph Atkins in the Financial Times reports that a vast chasm has opened between business loan interest rates in southern Europe and those paid in Germany.  The periphery has embarked on various austerity programs to reduce government deficits, but the growth that proponents had hoped to develop is not materializing.  The high cost of finance in those countries is adding to the barriers to increased production expected from "internal devaluations" resulting from austerity and high unemployment.

Atkins says that investors are pricing in the risk of a Eurozone break-up.

In the UK the recession has hit a little less than originally thought as the most recent GDP contraction number for the second quarter was revised to 0.5%, compared to the original estimate of 0.7%.  France is expected to follow to UK into recession, according to CNBC.

Recession is already well entrenced in Southern Europe, led by Greece which has been in recession for more than five years.

John Lounsbury


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