First-Quarter Euro Area GDP Growth

May 15, 2013

The single fact that the euro area’s economy contracted about a third as rapidly last quarter as it had in the final period of 2012 is about the extent of consolation one take take from today’s release of preliminary national income accounts.  Only three of the seventeen members reported positive growth.  Most had weaker growth than analysts were anticipating, including Germany, whose GDP edged up just 0.1% from 4Q and fell 0.2% versus 1Q12 even when account is made for the distortion of the leap year boost.

There’s more bad news.  Ezone real GDP has now contracted in a record six straight quarters.  That span is two-thirds as long as the post-Great Recession recovery.  The cumulative GDP drop during the past year and a half of 1.4% wipes out more than two-fifths of the prior recovery and leaves the level of GDP 3.5% below the pre-Great Recession peak, which occurred five years ago in the first quarter of 2008.

Breaking those five years into three distinctive phases — the Great Recession, the ensuing recovery, and the current recession — one sees from the table below that Euroland’s recovery performed more weakly than the U.S. economy from a GDP standpoint in each period.  Moreover, the widest disparity between the world’s two largest economic blocs has transpired in the most recent period.  Changes in GDP are cumulative, not annualized, for each segment.  Over the full past five years, U.S. GDP has climbed 3.6% net, whereas Euroland real GDP on balance shrank by 3.5%.

  1Q08 to 2Q09 2Q09 to 3Q11 3Q11 to 1Q13
Ezone GDP -5.3% +3.3% -1.4%
U.S. GDP -4.3% +4.8% +3.3%

Unemployment comparisons also favor the United States.  The U.S. jobless rate peaked at 10.0% in October 2009 and has subsequently declined by 2.5 percentage points, whereas Ezone unemployment is currently at a record 12.1% and still cresting.  In one respect, however, the U.S. and Ezone jobless disparity is much less pronounced than the different paths of GDP.  Between March 2008 and March 2003, the Ezone jobless rate rose 3.0 percentage points from 9.1% to 12.1%.  The U.S. unemployment rate between March 2008 and April 2013 climbed almost as much, a net 2.4-percentage point increase from 5.1% to 7.5%.

The concluding point to take away on Euroland GDP is not one to inspire hope.  Forward-looking survey evidence on 2Q13 economic trends is not encouraging.  The composite purchasing managers index in April of 46.9 was weaker than the first-quarter average reading of 47.7.  Likewise, economic sentiment in April only scored an 88.6, down from a March reading of 90.1, which happened to match the 1Q average reading. 

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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