Few Comments on Euroland GDP Figures

August 14, 2013

Note that Euroland expresses GDP changes without the U.S. convention of annualization.  Thus U.S. second quarter GDP growth, which was reported earlier as 1.7% — the change if the 2Q-over-1Q pace were sustained for a full year — would in the European custom be expressed as a 0.4% advance.  Similarly, British and Japanese growth on such a basis was +0.6% last quarter.  It is against such changes that today’s Ezone numbers should be compared.

Euroland GDP went up 0.3% in 2Q.  This was the first rise since the third quarter of 2011 and the largest rise since the first quarter of that year.  0.3% also exceeded analyst consensus forecasts.  So a hurrah is in order, so to speak.  But the 0.3% gain was still less than growth reported in Japan, Britain, and the United States.

Moreover, GDP trends remain uneven.  Quarter-over-quarter GDP declines were recorded of 1.4% by Cyprus, 0.2% by Italy (Euroland’s third biggest economy), 0.2% by the Netherlands, and 0.1% by Spain. 

Between the second quarters of 2012 and 2013, GDP plunged 5.2% in Cyprus and 4.6% in Greece.  Declines of 2.0% were posted in Italy and Portugal, as well as 1.8% in the Netherlands, 1.7% in Spain.  For the whole Ezone bloc, GDP fell 0.7% on year.  Euroland GDP was 1.2% lower than in the second quarter of 2011 and 1.2% lower than in the second quarter of 2007.

The return to positive quarterly growth reflects improvement in the two largest economies of the euro area.  German GDP climbed 0.7% on quarter and 0.5% on year, while French GDP increased 0.5% from 1Q13 and 0.3% from the second quarter of 2012.  Germany got positive contributions to growth from investment, government spending, personal consumption, and net exports. 

Euroland is not getting enough cooperation from external developments.  Regardless of how Fed officials want to characterize the tapering of asset purchases, it is tightening.  Markets understand this and have pushed long-term rates higher.  However, the euro continues to trade resiliently above $1.3000.  The DM-translation value of the euro now is DEM 1.4763 per dollar, 15% above the level that prompted the dollar rescue of 1978 including the issuance of Carter bonds then and some 13% stronger than when the euro was launched at the end of 1998.  It also doesn’t help that oil prices are again above $100 per barrel, and neither the United States nor China are expanding as quickly as the euro area needs them to be.

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



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