The latest quarterly GDP figures confirm the already pessimistic expectations. Europe is sliding back into recession.
In both the euro area and the EU27 growth output contracted by 0.2% in the second quarter. This followed on stagnation in the first quarter and a decline of 0.3% in the last quarter of 2011. (In each case compared with the previous quarter.) For the first time since Europe came out of the 2008/9 global crisis growth on the same quarter of the previous year is now negative, at -0.4%. While the rest of the world continues to pull itself – albeit slowly in some cases – out of the mire, the failure of Europe to deal with the euro area crisis has plunged Europe’s real economy back into recession.
Worse, data also published today show industrial output fell in June by 0.6% in the euro area and 0.9% in the EU as a whole. (The industrial output figures are monthly and thus more volatile, but they tend to lead GDP and industrial output has been on a declining trend for almost a year now.)
Italy has now chalked up four successive quarters of contraction, most recently another lurching -0.7%; in Spain it is almost as bad, with three quarters in a row following a zero in the third quarter of 2011. It goes without saying that this makes the task of fiscal consolidation and recapitalising the banks, particularly in crisis hit countries, all the more difficult. The negative feedback loops between the real economy, public finances and the banking system are intensifying.
Or, if you prefer, the wheels are falling off.
Only a degree of resilience in Germany and its acolytes Netherlands and Austria prevented an even worse result. And the dynamic in these countries is notably weakening as demand for their exports is curtailed and busniess confidence melts away. Leading indicators for Germany continue to turn down, and the IMK recession indicator, updated today, points to an increasing (although still low) risk of an imminent recession even in Germany, the country to which all are looking to ‘save the euro’.
And some people are fretting that ECB bond purchases risk hyper-inflation. One really wonders what has to happen before the effective counter-measures tirelessly repeated on these and other pages are taken.