From Marketwatch: Euro-zone GDP shrinks, cushioned by core
In a preliminary estimate, the European Union statistics agency Eurostat said gross domestic product contracted by 0.3% in the fourth quarter compared to the previous three months. Compared to the final quarter of 2010, GDP grew by 0.7%.Looking at individual countries:
Economists surveyed by Dow Jones Newswires had forecast a 0.4% quarterly contraction. Euro-zone GDP grew by 0.1% in the third quarter.
Core economies cushioned the blow in 2012. National data showed France, the euro-zone’s second largest economy, defied expectations for a 0.1% fourth-quarter contraction to grow 0.2%.
Germany, Europe’s economic juggernaut, shrank by 0.2% versus forecasts for a 0.3% contraction, the federal statistics office, Destatis, reported Wednesday.
But Italy, the euro-zone’s third-largest economy and the country seen as the key battleground in the fight to contain the debt crisis, saw fourth-quarter GDP shrink by a larger-than-expected 0.7% after a 0.2% decline in the previous three months, the national statistics agency, Istat, reported Wednesday.
Slower growth makes it more difficult for countries to meet deficit-reduction targets which are measured as a percentage of gross domestic product.
On Tuesday, Greece reported that its economy shrank by a steeper-than-expected 7% on a year-on-year basis in the final quarter of 2011. Greece is entering its fifth year of recession, with unemployment topping 20% as political leaders continue to wrestle with demands from the country’s euro-zone partners to implement further austerity measures.
Spain saw quarterly GDP shrink by 0.3% after a flat performance in the third quarter. Portugal, which like Greece and Ireland was forced to seek a bailout from its euro-zone partners and the International Monetary Fund, on Tuesday reported a steep 1.3% contraction in fourth-quarter GDP.
The European Central Bank delivered two quarter-point interest-rate cuts in November and December, undoing hikes seen earlier in 2011 to bring its key lending rate back down to a record low 1%. The ECB also moved to further boost liquidity in the ailing euro-zone banking sector, providing a massive dose of three-year loans to commercial banks and taking other steps credited with easing funding problems inspired by worries over institutions’ exposure to sovereign debt.
...One quarter only gets us half-way to the widely accepted definition of a recession of economic contraction over two quarters. Yet unlike economists who expect growth to return, I'm not optimistic. According to the CIA World Factbook, here are Germany's major export partners in 2009:
In the core, the Netherlands saw GDP shrink by 0.7% after a 0.3% contraction in the third quarter. Austria also reported a decline in GDP, shrinking 0.1% after growing 0.2% in the third quarter.
France 10.1%, US 6.7%, UK 6.6%, Netherlands 6.6%, Italy 6.3%, Austria 5.7%, Belgium 5.2%, China 4.7%, Switzerland 4.5% (2009)France's major export partners in 2010:
Germany 16.4%, Italy 8.2%, Belgium 7.7%, Spain 7.6%, UK 6.8%, US 5.1%, Netherlands 4.2% (2010)
Germany 13.2%, France 11.7%, Spain 5.9%, US 5.8%, UK 5.4%, Switzerland 4.6% (2010)
France 18.7%, Germany 10.7%, Portugal 9.1%, Italy 9%, UK 6.3% (2010)
As each of these countries contract, their demand for goods from their trading partners will also contract. As their major trading partners are each other, this does not bode well for future demand.
As of the time I'm writing this, stock markets in Europe are higher by about 1%. I leave it to the talking heads to guess why as no one truly can say there there is one particular reason why markets act the way they do.
Ok, maybe I will stab a guess. Remember that over the long run, stock market trade on future expectations, not what is happening today. Hence, I guess that stock markets are see that today's data was better than economists expected and extrapolate that data out to the future. However I wonder if the market is also growing complacent.
Here's what I will be looking for in future data to confirm market direction: export data from EU countries and how austerity measures are impacting local economies in the GDP revisions.
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