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Published On: Wed, Aug 21st, 2013

Europe Emerges from Recession

The Eurozone’s two largest economies pull the region out of recession

Total gross domestic product for the Eurozone grew by 0.3 percent in the second quarter of 2013, heralding the end of the current recession. Not since the third quarter of 2011 has there been growth recorded. The first quarter of 2013 saw a decline of 0.3 percent.

The headline details are that Germany and France managed to push on, and the recessions in Italy and Spain have eased somewhat in recent months.

Germany experienced growth of 0.7 percent, the fastest for more than a year, following a relatively disappointing and static first quarter. France’s 0.5 percent growth rate is the best the country has experienced in more than two years. The increased growth is largely down to better spending by consumers and businesses. Furthermore, the two countries have exceeded the USA’s growth rate.

Data for both countries was better than had been predicted, playing a strong part in beating overall Eurozone estimates by 0.2 percent.

Much of the success is being attributed to more confidence in spending and investment by both businesses and consumers, helped greatly by the European Central Bank’s current fiscal policy. Tough austerity measures have been relaxed somewhat, and interest rates are being held as low as possible. Ministers are determined not to choke the jobs markets and overall growth.

Whilst China and Japan have posted disappointing export figures recently, data for the Eurozone, along with the United Kingdom and United States, has been encouraging. This has had the effect of strengthening some of the top indexes. EURUSD is consolidating.

CAUTION URGED

Some experts are warning that these figures are less of a sign that things are fully improving, and are more of a reaction to the difficult winter period. They could be misleading, and are not necessarily a good barometer of the Eurozone’s outlook. There are still deep-seated problems.

Overall, Europe’s GDP is predicted to decline by 0.6 percent in 2013, despite second quarter positives. 2014 should see a small amount of growth.

One of the primary concerns for European policymakers, and one of the threshold metrics for decision making, is unemployment. It is no longer increasing at the rate it has been, but data shows that it’s still at a record high overall. Southern Europe is particularly troubled, with widespread concerns that there could be political instability in Spain and Greece as a direct result. Youth unemployment in Greece is currently at almost 65 percent.

Austerity is likely to continue for years into the future. Government debt for the entire region is more than 90 percent of its GDP, and this figure is still on the increase.

While there have been attempts to improve conditions, for both households and businesses, credit is still sparse. Again, the situation is far worse in southern Europe, and reforms are coming slowly.

Large economies such as Germany and France have not only pulled Europe out of recession with figures either. Cyprus, Greece, Ireland and Portugal are all still relying on bailout loans from the EU and IMF. Portugal and Greece are in difficulties with repayment terms, with Athens under particular stress. In addition, many cheap sectors and businesses in the Eurozone tend to export to the larger economies such as Germany. The more growth Germany experiences, the more opportunity there is for export.

Outside the Eurozone, Eastern Europe has seen some improvement, with the Czech Republic leaving recession. It recorded 0.7 percent growth, with Poland and Hungary seeing 0.4 and 0.1 respectively.

Alpari has reported general disinterest in the Eurozone figures, with investors actually selling, despite the better-than-expected performance.

 

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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