So glad for so little

So this is what is has come to: anything other than outright recession is cause for rejoicing!

Here is one triumphant quote: “The eurozone’s recovery has moved up a gear,” said Chris Williamson, chief economist of Markit. “Not only has the pace of growth picked up to the fastest since the second quarter of 2011, but the recovery is also becoming more broad-based, encompassing core and so-called ‘periphery’ countries alike.”

Here are some of the growth figures for the last quarter (Q4 2013) in Europe that just came out on Friday:

For 2013 as a whole, growth was a NEGATIVE 0.4% in the Euro currency zone, and a barely positive 0.1% for the entire European Union (including the UK).

To me, that is a dreadful result five years on from the 2008 market collapse; things should be picking up much faster by now.  Unemployment remains at depression levels in several countries still.

However, the fourth quarter looked relatively better:  The Eurozone had 0.3% positive growth, up from 0.1% in the Q3 2013 (after an 18 month “double-dip” recession).  But that is still growth at an annual rate of only 1.2%

Even the strongest countries in Europe did not look much better.  Germany’s economy grew by 0.4% in the last quarter of 2013, France by 0.3%.  This means annual growth of around 1 to 1.5%. However, the one ray of light in the report is that even formerly weak countries had a positive quarter:  Growth in the Netherlands was a very strong 0.7%, Spain and Portugal 0.3% and 0.4%, and even Italy had positive growth of 0.1% in Q4 after showing negative or zero growth the first three-quarters of the year.

Still, for me the news is that Europe’s recovery remains weak and precarious, and is far from resuming a robust rate of growth.  Given Europe’s demographics, one cannot expect growth to return to 3%, perhaps ever.  Still, in order to reduce unemployment, raise wages, and give people hope for the future, steady growth of 1.5% -2% is necessary, and at present hardly any countries in all or Europe look to be reaching that level.

Yes, growth of any kind is better than further contraction, but that is like saying a patient in critical condition should be glad because she’s not dead.  Europe’s economy is still in danger.

On February 5th, we had the following report, warning on retail sales and deflation:

Retail sales in the eurozone fell sharply over the Christmas period, with their biggest monthly fall in two-and-a-half years. December’s sales fell by 1% compared to the same time a year ago, and by 1.6% compared to November. Both figures were much worse than analysts expected.  … Germany saw the biggest annual fall in sales for December.  The drop in consumer demand followed a surprise fall in eurozone inflation to 0.7% in January.

The U.S. has had several wonderful quarterly reports on GDP, only to have growth falter in succeeding quarters.  Besides, quarterly data is prone to revisions, so differences of one-tenth of a percent over or under expectations may simply be measurement error.

So a very faint hooray from me for the Q4 European growth figures; a bigger cheer will be deserved when we get a full year of growth at 1.5%.  Until then, policy needs to be proactive for growth and to fight off deflation, and no assume that the trajectory from one quarter is ever upwards.

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
This entry was posted in The Global Economy and tagged , , , . Bookmark the permalink.

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