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16-05-2013, 06:41 AM
And yet there is hope for another copycat in the making...
Europe in longest post-war slump as eurozone economy shrinks again
• BY:MARCUS WALKER AND BRIAN BLACKSTONE
• From:The Wall Street Journal
• May 16, 2013 7:55AM
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THE eurozone debt crisis has mutated into Europe's longest slump of the post-war era, as the currency bloc's economy shrank for the sixth-straight quarter with no recovery in sight for most of the 17 countries.
The eurozone's output of goods and services, or gross domestic product, fell at an annualized rate of 0.9 per cent in the first three months of this year, data released on Wednesday showed, deepening a recession that began in late 2011.
Pedestrians walk through the Grand Place in Brussels. The eurozone economy continues to suffer, data showed Wednesday.
The eurozone, which accounts for 17 per cent of world GDP, remains the weakest link in the global economy, mired well below its level of economic activity before the 2008 financial crisis.
Low interest rates and abundant liquidity for banks—and above all, the European Central Bank's pledge to prevent the collapse of eurozone government bond markets—have led to strong recoveries in many European financial markets. But borrowing costs for businesses in Spain, Italy and Portugal remain significantly higher than in Northern Europe, impeding investment and job creation.
Although the European recession that followed the crash of Lehman Brothers was deeper, the current contraction has lasted longer. It shows that the eurozone's medicine of fiscal austerity and stuttering institutional changes have failed to revive the confidence of companies and consumers.
Unless a recovery materialises soon, social strains, political paralysis and rising debt burdens could reignite doubts about the eurozone's survival.
"Financial markets have become more sanguine than a year ago, but the underlying problems of the eurozone haven't been fixed," said Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank.
The sovereign-debt panics of 2010-2012 have abated largely because of actions by the European Central Bank that have reduced fears that the eurozone will break up. But buoyant bond and stock markets aren't leading to a bounce in business investment or jobs.
Instead, continuing government austerity, banks that can't or won't lend and heavy household debts are set to weigh further on the economy. Weak business surveys are challenging predictions by official Europe, including the ECB, that growth will return this year.
"The ECB's recurrent predictions of an imminent recovery are the triumph of hope over wisdom," said Willem Buiter, chief economist at Citigroup. Eurozone countries will face a mix of recession and tepid recovery for "two or three more years," he said.
The bleak outlook is driving Europeans such as Roberto Samper to despair.
The 41-year-old Spaniard has found only sporadic work since losing his job directing traffic for the city of Madrid in 2009. He's lost count of his fruitless job applications in a country where six million people, or 27 per cent of the workforce, are unemployed.
"Some days you awake with a lot of spirit, some days you're really low," Mr Samper says.
His and his wife's combined jobless benefits of around €850 a month barely cover their rent and utility bills—and are set to end this year. His family gets much of its food from the Catholic charity Caritas. The family is thinking of moving to London to search for work.
The Spanish and Italian economies shrank at annualized rates of about 2 per cent in the first quarter, according to calculations by J.P. Morgan based on official GDP data. The pace was slower than in the fourth quarter of 2012 for both countries. But French GDP contracted at an annualised rate of 0.7 per cent, which was worse than economists had expected.
Germany's economy grew by an annualized 0.3 per cent, less than expected, partly a result of freezing weather that held up construction activity. Belgium and Slovakia were the only other eurozone countries to report growth in the quarter.
German consumer spending rose, helped by low unemployment and rising wages. But another fall in German business investment is adding to doubts about the ability of Europe's largest economy to provide the demand that's badly needed to offset shrinking demand in Mediterranean countries.
The eurozone's struggle to get back onto the path of recovery contrasts with the U.S., where GDP grew at a 2.5 per cent pace in the first quarter. Japan is expected to report similar growth for the first quarter later this week. UK output rose last quarter as well, albeit at a slower rate.
Business surveys for April suggest the eurozone economy could well shrink again in the second quarter.
France's slide into recession since late 2012 is fuelling public discontent and political pressure on President François Hollande, who was elected last year on a promise to turn away from austerity and create growth.
"There is no one in the streets" in the posh shopping district around Avenue Montaigne, says Patrick Lifshitz, who runs three Hobbs Cashmere boutiques in Paris.
"The French people have lost all their hopes," he says. "We live because of the foreigners that come to Paris and buy, because the French don't buy anymore."
France is suffering partly from a worsening image, says Stanislas de Bentzmann, co-chairman of technology consulting firm Devoteam. "Multinational clients aren't investing because they see France as hostile to business," he says. "When you have created that psychology, it is difficult to get the economy going."
Slowing growth in China is hurting sales at German exporters such as HAWE Hydraulik, an engineering company based in Munich. The US market and Northern Europe are propping up HAWE's growth, says Karl Haeusgen, the owner. But Spain, which used to be an important export market for the company, is "misery," he says.
Falling eurozone GDP and business confidence are likely to increase pressure on the ECB to find new ways to stimulate activity, especially bank lending to the small businesses that are the mainstay of Southern Europe's economies.
It cut interest rates two weeks ago, but despite low and falling inflation, the ECB has so far proved reluctant to try new policy measures, such as buying asset-backed securities, that might anger people in Germany, which frowns on central-bank risk-taking.
Even if the eurozone ekes out low growth later this year, the medium-term prospects for the region remain deeply troubled.
Southern European countries still have to drive down their wages and other business costs, relative to Germany, to restore their competitiveness. That process, which economists call "internal devaluation," is slow and agonizing compared with the alternative path, which euro members no longer have: devaluing a national currency.
Faster growth or higher inflation in Germany would make it easier for Spain, Italy and France to regain competitiveness relative to Northern Europe.
But low unemployment in Germany means there's no pressure on German politicians to change their economic policies to boost demand and inflation—either before or after national elections this September.
Additional reporting: Ilan Brat and William Horobin
Europe in longest post-war slump as eurozone economy shrinks again
• BY:MARCUS WALKER AND BRIAN BLACKSTONE
• From:The Wall Street Journal
• May 16, 2013 7:55AM
• Increase Text Size
• Decrease Text Size
•
•
THE eurozone debt crisis has mutated into Europe's longest slump of the post-war era, as the currency bloc's economy shrank for the sixth-straight quarter with no recovery in sight for most of the 17 countries.
The eurozone's output of goods and services, or gross domestic product, fell at an annualized rate of 0.9 per cent in the first three months of this year, data released on Wednesday showed, deepening a recession that began in late 2011.
Pedestrians walk through the Grand Place in Brussels. The eurozone economy continues to suffer, data showed Wednesday.
The eurozone, which accounts for 17 per cent of world GDP, remains the weakest link in the global economy, mired well below its level of economic activity before the 2008 financial crisis.
Low interest rates and abundant liquidity for banks—and above all, the European Central Bank's pledge to prevent the collapse of eurozone government bond markets—have led to strong recoveries in many European financial markets. But borrowing costs for businesses in Spain, Italy and Portugal remain significantly higher than in Northern Europe, impeding investment and job creation.
Although the European recession that followed the crash of Lehman Brothers was deeper, the current contraction has lasted longer. It shows that the eurozone's medicine of fiscal austerity and stuttering institutional changes have failed to revive the confidence of companies and consumers.
Unless a recovery materialises soon, social strains, political paralysis and rising debt burdens could reignite doubts about the eurozone's survival.
"Financial markets have become more sanguine than a year ago, but the underlying problems of the eurozone haven't been fixed," said Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank.
The sovereign-debt panics of 2010-2012 have abated largely because of actions by the European Central Bank that have reduced fears that the eurozone will break up. But buoyant bond and stock markets aren't leading to a bounce in business investment or jobs.
Instead, continuing government austerity, banks that can't or won't lend and heavy household debts are set to weigh further on the economy. Weak business surveys are challenging predictions by official Europe, including the ECB, that growth will return this year.
"The ECB's recurrent predictions of an imminent recovery are the triumph of hope over wisdom," said Willem Buiter, chief economist at Citigroup. Eurozone countries will face a mix of recession and tepid recovery for "two or three more years," he said.
The bleak outlook is driving Europeans such as Roberto Samper to despair.
The 41-year-old Spaniard has found only sporadic work since losing his job directing traffic for the city of Madrid in 2009. He's lost count of his fruitless job applications in a country where six million people, or 27 per cent of the workforce, are unemployed.
"Some days you awake with a lot of spirit, some days you're really low," Mr Samper says.
His and his wife's combined jobless benefits of around €850 a month barely cover their rent and utility bills—and are set to end this year. His family gets much of its food from the Catholic charity Caritas. The family is thinking of moving to London to search for work.
The Spanish and Italian economies shrank at annualized rates of about 2 per cent in the first quarter, according to calculations by J.P. Morgan based on official GDP data. The pace was slower than in the fourth quarter of 2012 for both countries. But French GDP contracted at an annualised rate of 0.7 per cent, which was worse than economists had expected.
Germany's economy grew by an annualized 0.3 per cent, less than expected, partly a result of freezing weather that held up construction activity. Belgium and Slovakia were the only other eurozone countries to report growth in the quarter.
German consumer spending rose, helped by low unemployment and rising wages. But another fall in German business investment is adding to doubts about the ability of Europe's largest economy to provide the demand that's badly needed to offset shrinking demand in Mediterranean countries.
The eurozone's struggle to get back onto the path of recovery contrasts with the U.S., where GDP grew at a 2.5 per cent pace in the first quarter. Japan is expected to report similar growth for the first quarter later this week. UK output rose last quarter as well, albeit at a slower rate.
Business surveys for April suggest the eurozone economy could well shrink again in the second quarter.
France's slide into recession since late 2012 is fuelling public discontent and political pressure on President François Hollande, who was elected last year on a promise to turn away from austerity and create growth.
"There is no one in the streets" in the posh shopping district around Avenue Montaigne, says Patrick Lifshitz, who runs three Hobbs Cashmere boutiques in Paris.
"The French people have lost all their hopes," he says. "We live because of the foreigners that come to Paris and buy, because the French don't buy anymore."
France is suffering partly from a worsening image, says Stanislas de Bentzmann, co-chairman of technology consulting firm Devoteam. "Multinational clients aren't investing because they see France as hostile to business," he says. "When you have created that psychology, it is difficult to get the economy going."
Slowing growth in China is hurting sales at German exporters such as HAWE Hydraulik, an engineering company based in Munich. The US market and Northern Europe are propping up HAWE's growth, says Karl Haeusgen, the owner. But Spain, which used to be an important export market for the company, is "misery," he says.
Falling eurozone GDP and business confidence are likely to increase pressure on the ECB to find new ways to stimulate activity, especially bank lending to the small businesses that are the mainstay of Southern Europe's economies.
It cut interest rates two weeks ago, but despite low and falling inflation, the ECB has so far proved reluctant to try new policy measures, such as buying asset-backed securities, that might anger people in Germany, which frowns on central-bank risk-taking.
Even if the eurozone ekes out low growth later this year, the medium-term prospects for the region remain deeply troubled.
Southern European countries still have to drive down their wages and other business costs, relative to Germany, to restore their competitiveness. That process, which economists call "internal devaluation," is slow and agonizing compared with the alternative path, which euro members no longer have: devaluing a national currency.
Faster growth or higher inflation in Germany would make it easier for Spain, Italy and France to regain competitiveness relative to Northern Europe.
But low unemployment in Germany means there's no pressure on German politicians to change their economic policies to boost demand and inflation—either before or after national elections this September.
Additional reporting: Ilan Brat and William Horobin