In a bit of a surprise, the longest post-World War II recession in European history ended in the second quarter on the strength of growth from a mix of usual suspects and unexpected rebounders. However, cautious optimism is likely more appropriate than celebration.
Eurostat, the statistical office of the European Union, reported a 0.3% increase in the euro zone’s gross domestic product (GDP) in the second quarter. The EU experienced negative growth in each of the previous six quarters as debt crises in several nations took their toll on the economic bloc.
Germany and France helped lead the way, as did a surprising quarter-over-quarter improvement by former bailout recipient Portugal. Other gainers, both by quarter and annually, were Latvia, Lithuania, Poland, Slovakia, the United Kingdom and, to a slightly lesser extent, Estonia and Hungary. Although some market watchers reacted with near hubris, NACM Economist Chris Kuehl, PhD said some of the reactions felt like “a little bit of grasping at straws.”
“The expected result was that there would be further decline and, at best, a steady state of mild recession,” Kuehl said. “Instead, there was a growth rate of 0.3%. This should hardly motivate some wild dancing in the streets, but the fact is that Europe has been in full recession for almost a year and this marks the first sign of emergence. The next trick will be sustaining that progress.” He noted it will largely be up to Germany and France to carry that weight.
Even EU Vice President Olli Rehn’s similar sentiment fell short of optimistic. “This slightly more positive data is welcome, but there is no room for any complacency,” Rehn said. “Self-congratulatory statements suggesting ‘the crisis is over’ are not for today. There are still substantial obstacles to overcome: growth figures remain low and the tentative signs for growth are still fragile.” The vice president added that statistical averages also hid massive differences between the stronger performing states and the weaker ones (Greece, Spain, Italy and Cyprus).
- Brian Shappell, CBA, CICP, NACM staff writer