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Surprise! Spillovers Exist!

February 14, 2013 Leave a comment Go to comments

Eurostat GDP data are out. The eurozone is in recession, and it is worse than expected (-0.6% in 2012). Austerity is not working, and is recessionary. Wow, who would have said it…

Seriously, so long for the widespread optimism of a few weeks ago. The crisis is not over, we actually are in the middle of it. The way I see it, things will get worse before they get better (if they do get better).

Also interesting, Germany’s export-led growth strategy is  panting. The fourth quarter of 2012 was rather bad (worse than in France, for example), and this is due to lower investment on one side, and to weaker trade (exports fell more than imports). Here is an excerpt of today’s press release of the German statistical office, Destatis:

In a quarter-on-quarter comparison (adjusted for price, seasonal and calendar variations), signals from the domestic territory were rather mixed according to provisional calculations: household and government final consumption expenditure went up slightly. In contrast, gross fixed capital formation in construction decreased a bit and gross fixed capital formation in machinery and equipment was down markedly on the third quarter of 2012. The decline of the gross domestic product at the end of 2012 was mainly due to the comparably weak German foreign trade: in the final quarter of 2012, exports of goods went down much more than imports of goods.

Germany stubbornly refuses to accommodate austerity in the periphery with a domestic impulsion. This makes adjustment for the rest more painful, and impacts expectations at home. This is why investment dropped significantly. My take on this is that if Germany had been only moderately more expansionist at home, expectations would not have been dashed (even if slightly increasing, in January the IFO index of German business confidence stagnates at around 104 at the moment, after hitting an all time high of 115.40 in February of 2011). And investment figures would be substantially better.

So, we learned today that austerity does indeed reduce growth, and that it spills to other countries. Two surprises in one day. It will need a hell of an effort to forget all of this before tomorrow!

  1. Christiaan Hofman
    February 15, 2013 at 1:27 pm

    Well, but the deficits in Euro countries are still high. So we see, we have recession and high deficits: therefore deficits do cause slow growth. There you have it.

    Seriously, this is the talk you (still) hear from politicians (and journalists) in all Euro countries (and unfortunately also others). So, unfortunately, your last paragraph is not warranted, at least not in the quarters where it matters. So, this is what “we” learned today: nothing.

  2. stearm74
    February 15, 2013 at 2:47 pm

    That ending was extremely good. But I bet Angela is already planning to cut spending as soon as possible. There is something I Iearned about the Germans: they don’t like to inflict pain to other people, they like pain in general. If they can inflict pain either to others or to themselves, they will. And if you try to stop them, they can become very, very mean to themselves up to the point of self-destruction.

  3. February 17, 2013 at 6:56 pm

    Yesterday’s letter by commissioner Rehn is despairing…

  1. February 15, 2013 at 11:57 am
  2. February 22, 2013 at 4:01 pm

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