Putting the Euro recovery in perspective

Advertisement
ScreenHunter_01 Jun. 03 11.28

By Leith van Onselen

International media has been awash with reports hailing the European crisis over, following the Euro Zone’s 0.3% growth in the June quarter, which ended six consecutive quarters of contraction (see next chart).

ScreenHunter_15 Aug. 15 14.17

While the result is encouraging, and augers well for global growth (since Europe is now contributing to rather than detracting from growth), it needs to be kept in perspective.

Advertisement

First, as shown by the below chart from The Economist, the Euro economy is still smaller than it was in the fourth quarter of 2007, and has significantly lagged growth in the US (see next chart).

ScreenHunter_16 Aug. 15 14.28

Moreover, there remains marked divergence between the Euro member states, with growth driven primarily by rebounds in Germany and France:

Advertisement
ScreenHunter_17 Aug. 15 14.33
ScreenHunter_18 Aug. 15 14.33

Whereas the Greek, Italian, and Spanish economies are still stuck in first gear or outright contracting:

Advertisement
ScreenHunter_19 Aug. 15 14.39
ScreenHunter_20 Aug. 15 14.39
ScreenHunter_21 Aug. 15 14.40
Advertisement

The Euro labour market also remains in the doldrums, with overall employment still falling and the unemployment rate stubbornly high:

ScreenHunter_23 Aug. 15 14.43
ScreenHunter_22 Aug. 15 14.43
Advertisement

So while the “green shoots” are encouraging, we need to see growth broaden and strengthen, and unemployment start to decline, before we can confidently proclaim that the European crisis is over.

[email protected]

www.twitter.com/leithvo

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.