The European Union is making it official. It is now saying that the European Union as a whole will experience a recession in 2012, something I predicted in the first couple of weeks of January (in fact, back then I said that the eurozone was already in a recession).
The European Central Bank (ECB) had no choice but to alter its 0.5% growth forecast after weak fourth-quarter gross domestic product (GDP) numbers began to stream in from the 17-member countries of the European Union.
The current official forecast from the ECB, released just last week, is for the whole of the European Union to contract 0.3% in 2012. The ECB remains optimistic that growth can resume, because it sees signs of stabilization. It characterizes this latest forecast as a “mild recession” (I’ll believe it when I see it).
The Netherlands and Italy both experienced 0.7% contractions in Q4 2011 GDP from Q3 2011 levels. Austria’s GDP slid by 0.1% in the last quarter of 2011 while Spain’s GDP decreased by 0.3% in Q4 2011.
Germany and France both came in with GDP numbers that exceeded economists’ estimates, but, regardless, both countries remain stuck near the zero line of growth. Germany’s GDP contracted by 0.2% in the fourth quarter of 2011, while France reported positive GDP growth of 0.2%.
We cannot talk about the European Union without mentioning Greece, whose GDP contracted by 6.8% for all of 2011!
Portugal’s Q4 GDP in 2011 fell by 1.3%. Its economy, much like Greece, Spain, Italy and Ireland’s, continues to contract under austerity measures.
The ECB is quick to point out that the southern countries within the European Union that continue to struggle make the numbers look worse than they seem. The ECB points to Germany and France as performing much better.
Unfortunately, the austerity measures demanded by the European Union will ensure that Greece, Spain, Portugal, Italy, and Ireland will continue to struggle mightily. Since France and Germany depend on exports to those regions, their economies will continue to contract as well.
The ECB can say that European Union members Germany and France may avoid a recession, but GDP of 0.2% or 0.3% is very risky. It points to extreme weakness, with any hiccup sending both countries into a recession (which will occur in 2012).
Not addressing the issues ensures that growth cannot resume. The European Union maintaining the current course of austerity measures, in the hopes that growth will magically appear, can only ensure that the contraction will get worse. (See: Severe Austerity Measures in Eurozone Producing Opposite of Desired Effect.)
Dear reader, as the European Union continues to fall into a deeper recession, it is affecting China, which in turn will surely affect the U.S. Watch out for that stock market rally and for those saying we can escape what’s ailing the rest of the world.
Where the Market Stands; Where it’s Headed:
The Dow Jones Industrial Average opens this first trading day of the week up 6.3% for 2012. The world’s most widely followed stock market index is up 102% since this bear market rally started on March 9, 2009.
We are getting close to the end of bear market rally in stocks that started nearly three years ago. I’m waiting for one final blow-off to the top for this bear market rally.
What He Said:
“I’m getting very worried about the state of the U.S. housing market and its ramifications for the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, August 2, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 two years earlier, in 2006. While senior economists and heads of central banks said that the U.S. housing contraction would not affect the remainder of the economy, Michael was calling for a catastrophe to the U.S. economy because of the housing bust he predicted.