What We Need to Watch out for in Europe

Europe is vulnerable to a double-dip recession that could have a domino effect on the global economies and impact recovery efforts across the industrial world. In the first quarter, the Gross Domestic Product (GDP) grew a muted 0.2% in the 16-country eurozone. That’s poor.While a trillion-dollar austerity program is in place in Europe, there continue to be concerns that growth in Europe will remain stagnant and drive another downturn. Don’t ignore these concerns, as they’re valid.
First there was Greece and its $144-billion bailout. Then the debts in Portugal and Spain were cut. My concern is not with Greece or Portugal, as they are relatively small economies. Spain remains a potentially worrisome situation if it does not improve, as it is ranked ninth in the world based on its nominal GDP in 2009, according to the International Monetary Fund. Greece is ranked 28th and Portugal is 37th.Now it appears that Hungary is struggling and may also need bailout funds. Hungary is a small country, ranked 50th in the world based on GDP in 2009. Yet, while even smaller than Greece, my concern is that we may be seeing a domino effect begin to spread through Europe, which would be disastrous, as the European Union is the world’s largest economic region, with about $16.44 trillion in GDP in 2009 versus $14.25 trillion for the United States.But what amazes me is that the five top regions in the world, as far as GDP (EU, U.S., Japan, China, and Germany) goes, had a combined $44 trillion in nominal GDP in 2009, accounting for a whopping 76% of the world’s GDP.The critical situation in Europe is reflected by the downward move in the euro to a four-year low against the USD, below $1.20. The decline of the Euro is worrisome for U.S. exports, as it makes U.S. goods and services more expensive in the European markets. Watch this situation; it is a real threat to the global economy.

Federal Reserve Chairman Ben Bernanke suggested on Monday that he does not feel there will be the dreaded double-dip recession in the U.S., but I feel Europe is vulnerable to a potential relapse that could trigger issues in the U.S. and China, with the latter being fourth in nominal GDP in 2009.

All I can say is: let’s hope China can stay afloat and avoid an asset bubble. Any breakdown in China could really have a disastrous impact on the European Union and the other key countries.