We Might As Well Describe The EU's Economy As One In Permanent Recession

by: Hale Stewart

Over the last several months, economic releases from the largest EU economies have been a bit more negative, increasing the possibility that the EU will (once again) sink back into a technical recession. However, while the overall picture shows one of meager growth at the macro level, the underlying numbers tell us we might as well label the EU as a region in a permanent recession.

Let's start with Germany, where the latest Q/Q GDP growth was a negative -.2%:

And the Bundesbank has downgraded its growth forecast for the country, largely as a result of external tensions, such as those in Ukraine. However, this geopolitical flash point is not the entire cause of Germany's troubles, as the same report notes German exports to Russia started to decrease in 2013.

Next is France, where the overall growth picture is at best neutral:

In the first half of 2014, gross capital formation has been negative for two consecutive quarters. While personal consumption expenditures decreased sharply in Q1, they rebounded in Q2. But the rebound merely made up for the Q1 loss; there was not enough activity for any meaningful increases. And total trade is also negative.

Italy is also contributing to the negative economic environment, as their overall annual growth rate has been negative since 2012:

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All of these underlying factors are contributing to one of the worst economic pictures seen for the EU region: overall GDP is still below its 2009 peak:

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Industrial production is still below its pre-recession peak:

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Unemployment is still high:

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And deflation appears to be taking hold:

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The above graphs indicate the EU is now in the middle of a lost decade. While growth is still positive, the reality is the region is barely growing. At this point, it's in a permanent recession until its leaders decide to do something meaningful.

Hale Stewart, XE.com