Counterparties: Europe’s economic decoupling
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Economic data out today paints an even more depressing picture of Europe’s major economies. As the Guardian reports, the UK just barely managed to avoid a triple-dip recession, eking out 0.3% GDP growth in the first quarter.
While British Chancellor George Osborne said the news was encouraging, others were less impressed. “Normally, we would expect the economy to grow by around 12% over any five-year period. The fact that it has contracted by 2.6% instead means almost 15% of potential output has been lost,” the Institute for Public Policy Research’s chief economist Tony Dolphin told the Guardian. Oxford economist Simon Wren-Lewis summed up the British economy in three charts, and wondered if slow growth is here to stay:
The upside of this incredibly poor productivity performance is that employment has been much more buoyant than the GDP numbers would normally imply. However a moment’s thought reveals that this could be really bad news, because it might imply that the recession has led to a permanent reduction in what the UK economy can produce.
In even more bad news: Unemployment in Spain is now 27.2%, the highest since the Franco years, and now equal to Greece as the highest rate across the Eurozone. “The people left behind are coalescing into the hard core of a new Spanish underclass that will become more difficult to dissolve with every month that passes,” Tobias Buck says of Spain’s unemployed. David Keohane says Spanish unemployment is a “more potent argument against the logic and political tenability of austerity than any Excel error”.
Despite the unemployment crisis, the WSJ reports that bond market is booming in both Spain and Italy because of investor confidence that the ECB will intervene in the event of a crisis. Citi strategist Jose Luis Martinez called this a “shocking decoupling between the real and the financial economy”.
However, in Germany, unemployment, which stood at 6.9% in March, is forecast to fall to 6.6% by 2014, according to Bloomberg, and the country’s leaders seem more worried about inflation at home than turmoil to the south. The ECB, meanwhile, still somehow seems committed to austerity. — Shane Ferro
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