May 15 (Reuters) – Very poor European growth figures add a
hint of concern about a cyclical downturn to enliven the ongoing
worries about a structural malaise.
What is particularly striking is the way in which the euro
zone and the U.S., though operating in vastly different
conditions, are both exhibiting some common traits: very poor
economic growth, very low inflation and a bond market which is
predicting more of the same.
The news from Europe on Thursday was disappointing, with
euro area GDP advancing only 0.2 percent in the first quarter.
Most of that paltry growth seems to have come from a buildup in
inventories rather than an expansion in actual final demand.
And while Germany did surprisingly well, growing by 0.8
percent in the quarter, the data elsewhere was far less good.
Growth in France was at a standstill, while in Italy it
contracted by 0.1 percent and the Netherlands’ shrank by 1.4
percent. Inflation in April was at 0.7 percent with large
swaths of the euro zone in or near outright deflation.
No surprise then that what has been a source of calm – the
fact that borrowing markets are ticking over nicely for euro
area sovereigns – is now looking like a warning sign. German
10-year yields were as low as 1.37 percent on Thursday, while
even Italy can now borrow for 10 years at just over 3 percent.
Euro zone bonds are telling you that yes, as the European
Central Bank essentially promises, you will get your money back,
but don’t hope for too much economic growth or inflation to go
along with it.