Europe’s recession trips up economists (again)
Europeâ€™s economy is contracting at a steeper rate than most city economists recognise â€“ and not for the first time.
While tiny Greece stole the headlines last week, a calamitous set of business surveys pointed to imminent recession for the enormous euro zone economy. Even a month ago, that was thought unlikely by most economists.
If city economists werenâ€™t employed by global finance institutions, lots of them might make a living by closing barn doors after the horses have fled. Last weekâ€™s purchasing managers indexes (PMIs) were further proof of this.
The manufacturing and services PMIs, which have a great record of tracking economic growth, came in below the consensus of economists in 10 out of 12 surveys that cover the euro zone and Europeâ€™s five largest economies.
More alarmingly, six out of the 12 PMIs were worse than even the lowest forecasts from dozens of economists.
Last month, the consensus of economists showed only a 40 percent chance of a recession in the euro zone over the next 12 months. That will surely rise above 50 in this weekâ€™s economy poll, especially given that Mario Draghi â€“ the new president of the European Central Bank â€“ last week said he expected a â€śmild recessionâ€ť in Europe.
Being beaten to the punch by a central banker is one thing, but it looks like economists are about to repeat their unfortunate knack of predicting a recession only when itâ€™s clear one has already started â€“ for the second time in three years.