An unpleasant surprise may lurk in euro zone GDP numbers

September 24, 2012

The euro zone economy may be doing far worse than most economists want to believe. That’s not good news for a central bank trying to rescue the single currency through a hotly-contested bond purchasing programme that has yet to get started.

The latest flash purchasing managers’ indexes, which cover thousands of euro zone companies, suggest the third quarter will mark the euro zone’s worst economic performance since the dark days of early 2009, according to Markit, which compiles them.

They predict the economy likely shrank by 0.6 percent in the quarter that finishes at the end of this month.

That’s far gloomier than the consensus 0.2 percent decline predicted in the last week’s Reuters poll of around 35 economists, and even more pessimistic than the poll’s lowest forecast of 0.5 percent.

Aside from some German resilience, there was an unexpectedly severe decline reported by French firms. Flash PMIs don’t cover Spain and Italy – those figures come out at the end of the month. But it’s a pretty sure bet there’s been a deterioration there since last month.

The same situation arose in the second quarter, and on that occasion the economists called it right.

The Reuters Poll consensus correctly predicted a 0.2 percent contraction, whereas at the time, Markit said its PMIs were roughly consistent with a 0.6 percent contraction.

But there’s every reason to think that won’t be the case this time, as this chart shows. The PMIs have given a good read on the state of the euro zone economy over the last 12 years with great accuracy – not something that can be said of most economists.

“We think the GDP numbers are going to be catching up with the survey data,” says Chris Williamson, Markit’s chief economist.

“For the euro zone as a whole, the third quarter looks quite dismal. We think it’s going to be the weakest GDP we’ve seen since early 2009.”

In a further sign companies are really feeling the strain of the region’s debt crisis, German business sentiment dropped for a fifth successive month in September, according to the Ifo Institute, defying hopes for a slight rise.

So don’t be surprised to hear a few gasps from economists when Eurostat releases its first estimate of third quarter euro zone GDP in November.

Graphic by Scott Barber (@scottybarber)


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Analysts predict a .2% contraction because they’re not analysts, they’re paid propaganda writers.

Their predictions are constantly wrong and always optimistic, hoping people will believe their drivel and go out and spend money they don’t have.

Posted by mick68 | Report as abusive

Making a lot of unemployed workers and factories does not make the region richer. Crisis in Europe required solutions other than high non-employment of human and other assets.

An unemployed worker is a family on some sort dole or making revolutions. That is increased welfare or security costs or both. That that raises deficits in the long term not lowers them.

There is no solution that does not radically change the EU and national governments. Not at the EU level or at the national level was there reported in the news that there was work on how to grow industries in the weak nation. I read the governments of the weak where busy looking for ways to milk the rest of EU to support graft and real estate prices not grow industries. The rest of the EU just wanted budgets that would pay bond holders in sort bleed a dry rock.

Posted by Samrch | Report as abusive