Hopefulness, not confidence, is spreading through the euro zone

February 22, 2013

Optimism in Germany is roaring and consumers across the euro zone are starting to become less gloomy. But the latest hard economic data are a reminder of the difference between confidence that things are going to get better, and the hope that they will.

For the moment, we only have the latter.

Friday’s German Ifo business climate survey topped even the highest expectations, as did the ZEW economic sentiment indicator on Tuesday. Euro zone consumer confidence improved this month too, and the mood in financial markets has been largely buoyant since the start of the year.

The hope is that will translate into a growing euro zone economy, but that isn’t happening yet.

“The optimism is out of step with what current real evidence and logic tend to suggest,” argues David Brown of New View Economics.

“German economic confidence surveys seem to be showing more signs of economic spring, but the economy is still struggling with a massive millstone round its neck. The rest of the beleaguered euro zone economy.”

The latest PMI surveys, an early measure of economic activity across thousands of euro zone companies, suggested the downturn actually deepened this month, even if Germany managed to sustain some growth.

And the European Commission said on Friday it does not expect the euro zone to return to growth until 2014, reversing its prediction for an end to recession this year.

That contrasts starkly with the confidence indicators.

If anything, the PMIs showed the limits of what German prosperity can do for the rest of the euro zone. Rather, the question might be of what harm the rest of the euro zone could yet wreak against Germany.

“With so much of German export demand destined to the rest of the euro zone, it is no surprise that a plunge in exports was the biggest drag on the German economy in the fourth quarter,” says Brown.

“Self-enforced economic austerity is taking a massive toll on the euro zone outlook. The economy is under water, deeply in recession and pulling the German lifeboat down with it.”

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This is BS – how do journalists or bloggers get away with printing nonsense like this????

Posted by DrFreckles | Report as abusive