Another Downturn in Europe

~~02/12/2013~~

~~By Sven Larson~~

~~Never bark at the big dog.~~

Last spring I published a research paper explaining how Europe’s austerity policies would take the economy from a bad crisis to a worse crisis. Recently I have specified what this next stage will look like: a permanent decline where large parts of the continent turn into an utter economic wasteland, and industrial poverty becomes the new way of living in Europe.

I have been right all along. Already in October last year Gulfnews.com saw the new downturn coming:

Dwindling new orders and faster layoffs marked a worsening decline for euro zone companies last month, according to business surveys that dent hopes the economy will return to growth before 2013. Wednesday’s purchasing managers indexes (PMIs) suggested it was almost inevitable the euro zone returned to recession in the third quarter. A good gauge of economic growth, Markit’s Eurozone Composite PMI fell to 46.1 in September from 46.3 in August. … “Rather than clearing, the cloud of uncertainty hanging over business investment and spending got notably darker in September,” said Chris Williamson, chief economist from Markit, which compiles the data. “There therefore seems little scope for a return to growth in the fourth quarter.”

Then in December Bullfax.com reported:

Eurozone factory output continued its steep fall in autumn this year, underscoring the feeble domestic demand that risks prolonging the bloc’s recession. Industrial production in the 17 countries sharing the euro fell 1.4% in October after falling sharply in September … That was much worse than the modest growth expected by economists in a Reuters poll. Factories had proved surprisingly resilient over the European summer, posting two months of moderate gains, but the new data supports forecasts of a third quarterly contraction in the eurozone’s economy in the October-to-December period. After three years of a debt crisis that has driven unemployment to a record level and pushed governments to slash spending, the economy is caught in a spiral: households are not spending and so companies are not selling, forcing them to cut staff which then further weakens consumption.

A week ago 4-traders.com claimed they saw a light in the tunnel:

Business activity in the euro zone shrank at its least severe rate in 10 months in January, adding to signs that while the crisis-hit economy is still weak, it may have passed its worst point. Resilience in the currency bloc’s economy was largely thanks to solid growth in Germany, a survey from data firm Markit showed Tuesday, whereas activity among French businesses fell at its sharpest rate in almost four years. “The euro zone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilization in the first quarter,” said Chris Williamson, Markit’s chief economist.

Today, though, it looks like the light in the tunnel is an oncoming train. The EU Observer reports:

Eurozone economic data due this week is set to show the worst quarterly decline in output for almost four years, reports Bloomberg, citing GDP estimates that the economy shrank 0.4%. It would be the biggest decline since the first quarter of 2009, when GDP fell 2.8%.

We will of course take a close look at those numbers as soon as they are available. For now, suffice it to say that the outlook for Europe is not good, and that the continent as we know it won’t survive another deep economic crisis.