Today is the main season so to speak for updates on Gross Domestic Product growth in the Euro zone. We had two updates yesterday and on my way to describing them let me cover off a question which I was asked in quite a few places. Having called the Bank of England the second worst forecasting organisation in the world there were natural enquiries as to who I felt was the worst. Let me explain.
Here are her latest official numbers.
in the 3rd quarter of 2012, the Gross Domestic Product (GDP) at constant prices of year 2005 decreased by 7.2% in comparison with the 3rd quarter of 2011.
These are as bad as I feared and are even worse than before. But if we take Kylie’s advice and Step Back In Time we see that in the Original bailout forecasts back in the spring of 2010 the International Monetary Fund on behalf of the troika forecast growth of 1.2% in 2012! Yes -7.2% instead of +1.2% and it means that the total error is on its way to the mid 20 per cents I think as past numbers were revised down too. I think that the best way to review their forecasts is to take the advice of Diana Ross.
Here too we saw very weak numbers.
The Portuguese Gross Domestic Product (GDP) registered a year-on-year change rate of -3.4% in volume in the 3rd quarter 2012 (-3.2% in the previous quarter).
So we see that the annual rate of fall in Portugal has accelerated and the specific quarterly numbers were weak too.
Comparing with the previous quarter, the Portuguese GDP diminished 0.8% (change rate of -1.1% in the 2nd quarter).
If we look into the detail we see a fading of what has been up to now a bright spark for the Portuguese economy.
the positive contribution of the net external demand decreased significantly, determined by the less intense reduction of Imports of Goods and Services and by the deceleration of Exports of Goods and Services.
These numbers mean that this is now the eighth quarter in a row that Portuguese GDP has been negative. In fact if one looks at the credit crunch overall this latest phase has had more of an impact than the original phase. We hear of the phrase double-dip recession but what we have here looks more like a double-dip depression to me. If we recall that Portugal had an economic growth problem as in lack of before all this began you see the fix she is in.
Unfortunately going forwards there are two more problems to throw into the mix. Firstly unemployment is high and rising as the latest figures show it going from 15% to 15.8% with employment falling. Also we see that more savage austerity measures are planned to be inflicted on a weakening economy in 2013 and we know from Greece’s experience where that road leads.
So excluding Ireland who produces her figures late in the cycle we see that the bailout nations are in the mire. What about those on the edge?
There has been an improvement in the third quarter here compared to its predecessor.
In the third quarter of 2012 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) decreased by 0.2 per cent with respect to the second quarter of 2012 and by 2.4 per cent in comparison with the third quarter of 2011.
However if you hold onto the thought of a -2.4% year on year comparison let me add in an extra perspective. In the third quarter of 2008 Italy had a real GDP of 367.4 billion Euros and this year it was 348.7 billion. So instead of hoped for growth it has fallen by 5% and again please remember this is on the back of a weak pre credit crunch growth performance like Portugal.
Meanwhile the other side of the balance sheet liabilities in the public-sector continue to grow. This weeks numbers for central government debt fell just short of 2 trillion Euros (1.995) but they are edging higher as Italy’s is weakening making for a toxic mix.
Again on an initial viewing these are an improvement on the previous quarter
The Spanish economy registered a quarterly decline of 0.3% in the third quarter of 2012, a rate one tenth less negative than that recorded in the period above.
However in annual terms it leaves Spain in negative territory and heading downwards.
Annual growth stood at – 1.6%, two tenths less than in the second
If we look into the detail of this then after the bad above we have the good.
The contribution of net exports of the Spanish economy to quarterly GDP remains stable at 2.4 points. This result occurs because of an acceleration in exports……
And the ugly (my emphasis)
This result occurs because of an acceleration in exports and a decrease in the decline of imports.
there is a negative contribution of domestic demand, which reaches -4.0 points compared to -3.8 points in the previous quarter
This allows me to explain Spain’s current position whilst also demonstrating one of the flaws of using Gross Domestic Product as an indicator. When an economy contracts it usually imports less which improves the net trade (exports less imports) section and leads to a higher GDP number for that component. As you can see being poorer and weaker leading to a recorded improvement is not a triumph to say the least! I still recall the quarter for Greece where she initially claimed a 0.8% GDP improvement which was due to this effect. We all know what happened next.
So looking at Spain we see that her domestic economy is very weak but that for GDP it has the offsetting effect that imports fall. She has improved her export performance as I recorded above but overall her position is weaker than the GDP numbers would have you believe. They will catch up in time.
The Euro Area as a whole
I guess these numbers came as something of an embarrassment to Euro area leaders.
GDP fell by 0.1% in the euro area (EA17) and increased by 0.1% in the EU27 during the third quarter of 2012,
Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.6% in the euro area and by 0.4% in the EU27 in the third quarter of 2012, after -0.4% and -0.3% respectively in the previous quarter.
The mainstream media will be full of Euro area in recession headlines which may or may not be true as the figures are subject to revision. However my point is that the Euro area is doing worse than the most similar countries which are the EU27, so the extra ten are doing better. Lest we forget the Euro was badged as something which would improve economic performance.
If we look further we see that Germany managed some growth as apparently did France so their 0.2% on large economies mostly offset some falls. However we come to a subject which I have covered in detail only once if I recall correctly and the best summary I have seen of it was simply this from Matina Stevis on twitter.
You see economic growth in the Netherlands was -1.1% in the third quarter of 2012. If we look further we see that domestic consumption,government consumption,investment and exports all fell in something of a clean sweep. The real turnaround was in exports which is the opposite of the trends reported elsewhere today.
We see from these numbers that the supposedly rescued nations of Greece and Portugal continue to exhibit the signs of depression. In Portugal’s case we are seeing what now looks like a double-dip recession which sadly I see only getting worse in 2013. Bailout number two awaits her I think. There are signs of further problems ahead for Spain and Italy but for different reasons.
Just as Euro area leaders sigh with relief that Germany and France just about offset this at the macro level we see that the Netherlands is in rough water. An economy which is supposed to be core has now fallen by 1.6% over the past year. It is worth watching I think as it is easy to be lulled into a false sense of security by a number such as an unemployment rate of 5.4%. We get a little more perspective by noticing that it was 4.5% a year ago. I guess many more will be waiting for the numbers for the fourth quarter in the Netherlands than were watching the third.