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Those PIIGs Again

Except that this time Germany may have joined the club? Perish the thought, says Michael Wilson


 

You’ll have to forgive us if we seem a little downbeat this month. Maybe it’s the back-to-school sentiment after a summer season filled with brickbats that seem to have been falling off lorries into our collective paths.

As if October’s grim news about falling productivity in Germany wasn’t enough on its own to dampen the European spirit just ein kleines Bisschen? Germany’s four most prominent economic research groups slashed their 2014 GDP growth estimates on 9th October to just 1.3% from a previous 1.9% estimate. And as for next year, their collective forecast dropped from 2% to a mere 1.2%. No wonder the markets had a fit of the wobbles, with the FT EuroFirst 300 dropping by 10% in a couple of weeks.

But what, please, are we to make of the news from southern Europe? August’s grim report that Italy’s gross domestic product had contracted by 0.2 per cent in the second quarter after a fall of 0.1 per cent in the first quarter – thus fulfilling the technical definition of a recession?

France’s announcement on 9th September that its GDP would make only 0.4% growth in 2014, and a sharply-reduced 1% in 2015? And its impending decision to ask for yet more time to get its budget deficit down below the 3% threshold demanded by the EU? After all, President François Hollande’s government had already negotiated one two-year delay, from 2013 to 2015, to sort out the mess, but it clearly wasn’t enough.

The drop-back in Portugal’s second-quarter GDP, from 1% annual growth in the first quarter to 0.9% in the second, which was announced ominously late on 10th September? The brave talk fromPrime Minister Pedro Passos Coelhoabout how “of course” it would accomplish its fiscal targets for this year, despite having had to blow 4.9 billion euros on a rescue package for its biggest bank, Banco Espirito Santo? (Thus pushing bond yields back up after a period of decline.)

Greece’s second-quarter GDP contraction of 0.3% year on year, coming on top of a 1.1% shrinkage in the first? Or the thought that its first-half contraction was closer to 3.3% at current prices? And eek, the return of alarm about its ability to pay its debts? (At one point during the 15th October meltdown, Greek government paper was reported to be yielding 9%.)

Thank goodness, then, for Spain and Ireland, both of which offered some respite from the gloom. Dublin announcing that it would be able to repay the EU funds for its bank bail-out ahead of schedule, and Madrid swelling its exports as the Spanish government raised this year’s growth forecast from 0.7% to 1.2% – and to 1.8% in 2015. These days you have to take your good news wherever you can find it.

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