Is Europe's Recession Really Over?

jones_supa writes "Bloomberg, the WSJ and the NYT cheered to report that the Euro Zone's economy has showed signs of recovery after two years of decline. They're all based on the news that Eurostat, the keeper of economic statistics for the European Union, says GDP grew 0.3 percent within the EU's borders from the end of March through June. As Olli Rehn, Eurostat's vice president, writes on his blog: 'I hope there will be no premature, self-congratulatory statements suggesting "the crisis is over."' He calls the GDP report only another sign of 'a potential turning point in the EU economy.' The quick conclusion by some economists and some in the news media that a slight rise in one quarter's GDP means a recession is over ignores how experts figure out when an economy is either in a significant downturn (a recession) or enjoying steady growth (an expansion)."

Comments

Debt-backed economies....

[Anonymous Coward]

... cannot recover. That's what debt is - a promise to work harder later than you work now. In the case of large public debt, it's a promise to force your children to work harder than you do.

Re:Betteridge is actually wrong this time

[bill_mcgonigle]

Thus, the recession is technically over.

Technically, the growth needs to be measured in concert with actual monetary inflation. I don't know what the status is in the EU, but in the US, they *never* do that on state-controlled media.

More important is what the unemployment levels are like vs. historical norms. For instance, in the US, we'd need 3.5% growth for ten consecutive years to reach pre-2000 levels of employment. That level of growth was never achieved in the 20th century.

As I understand it, Spain, for example, is in much worse shape than the US in terms of employment.

Official numbers rarely reflect the condition of the common man.

Watch Germany

[RogueyWon]

Specifically, German manufacturing...

That sector benefited over the years between the start of European Monetary Union and the start of the Mediterranean death-spiral from being locked into a favourable exchange rate with a relatively cash-rich (albeit debt-fuelled) set of customer states. Most of those states are economically dead or dying at the moment.

If the German manufacturing sector has managed to diversify its markets enough over the last couple of years that it can weather the delayed shock of this when it finally hits, then Europe will probably muddle through. Once the worst of the crisis has past, the states that should never have been in EMU to begin with can be eased out of it without too much risk of contagion and most of Europe will be ok (though I suspect living standards in Greece etc will take decades to make up lost ground, if indeed they ever do).

If German manufacturing does start to suffer in a big way over the next year or two, then we've only seen the start of the problem, as if the economic engine of much of the continent splutters, then the death spiral will just widen. In that case, expect to see the UK and some of Eastern European states split away in self preservation and some really unpleasant social disorder sweep most of the rest of the continent.

All of which is absolutely nothing compared to what will happen when China's generation of largely-single angry-young-men-used-to-ever-rising-living-standards (the inevitable result of a one-child-policy that turns a blind eye to a bit of back-door gender selection) experiences its first serious recession.

In the Long Run, All of Europe is Fucked

[Anonymous Coward]

The European welfare state is unsustainable. It's unsustainable in the short run for the PIIGS, but also, with declining birth rates and rising debts, unsustainable even for Germany and other Northern European countries. Even the smallest nods towards austerity are greeted with riots. The only question is how much pain, economic collapse and hyperinflation happen on the way down.

Perhaps better to start with

[Lawrence_Bird]

is the GDP report even valid? Given the multi-decade manipulation of the way the deflator (inflation) is calculated it is quite possilbe that not only Europe, but the US as well, has been in recession since the early 2000's. Shadowstats is an outfit that provides US figures using the most recent prior methodology - I think it is circa 1992. And remember, the government(s) have a very vested interest in keeping the "official" inflation figure low - it lowers any payment tied that rate (social security, procurment contracts) while also making the GDP figure look better.

Re:Perhaps better to start with

[khallow]

The problem is that this sort of thing is highly subjective. Basically, the old system of inflation was to take a fixed basket of goods that was thought to represent the demand of a particular group (consumers, manufacturers, etc). That turns out to have problems because that basket of goods slowly becomes obsolete.

So then, they changed it to the current hedonics system, which as I understand the intent, is supposed to be a parameter space of baskets of goods of equivalent utility to our groups in question (here, attempted by decomposing goods into their functions and treating good bundles as equivalent which have equivalent combinations of these functions). So in particular, substitution of expensive goods with less expensive goods of equivalent quality are allowed. One then looks at the point on that parameter space with the lowest cost to the group in question and that becomes the basis of an inflation calculation.

I see plenty of means to distort this sort of calculation by deciding which functions are more important and lowering the weight of stuff that has an exceptionally high rate of cost increase (such as housing, education, and medical care - which is true throughout the developed world, I might add).