Eurozone: Even good statistics mean deeper recession

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro, gave a press conference on the 2013 spring economic forecast. (EC Audiovisual Services).

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro, gave a press conference on the 2013 spring economic forecast. (EC Audiovisual Services).

One after the other the main indicators of Eurozone’s economic health are deteriorating slowly but surely. Even positive statistical findings, like the March Euro area surplus in international trade of goods, having reached a record €22.9 billion, if looked more closely reveal a deepening recession of the internal economy, while the rest of the world has left behind the crisis years.

The most important indicator, the GDP evolvement keeps steadily losing ground. In detail GDP fell by 0.2% in the euro area (EA17) and by 0.1% in the EU27 during the first quarter of 2013, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. Eurostat also notes that, “In the fourth quarter of 2012, growth rates were -0.6% and -0.5% respectively. Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 1% in the euro area and by 0.7% in the EU27 in the first quarter of 2013, after -0.9% and -0.6% respectively in the previous quarter”.

Coming to the crucial sector of construction, which offers many and well-paid jobs and accounts for a large part of GDP, the news are really depressing. Eurostat recently announced that “In the construction sector, seasonally adjusted production1 fell by 1.7% in the euro area2 (EA17) and by 1.1% in the EU27 in March 2013, compared with the previous month, according to first estimates released by Eurostat, the statistical office of the European Union. In February 20133, production declined by 0.3% in the euro area and remained stable in the EU27. Compared with March 2012, production decreased by 7.9% in the euro area and by 7.2% in the EU27 in March 2013”.

On an annual base the drop of production in this crucial sector indicates a real collapse. Unfortunately the fall is even larger in civil engineering, a construction subsector directly related to new infrastructure creation. Eurostat found that in February and in an annual base civil engineering fell by 11.3% in the euro area and by 8% in the EU27, after +2.8% and +0.3% respectively in the previous month.
The problem is not only this benchmark activity is retreating fast, feeding directly unemployment. The sector is obviously falling behind in infrastructure creation and general development works. These large losses mean that the European economic environment is falling behind, compared to main competitors in North America and South East Asia. Today’s delays in infrastructure mean fewer business investments in the future.

Another indicator which seems at first reading to offer positive news but in reality means deeper recession is inflation. Always according to Eurostat, “Euro area annual inflation was 1.2% in April 2013, down from 1.7% in March. A year earlier the rate was 2.6%. Monthly inflation was -0.1% in April 2013. European Union annual inflation was 1.4% in April 2013, down from 1.9% in March. A year earlier the rate was 2.7%. Monthly inflation was 0% in April 2013. In April 2013, the lowest annual rates were observed in Greece (-0.6%), Latvia (-0.4%) and Sweden (0%)”.

It is crystal clear that the more the recession is ravaging a country, the lower inflation indices it turns out. The case of Greece, with inflation at -0.6% and 20% losses in GDP, is very characteristic.

All in all recession has taken hold of Eurozone’s economy and it is even more worrying that there is no narrative or something like a plan to fight it. Germany insists that fiscal consolidation should continue. Unfortunately the other side, that is the ‘relaxationists’, do not seem to offer a structured answer, to counter Berlin’s Teutonic options. At least not yet.

 

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