Thursday, August 15, 2013

New Rule - Recoveries Begin After Two Consecutive Quarters of Growth

So we have seen one quarter of growth in the euro zone, now. People already start claiming that the recession has ended. Don't get me wrong, even the smallest improvement is good, but one quarter of overall extremely mediocre growth (0.3 percent) in the whole of the euro zone, average increases in France (0.5 percent) and pretty good German numbers (0.7 percent) does not mean that the recession has ended at all.

Good news: yes! End of the recession: no!

One just has to look at the at the change compared to the second quarter of 2012 to see that calling this the end of the recession is beyond ridiculous. Euro area GDP is still 0.7 % below last years number. Of course, decent growth in the two biggest economies and low average growth should get journalists thinking, that maybe articles about Spain and recovery might just be uncalled for. Bloomberg´s (via) journalists mention that:

[..] the legion of unemployed across Europe’s southern periphery [..] are seeing little benefit from an economic recovery that pulled the euro region out of its longest-ever recession in the second quarter.
 Really? Might I suggest looking at GDP for southern Europe? Spanish GDP fell by 0.1 percent, Italy´s contracted 0.2 percent. There just is no recovery in these countries. Only Portugal grew significantly. (1.1 percent); and Greece´s numbers were eaten by the dog, I guess.

Do not get fooled by people proclaiming that the recession has ended. It is a single positive quarter, driven primarily by good growth in Germany, but Germany did not have an unemployment problem to begin with.

I suggest that 1) We only call this a beginning recovery if the third quarter is also positive and 2) the end of the recession may not be proclaimed before GDP is clearly above pre crisis levels and euro area unemployment significantly below 8 %. So if what you call a "recovery" and it looks like this (see the tiny 0.3 percent at the end?):

Then, you are doing it wrong! (it is still good news, though)

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