More Optimistic Forecasts from Europe

EU Cuts 2013 Growth Forecast as Crisis Weighs on Germany – Bloomberg.

EU Halves Germany’s 2013 Growth Forecast as Crisis Hurts Exports – Businessweek.

EU Slashes Growth Forecasts –

Country EU Spring EU Fall Change
Austria 1.7 0.9 -0.8
Belgium 1.2 0.7 -0.5
Cyprus 0.4 -1.7 -2.1
Estonia 4.0 3.1 -0.9
Finland 1.6 0.8 -0.8
France 1.3 0.4 -0.9
Germany 1.7 0.8 -0.9
Greece 0.0 -4.2 -4.2
Ireland 1.9 1.1 -0.8
Italy 0.4 -0.5 -0.9
Luxembourg 2.1 0.7 -1.4
Malta 1.9 1.6 -0.3
Netherlands 0.7 0.3 -0.4
Portugal 0.3 -1.0 -1.3
Slovakia 2.9 0.9 -2.0
Slovenia 0.7 -1.6 -2.3
Spain -0.3 -1.4 -1.1
Total EZ 1.0 -0.4 -1.4

Observing the euro crisis since it began in 2009, one thing has become very clear to me. Any forecast issued by the affected entities is extremely optimistic.

I created the chart above by comparing the EU’s predicted growth rates from its Spring and Fall reports. These reports were issued about six months apart, but look how dramatically different growth rates are. In May the EU predicted a growth rate of 1% for the eurozone, but it revised the forecast downward -1.4  points in today’s report.

Some economists are theorizing that the multiplier effect from reduced economic activity is actually much higher under current economic conditions, and these new numbers tend to support that theory.

The GDP growth rates above are the EU’s own predictions. As such, when we apply the Second Law of the Eurocrisis, we can say with certainty that the numbers will be worse in the end.

The EU predicts that it will stay out of recession, but I do not believe that is likely. Assuming the same amount of bias in the predictions again, 1.4 to the downside, euro zone GDP will decrease by -1.8% in 2013.

When the core countries enter recessionary territory, any of the remaining political support for periphery bailouts will dissipate quickly. To this point, the ECB has been able to hold the eurozone together using monetary policy, but no amount of money printing will be able to stabilize PIIGS debt and the over-leveraged banks once the recession starts.

This crisis will come to a head sometime in 2013. Sorry, Angela.


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