The latest data from Markit, an economics service based in London, shows that the Eurozone remains in recession. Since the economy is contracting at a slightly slower rate, it has been spun as good news. The chart above tracks both Flash PMI and Eurozone GDP. Usually, they correlate very nicely, but there has been a divergence in the last few months. When this happens GDP takes a turn for the worse. With the the situation in the periphery, I see Eurozone GDP getting worse before it gets better.
The problem is that the whole Eurozone is contracting while Germany treads water:
German money is supposed to pay for bailouts, fiscal unions and banking unions in the near future. Germany and the rest of the FANG are not as strong as they need to be to support the whole Eurozone. If you think German money will save the Eurozone after Merkel wins the election, thing again.
Consumer spending continues to fall as evidenced by a 10% decrease in car registrations. Consumers compose the lion’s share of economic growth in modern, Western economies accounting for about 70%. Europhiles keep pointing to the increase in exports in Spain and even Greece has showing that the worst is over. However, even a huge increase in exports cannot fill the whole in economic growth left by the struggling European consumer.
For example, combined trade between the eurozone and the U.S. and China is running at a €521bn annual clip. A healthy 10% rise in exports to these two countries would add 0.04% in growth next year to Eurozone GDP.
The EU may have declared a two-front victory in its eurocrisis fighting efforts by temporarily arresting Greece’s fall to oblivion and issuing happy-talk about a banking union, but winning a battle or two does not ensure victory in the war.