This is how the business cycle usually works. There’s an economic expansion followed by a contraction. After the economy bottoms out, the expansion resumes marking an end to the recession. Unfortunately for the Greeks, this depression has been severe making the usual pattern inapplicable to their present situation.
As the chart illustrates, this is the fourth time that the Greek contraction has ebbed leading people to believe that this time the usual pattern will reassert itself with the Greek economy expanding in short order. Perhaps, the fourth time is the charm, but there are no indications that Greece will resume growth in the next year.
Essentially, the narrative has changed, but the mainstream media has yet to ascertain the difference and alter its reporting accordingly.
Greece is still dying. Even yesterday’s “good news” of a primary budget surplus was a sham. One off items such as debt forgiveness by fellow Eurozone governments, an increase in developmental aid for the EU and increasing arrears within the health service created a fictitious primary surplus. In fact, tax revenues are running €1.5bn under projections, so austerity continues to cripple the economy.
In order to be reelected, the German government will continue lauding praise upon the Greek government’s efforts. After September 22, Greece will either receive a fourth bailout or leave the Eurozone. Wait and see.
All is rosy in the Eurozone. Investors are piling into PIIGS debt at a rapid clip forcing spreads between Germany and Italy and Spain to multi-year lows. The Wall Street Journal is even hyping the fact that “industrial output in the euro zone rose at its fastest pace in more than 2½ years in the three months to June.” Do you know what this pace is? 0.3%! Anemic growth is considered quite the achievement in today’s Eurozone.
Before you go chasing yields in a PIIGS pen, remember that the Eurozone is not growing quickly enough to service its debt, and this fact remains despite an end to the business recession:
The mainstream media loves its recovery narrative. Not only is Europe now growing, but this growth will boost the global economy. The best conclusion that one may draw from this news is that at least the economy is no longer shrinking. While the business recession may be over, the labor recession wears on. European unemployment has not shrunk in over a year and has steadily risen since the onset of the GFC.
In order to put Europe back to work, GDP must grow at least 3% a year. While the contraction may have ceased, robust growth will remain elusive for the Eurozone ( and the entire industrialized world).
In today’s post regarding Greece, we reviewed why the mainstream media attempts to fit incoming economic data into its recovery narrative. The recent U.S. retail sales data is the latest victim of this trend. Sales have risen four months in a row, and this fact is much-hyped in today’s news. However, a cursory inspection of the attached chart show that this streak is not remarkable. In fact, sales growth remains tepid by historical standards.
The business recession ended four years ago, but the American labor recession continues with no end in sight. Only sustained GDP growth will improve the prospects of the American worker. Anything less is just hype.
Since the onset of the “recovery,” an increasingly popular explanation for poor economic or financial results is bad weather. YUM is blaming its cratering Chinese sales on the July heat wave. The specious reasoning is that people switch from eating meals at KFC to enjoying ice cream at Haagen Dazs when it gets hot in China. Of course, the simpler explanation is that China’s poor economy is crimping YUM’s sales as it has done for the last few months. Investors saw through the spin and sent YUM’s shares down over 3%.