The major problem with the mainstream media’s reporting of the economic downturn and ensuing anemic recovery is that journalists stick to the usual recovery narrative. After an economic downturn, a recovery follows and adheres to a script. Usually, economic growth accelerates to a 4% clip and millions of jobs are created. This rapid growth is presaged by leading economic indicators including the decreasing debt levels discussed in this article.
Unfortunately, this time is different. Growth continues to sputter along, and consumers are not behaving like they have during past recoveries. While the Fed believes that decreasing consumer debt levels will bolster consumer spending in the second half, this prediction is based on the old paradigm. In the new paradigm, consumers are fearful of taking on too much debt. Indebtedness levels will continue to fall, but consumer spending growth will remain tepid.
Moreover, despite the fall in gross debt, debt as a percentage of income has begun rising again due to shrinking pay packets, as our handy chart illustrates above.
The Wall Street Journal actually places the end of the Eurozone recession in perspective. Germany remains strong, France surprises and the PIIGS continue their slide into debt restructuring. While the Eurozone grows again, the economic fortunes of each member continue their divergence.
By the way, in terms of annual growth, the Eurozone recession continues as its economy managed to contract 0.7% in the last year:
Portugal ended its streak of 10 consecutive quarters of contracting GDP by registering 1.1% growth from the first to second quarter. The fly in the ointment is that Portugal’s debt is expanding to dizzying heights in the meantime. The country’s budget cuts have the perverse effect of raising its debt. This means that Portugal will eventually require a debt restructuring, but not until after German elections.
Resilient French consumers saved the quarter for Hollande, but business better pick up if growth is to sustain itself:
There are lots of disaffected young Greeks with little hope for the future making political turmoil inevitable. Hopefully, this seething cauldron will not boil over until after German elections, when something will be done about the Greek debt pile. Everything should be fine as Europe is usually quiet during August and September.