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Economy in Brief

GDP In EMU Falls Hard In 2008-Q4
by Robert Brusca February 13, 2009

GDP is declining in the e-Zone at a very rapid rate. The fourth quarter GDP declines in the zone have been larger than had been expected. Declines in Europe are now generally worse than the declines in the US. Germany has just adopted a second stimulus package worth 50 billion euros over two years to buffer its sagging economy. Budgets in EMU are beginning to strain or to shatter the EMU guidelines know as the Maastricht Criteria. Italy and France have been warned by the Chairman of e-Zone finance ministers, George Junker, about protectionist policies. "The European Commission needs to examine very intensively the details of the Italian and French stimulus programs," Juncker was quoted as saying in a pre-release of an interview with a German newspaper. These are the sorts of things that happen in recession. Survival is the first order of business and sometimes the rules get trampled or slightly skirted along the road to survival.

As the G-7 finance ministers meet in Italy there is concern about protectionism. The US too has been warned by Japan. The Japanese are worried about the ‘buy American’ provisions in the US stimulus package. No one wants a trade war. But everyone seems to being skating close to the edge.

Economies are weak and the manufacturing and export-based economies have been hit the hardest. Note that among this growth of counties the US Q4 result is second best; Germany and Italy have been hit hardest. . The US, of course, has a large service sector and it is a net importing nation. The short fall in US demand has activated one of the automatic stabilizers in GDP, imports. Imports are weakened so US GDP has been buffered in its decline, since imports subtract from GDP growth. Weaker imports mean stronger GDP. But that has transmitted more weakness overseas to the countries that export to the US. Still the domestic weakness in the US is severe and it is so severe that Japan’s Toyota is planning layoffs in its US operations.

This decline in GDP puts everyone on notice for how bad things are. GDP is one measure all can see and relate to, at least to some extent. In the US, the labor market has been hit harder than in Europe with the its broader social safety net and business practices that are different and a little less quick on the lay-off trigger. There is concern about how bad the second round effects will be in the US with such severe labor market displacement. Mitigating that is the task of the stimulus package. So far US GDP has not been hammered to the extent expected. But if the US has a more severe second round you can expect that it will get Europe’s attention too.

E-Zone and main G-10 country GDP Results
  Quarter over quarter-Saar Year/Year
GDP Q4-08 Q3-08 Q2-08 Q4-08 Q3-08 Q2-08 Q1-08
  EMU-15 -6.1% -0.7% -0.7% -1.2% 0.6% 1.4% 2.1%
  France -4.6% 0.4% -1.2% -1.0% 0.6% 1.2% 2.1%
  Germany -8.2% -2.1% -2.0% -1.7% 0.8% 2.0% 2.8%
  Italy -7.1% -2.2% -2.5% -2.6% -1.1% -0.4% 0.3%
  The Netherlands -3.4% -1.2% -0.3% -0.7% 1.7% 3.3% 4.0%
  UK -5.9% -2.5% 0.0% -1.8% 0.3% 1.7% 2.6%
  US -3.8% -0.5% 2.8% -0.2% 0.7% 2.1% 2.5%
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