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Economy in Brief

EMU GDP Is On The Mend
by Robert Brusca May 12, 2010

It was hardly a spectacular number for Q1 GDP from EMU although the 0.2% Q/Q gain did beat the expected gain of just 0.1% Q/Q. GDP is rising Yr/Yr for the first time Since Q3 2008 and that is something. France, Italy, the Netherlands and Germany have positive Yr/Yr gains for GDP among the early GDP reporters. The UK and Greece are still showing Yr/Yr GDP declines. Germany and France show the strongest EU/EMU Yr/Yr gains among those that have reported at 1.5% and 1.2%, respectively. Both are short of the US mark of 2.5%. The US recovery seems to have gathered pace while in Europe growth rates are still struggling to cobble together positive numbers.

Obviously in the current situation we are eager to see results from Spain, Portugal and Ireland, but they have not yet reported. This morning Spain did announce some further budget cuts and Portugal said in was in the midst of planning more cuts. Greece’s GDP is still falling but at least the pace of decline did not worsen this quarter.

Gold is making new highs on the expectation that the European debt bomb will explode. But what we see instead is evidence that, at least to start things out, the key problem-countries are taking some of the needed steps toward austerity and success. Spain and Portugal seem to be using the new EMU financial back-stop to good purpose by using its protective influence as a chance to make some much-needed changes. I think that this sort of effort flies in the face of the gold market speculation. Greece remains a problem issue, since its people are not really on board for what its politicians signed them up for. But that could change when the Greek people realize that there is no ‘plan B’ for them. They are at the end of their rope with this bailout offer. And, if they are the only problem country in EMU and the rest get their act in order, I don’t see how an intransigent Greece, by itself, drives gold prices higher – certainly not form here.

Today the Euro-Area also released March industrial output figures. MFG IP grew at a 14.8% pace in Q1 in the Zone. In the quarter output gains were led by France Italy and Germany, in that order, followed by the UK at 4.9% and then Spain at -4.3%. Among these five large EU countries only Spain showed a quarterly drop in IP, but all had Yr/Yr increases from March of one year ago; the UK’s 3.3% Yr-o-Yr gain from March of 2009 is the smallest gain of the lot on that basis.

That's quit a bit better than the GDP report seems. Of course, part of the problem is that Europe’s growth is substantially export-led and that MFG is pulling the whole economy ahead. The consumer sector remains weak and the services sector ahs not gotten into gear. Consumers remain the largest piece of the economy so the bulging IP numbers make for great headlines but the ‘bulge’ is all ‘steroids’ since it takes consumer participation and job growth to make great economic growth (GDP). Europe is not there yet. We conclude these points about sector participations from the other monthly data we have in hand since Euro-GDP reports come in a ‘flash’ format without any detail. The detail will be filled in later. We are all interested in that detail, about sectors and about member by member economic performance. We have yet to see it.

Euro-Area And Main G-10 Country GDP Results
  Quarter over quarter-Saar Year/Year
GDP Q1-10 Q4-09 Q3-09 Q1-10 Q4-09 Q3-09 Q2-09
EMU-15 0.8% 0.2% 1.6% 0.5% -2.2% -4.1% -4.9%
France 0.5% 2.2% 1.0% 1.2% -0.4% -2.6% -3.2%
Germany 0.6% 0.7% 2.9% 1.5% -2.2% -4.8% -5.8%
Greece -3.1% -3.1% -1.9% -2.3% -2.5% -2.5% -1.9%
Italy 2.1% -0.2% 1.5% 0.6% -2.8% -4.7% -6.1%
The Netherlands 1.0% 1.5% 2.3% 0.1% -2.6% -4.0% -5.2%
UK 0.8% 2.0% -1.2% -0.3% -3.1% -5.3% -5.9%
US 3.2% 5.6% 2.2% 2.5% 0.1% -2.6% -3.8%
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