{"id":140259,"date":"2019-01-17T09:18:33","date_gmt":"2019-01-17T14:18:33","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=140259"},"modified":"2019-01-17T08:52:43","modified_gmt":"2019-01-17T13:52:43","slug":"europes-next-recession","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/01\/europes-next-recession\/","title":{"rendered":"Europe\u2019s Next Recession"},"content":{"rendered":"
January 17, 2019<\/div>
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By Orbex<\/a><\/strong><\/p>\n

Following the drop in US stock indices at the end of last year, there was quite a bit of press talk about a potential recession. But that has gone by the wayside now that the Dow managed one of it\u2019s best starts of the year in history. Europe remained largely ignored, despite having worse economic indicators and stock markets that had tumbled even more than the US\u2019.<\/p>\n

Last year\u2019s third quarter GDP in Germany came in negative, though for once the other countries of the block performed better and the eurozone as a whole managed to squeeze out a 0.2% quarterly growth. Should German GDP stay negative during the last quarter, the largest economy in the eurozone would once again slip into a technical recession \u2013 just as the\u00a0ECB is embarking on a tightening program<\/a>.\u00a0<\/strong><\/b><\/a><\/p>\n

The Reality<\/strong><\/b><\/h2>\n

We can talk about the next recession in Europe with certainty because of the basic reality of economics: recessions always happen. The questions that perplex economists and traders are when and how \u2013 the vital piece of knowledge needed take on the right investment position. So, is Europe due for a recession?<\/p>\n

Recessions happen with a frequency of 7-8 years, and Europe managed to get out of the last one at the end of 2012. On the basis of time, the euro area is getting in the normal range for a recession.<\/p>\n

However, recessions\u00a0are\u00a0typically based on a correction of an underlying economic imbalance created after a period of growth, and Europe hasn\u2019t managed to perform all that well since last slipping into negative growth.<\/p>

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Economists might argue that the 2012 recession was technical, with quarterly negative GDP growth in the low decimals (the worst being Q1, with barely -0.4%); but that same argument can be said for subsequent growth.\u00a0Quarterly growth has not cracked 1.0% since.<\/p>\n

On an annual basis, the best economic performance was 2.8% achieved in Q2, 2017, and since then it has slipped down constantly, to register 1.6% annually in the most recent quarter.<\/p>\n

The Data<\/strong><\/b><\/h2>\n

Broadly speaking, euro area stock indices maxed out in January of last year and have subsequently tumbled between 10-15% over the next twelve months.<\/p>\n

However, they\u2019ve been recovering in line with the US since the start of the year. More concerning was the industrial production figure released on Monday which showed a precipitous drop of 3.3%. Although this data series does on occasion slip below zero, this is the first time it registered this degree of low since the middle of the last recession.<\/p>\n

On the other hand, as an advanced economy, manufacturing is not the largest industrial sector.\u00a0That would actually be services, and last month\u2019s PMI for this sector still came in above 50, the line between growth and contraction, but at just 51.2, it\u2019s worst showing in nearly four years.<\/p>\n

Unemployment remains low, in fact, the lowest it\u2019s been since the sub-prime crisis. But typically, employment figures are the last to turn negative, as businesses loathe to terminate employees.<\/p>\n

Politics As Usual<\/strong><\/b><\/h2>\n

The issues that grab the headlines around Europe are overwhelmingly political:\u00a0Brexit<\/a>, Greek no-confidence vote, populism in Italy, etc. Potential shocks to the market seem more likely to come from parliaments than from a change in data figures. However, given a wide range of fractured challenges the eurozone faces, the other element of concern is the lack of tools to deal with the situation if one of those things turned into a crisis.<\/p>\n

The\u00a0ECB has barely started<\/a>\u00a0its tightening cycle; only last month it stopped buying bonds, and interest rates are still negative. The last time the eurozone slipped into recession, Draghi came out to say he\u2019d do whatever it takes to stabilize the situation. Now those tools aren\u2019t available \u2013 and even though his term is not up until November, there already is jockeying to replace him.<\/p>\n

While many\u00a0think\u00a0of a market and economic crash\u00a0when they hear the word recession, we shouldn\u2019t discount the possibility of the economy simply slipping into negative growth for a while. But, since nothing in the future is certain, we just have to keep scrutinizing the data as it comes out over the next month.<\/p>\n

By Orbex<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By Orbex Following the drop in US stock indices at the end of last year, there was quite a bit of press talk about a potential recession. But that has gone by the wayside now that the Dow managed one of it\u2019s best starts of the year in history. Europe remained largely ignored, despite having […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-140259","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/140259","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=140259"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/140259\/revisions"}],"predecessor-version":[{"id":140277,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/140259\/revisions\/140277"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=140259"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=140259"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=140259"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}