Thursday, July 16, 2009

Western Europe: Leader or Laggard?

(Economic Development Canada – Peter G. Hall)

A year ago, Europe was being touted as the resilient zone. Inflation was the big worry, not recession. Interest rates were hiked 25 basis points on July 9th, 2008. But the zone’s analysts were wrong. Along with the rest of the world, Europe tumbled. Brighter signs have emerged recently, enough to prompt calls for a scaling-back of government stimulus. Is Europe poised to lead the world back to growth?

It certainly didn’t look that way a few weeks ago. Europeans were shocked enough by the 6.8% annualized drop in output in the final months of 2008, but the 9.1% slump in the January-March period was a stunning blow. Most other big economies also contracted in the quarter, but Europe’s accelerated decline set it apart from all other zones. Economic momentum was clearly in the wrong direction, and led to significant downgrades of the pan-European growth forecast for 2009.

Recent signals are more upbeat. Industrial production posted gains in Germany, France and Italy during May. The trade balance for the Eurozone marched further into the black during the month. Germany also saw a surprising surge in new manufacturing orders in May, and both business and investor confidence are on the upswing, kindling hopes that recovery is imminent.

Click here to read more or watch the video.