Search This Blog

Tuesday, 16 August 2011

Goodbye growth. Hello recession. The economic motor of Europe is faltering.

What some people already were afraid of, is now confirmed by the data. A recession seems on its way to Europe. And although it will always be the discussion when a recession exactly started, I think that Q2, 2011 makes a good candidate,  at future judgment.

This last week, three of the leading economies of Europe, when it comes to growth and exports, presented their Q2 data: France, Germany and The Netherlands. ‘Not very good’ is an understatement as far as these data are concerned.

To start with the data of The Netherlands: this morning on August 16,  the quarterly results were presented by the Dutch Central Bureau of Statistics ( Here are the pertinent snips of the press release, translated to English by me. Data and chart are courtesy of the CBS.

·      1.5% growth year on year
·      Quarter on Quarter 0.1% growth
·      Investments increased by 4.2%
·      Export of Dutch products is dropping
·      No growth in household consumption.
·      Moderate job growth

The economic growth weakened strongly in Q2, 2011. Compared to Q2, 2010, the economy grew by 1.5%. However, compared to Q1 the economy grew only by 0.1%. The number of jobs was 46,000 higher than one year ago. This is shown by the first preliminary estate of the CBS.

The investments increased in Q2, 2011 by 4.2% year-on-year. Especially, there has been increased investment in means of transport and machines. Also investments in RRE and CRE increased, but growth was considerably less than in Q1. Then the building industry profited from the good weather conditions.

The export of Dutch products grew by 2.9% year-on-year. This growth is considerably lower than in Q1. Ths increase of transit goods (goods that are imported and immediately exported again) is, just like in Q1, less impressive than in the quarters before. Also the growth of the export surplus of services added to the growth of the Dutch economy.

Dutch households spent in Q2,2011 just as much as in Q2, 2010. They spent more money at durable goods and services, but less in food and additional consumption goods, like alcohol and tobacco. The usage of natural gas decreased strongly, due to the relatively soft weather, compared to one year ago.

The dropping export growth in Dutch products resulted in a moderate growth of industrial production in Q2, 2011. Also the building production grew very moderately. The growth in business services performed better: it rose to 1.4% in Q2 from a slight decrease in Q1. At mineral production and energy production companies there has been a slight decrease of production.

Volume of growth of the Gross Domestic Product, based on the 2005 price level (
To start with the most positive figure of this CBS-report: the 4.2% growth in investments. This is a good figure, compared to the other figures. However, I’m afraid that these are mostly catch-up investments. Companies postponed investments in 2009 and 2010 and kept on running with an aging vehicle and machine park. Now, these companies are making those postponed investments. I think so, because there doesn’t seem to be a true business driver in the CBS-data.

Although, it doesn’t seem a good development that export seems to be stalling in The Netherlands, it can be a blessing in disguise, as our export-surplus is the import-surplus of Italy, Greece, Spain and Portugal. It is a good development when there is more balance within the Euro-zone. See my article: Germany,  an economic miracle?.

It is my true opinion that the lagging household consumption is caused by the fact, that the capital of Dutch households is still held hostage by the excessive mortgages that rest on Dutch housing.

And as long as Dutch Finance Minister De Jager keeps on kicking the can down the road with the Mortgage Interest Deduction and other measures to maintain the current status quo, nothing changes in this consumption.

The Q2, year-on-year growth in The Netherland still seems alright with 1.5%, but you should be aware in Q2, 2010, The Netherlands was still recovering from the deep economic crisis of 2009.

That the economy is already stalling within two years after such a bad recession, is a bad sign: the sign that there was too little pain in 2009, which I already advocated in a number of articles:

From the article behind the second bullet, is the following section:
At this moment, the phenomenon occurs that The Netherlands is still incorporating the last economic crisis (2008-2009) into its current economy, while the next crisis (in reality a follow-up on the last crisis) seems already here.

It is my expectation that the coming years the drop in purchase power might be stronger and the unemployment figures might rise substantially, due to deteriorating circumstances for:
Especially the last category will (in my opinion) suffer from the fact that the part-time unemployment benefit, which was established in 2009, prevented companies from reducing overcapacity in numbers of jobs and production facilities. As a consequence of this special government subsidy, companies kept people under contract that otherwise would have been dismissed. How noble that may seem initially, it makes companies less competitive. Especially now a new crisis is looming, due to the continuing problems in the Euro zone.

Instead of a lasting positive effect on the employment situation, the parttime UB did only have a shifting effect: postponing the inevitable loss-of-jobs to a few years later. This effect may be reinforced by the current effects of the deteriorating economy in Europe: a double-whammy.

I suspect the data in the coming years to be worse, much worse.

The unemployment figures did not rise yet, but I still suspect they might within one or two years, when the effects of the Part-time Unemployment Benefits have disappeared and companies still remain with overcapacity. Further, the CBS data seems to be matching with my July 17, findings.

The Netherlands, although the 16th economy in the world ( in GDP, is still a small economy. The following two economies aren’t: France and Germany. And both had terrible data over Q2. The Dutch financial newspaper Het Financieele Dagblad writes on both economies in a series of articles. I will write here the translated, pertinent snips of these articles:

There is no growth in the French economy anymore. In Q2, 2011, the GDP stalled at an equal level as Q1.

This was published by the French bureau of statistics ( last Friday, August 12. In Q1 the economy still grew by 0.9%, the largest increase in five years time.

The stalling of the French economy puts extra pressure on President Nicolas Sarkozy. He wants to make some drastical cutbacks and abandon certain tax-cuts to get the governments finances back in the harness. France is pursued with vigilance on the financial markets, as there are serious doubt on the country’s  creditworthiness in the long run.This might cost the country its Triple-A rating.

According to the statisticians, the stand-still is mainly caused by dropping consumption of households. It dropped in Q2 by 0.7%.

Dropping household consumption: where did we hear that before…

In another good article, called La gloire de France (the glory of France), the Financieele Dagblad looks at the heritage of President Sarkozy in the year before the French elections:

In 2007 the French brought the Presidency to Nicolas Sarkozy, after his promise to end the taciturn character of the political elite. Four years later disappointment reigns. The distance between voter and elite remains big and Sarkozy only further emphasizes the imperial character of the Presidency.

The tumultuous developments on the sovereign bond market totally changed the playing field and the rules for Sarkozy, but also for leaders like Berlusconi, Zapatero and Obama. The expectance that elections can be won with traditional campaigns, where political differences are emphasized and voters are seducted with unsustainable promises, has completely disappeared.

The message in the battle for the French Presidency is not easy. France must reinforce the economy and cut the state budget. Another blow for French citizens that saw an increase of the retirement age to 62 from 60, shortly before.

The French economy has been an equal match to Germany for a long time, due to European subsidies. But now, if the French government won’t act, the country is sliding into a subgroup, stuck between a strong Germany block (including The Netherlands) and the economically weak PIIGS-countries. And it can’t use Brussels anymore to cover up its weaknesses.

This position won’t be acceptable for the proud French government. This ask for courage and political leadership to break the political status quo. Four years ago, it seemed that Sarkozy ran the gauntlet, but he failed. Now, France and Europe should hope that Sarkozy or his successor will achieve this, as words only aren’t good enough.

This is a very good article, that I unfortunately had to edit slightly. It’s a must-read for people that speak Dutch.

And the last of the ‘strong’ Euro-countries,  mentioned in this article, is Germany. And also Germany showed disappointing  growth data. Again, Het Financieele Dagblad:

The German economy grew by 0.1% in Q2, quarter-on-quarter. Economists expected a growth of 0.5%.

This was announced by the Germany statistical bureau (  on Tuesday, August, 16th.

A Bloomberg survey showed that international economists counted on 0.5% growth. Year-on-year the growth of the Germany economy was 2.8%.

‘The German data is absolutely disappointing’, according to Jurgen Michels, chief economist Eurozone at Citigroup in a statement to Bloomberg. ‘Everything points at stagnation in the Euro-zone in Q2.’

In the end of the morning the statistical bureau of the EU, Eurostat, will present the Q2 growth-figures of the Euro-zone. According to the economists in the Bloomberg survey, the growth will be 0.3%, compared to 0.8% growth in Q1.

I think that the economists in the Bloomberg survey have been overly optimistic on the growth figures for the Euro-zone, that will be presented this afternoon. The economists missed the boat on France and they missed the boat on Germany: will they be spot-on this afternoon? Especially if you remember that Germany, France and the Netherlands didn’t have any growth, almost? And you consider that these are the strongest (exporting) countries within the Euro-zone?

I think that the growth will be close to zero or even negative (It can be that the Eurostat figures were already presented during the time I wrote this article, but I didn’t have a look at them yet.

And towards Germany and the other countries mentioned here: as long as the household consumption in Europe doesn’t increase and export to the rest of the world doesn’t increase strongly, there will be no true economic growth within the Euro-zone. It’s impossible, as one country’s economic growth will always cannibalize on the economic growth in other Euro-zone countries, due to the resulting imbalances on the trade balance. Please read again the aforementioned article: Germany, an economic miracle?

And for the German household consumption to increase, the general wages have to go up, which is unlikely to happen shortly, in my opinion.

Update 14:30 (CET)

The Spanish economy showed light growth in Q2, according to De Volkskrant.

The Spanish economy grew by 0.2% in Q2, 2011, compared to Q1. This was presented today by the Spanish bureau for Statistics.

Year-on-year the economy grew by 0.7%; this was a little less than in Q1, when y-o-y growth amounted 0.8%.

Well, those are comforting figures. The Eurostat-results will be much better than I initially thought.

No comments:

Post a Comment