The economic bleeding that had dogged the eurozone economy appears to be slowing which is a particularly welcome development for Europe, the global economy and financial markets.
Many eyes are on the problematic conditions in China and India and are starting to focus on the pickup in the US, but the European Union is still the largest economic entity in the world, accounting for just under a quarter of global GDP. If the eurozone can in fact start registering economic growth from about now, it could offset the apparent slowing in China and help the world economy to a solid growth outlook in 2014.
Indeed, it is now increasingly likely that the eurozone recession is ending and that GDP growth will be positive over the second half of 2013. While massive structural problems remain, it is also increasingly likely that GDP growth in 2014 will be near 1 per cent and with any luck it could be a touch higher.
There have been a raft of indicators from Europe over the past 24 hours or so which are all pointing in the direction of either a bottoming of economic activity or, in the case of consumer sentiment, a probable lift.
The European Commission’s measure of consumer sentiment rose to an index level of -17.4 points in July, to be at its highest reading since August 2011. This suggests that the recent turning point in retail spending is likely to be sustained at least into the September quarter.
In another positive sign, the National Institute of Statistic and Economic Studies (INSEE) measure of business confidence in France rose to 95 index points in June to be at a 15 month high. Both INSEE and the Bank of France are now estimating that French GDP actually rose 0.2 per cent in the June quarter to signal a clear end to the recession in France, which is the eurozone’s second biggest country behind Germany in terms of both GDP and population.
Just last week, French Prime Minister Francois Hollande noted that “the economic recovery is here”. This positive assessment was reiterated by Finance Minister Pierre Moscovici who said overnight “we are out of recession. Now what needs to be done is that the recovery needs to gain traction”.
Moscovici made the obvious point that “now we need to work to transform this exit from recession into a genuine recovery”.
Even in Spain, there are signs of a turn with the Bank of Spain publishing updated forecasts, which suggest that GDP fell by only 0.1 per cent in the June quarter with a rebound in exports underpinning what is a more favourable outlook. While Spain is still dogged by 27 per cent unemployment rate, its decision to scale back on the extent of fiscal austerity is clearly yielding a return in terms of a more favourable (or less bad) economic outlook.
In Ireland, where house prices fell by a staggering 60 per cent during the recent depression, there are hints of better news. Irish house prices recorded their first rise in almost five years with a 1.2 per cent rise recorded in the year to June. After such a slump, an upturn in house prices will be a critical element supporting consumer confidence and wealth in helping the Irish banking sector to start the very long process of repairing its balance sheet.
These snippets of positive news were offset by news that the property sector in Cyprus is, not surprisingly, experiencing a severe downturn. Apartment valuations dropped a stunning 12.6 per cent in the June quarter while there was a thumping 23.3 per cent fall in office space in the same time. This sort of dismal news is not surprising given the proximity of the recent banking and fiscal crisis in Cypriot finance (Cyprus’ two options: Misery or suffering, March 18).
While a fully-fledged return to decent economic growth is still some way off, it is hugely encouraging to see the eurozone register some better economic news in different sectors and across different countries. Easier monetary policy is no doubt helping, as is the less severe application of fiscal austerity.
The end point for Europe is to reverse the horrendous rise in the unemployment rate, which reached a record 12.2 per cent in June, and to lock in a sustained pickup in economic growth.
If these objectives can be achieved, the government debt problems will sort themselves out as tax revenues pick up and government spending subsides.