Fisher Investments Editorial Staff
Developed Markets


By, 08/16/2010

Story Highlights:

  • Investors have been besieged by dour headlines and opinions all last week.
  • On Friday, data seemed to take several of these fears head on, highlighted by eurozone Q2 GDP.
  • Fast growth, particularly in Germany, directly addresses latent fears of a European-led double dip.


Investors had it tough last week, barraged by headlines surrounding cooling growth rates, a widening US trade deficit, deflation worries, and above all, lingering concern over a European-led double-dip recession. But are the headlines merely the normal hemming and hawing that occur in any recovery (which never happens in a straight line up), or do they portend true trouble ahead?

Our guess is it's the former. Economic data took on a number of these concerns quite directly Friday. US retail sales rose, another sign the consumer isn't dead and gone. Despite headlines all week bemoaning potential deflation, the US Consumer Price Index showed prices rose. (And rose modestly, which also doesn't support the oddly simultaneous fears of hyperinflation). Most significant was eurozone GDP—which trounced estimates—countering both concerns over cooling growth rates and a European-led double dip in one fell swoop.

Data showed the eurozone economy grew at an annualized rate of just over 4% in the second quarter, handily beating expectations of 2.8% growth, and far from a dreaded double dip. Major countries' growth was surprisingly strong. Germany posted its best quarter since the Berlin Wall fell in 1989 (2.2% growth non-annualized). To put this in context, if calculated in a similar way to US GDP, the figure is approximately 9% annualized growth! (Positively Brazil-esque!) France and the Netherlands also posted strong growth figures. Exports were a critical contributor to eurozone growth (particularly in Germany), highlighting strong demand from the global economy (and possibly explaining part of that widening US trade deficit). It seems likely the real contagion du jour is increasing global trade, not widely feared sovereign debt issues, which failed to keep the eurozone overall from growing in Q2.

Terrific news! Yet it seemed to be met by some with apprehension–wouldn't growth be slower in future quarters? While it's possible growth will cool in subsequent quarters, fluctuations in growth rates are the norm in economic expansion—sometimes faster, sometimes slower. And solid growth logged in Q2 simply doesn't point to a looming euro-dip.

Others chose to focus on red ink instead of black. Greek GDP contracted -1.5% in the quarter. As we've written here many times, Greece does face a tough road (which it is currently and, in fact, fairly successfully addressing with austerity and structural reform). But those filtering for negatives may miss the broader point—Greece was the only country in the eurozone posting a negative Q2 number—highlighting a Greek contraction that hasn't been so contagious.

In the end, major European economies did quite well economically in Q2. Some smaller nations posted more tepid growth numbers, but economic recoveries generally aren't evenly distributed to all nations. Larger nations like Germany and France are (and have been) the economic guiding light for the eurozone, and both beat estimates and grew. And eurozone July PMI figures point to probable continuation of growth entering Q3.

It seems the only double dipping going on in Germany now may be at the Biergärten, but seconds on Spaten Optimator and hendl are far different than recession.



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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