Adding to the long list of (not terribly surprising) European news, Wednesday brought reports eurozone GDP contracted -0.3% quarter over quarter (-1.2% annualized) in 2011’s fourth quarter. Digging beneath the surface did reveal a few mild surprises: Overall, the contraction was slightly less than expected—the median forecast was for a drop of -0.4% q/q. Germany also dropped less than expected (-0.2% q/q from an upwardly revised +0.6% q/q gain in Q3). And perhaps the biggest surprise of all: France actually expanded by 0.2% in Q4, defying expectations for a -0.1% q/q contraction.
In the far less surprising category, Greece, Portugal, Belgium, Italy and the Netherlands logged their second consecutive quarters of contraction (at least—Greece has been negative far longer), taking them into technical recession territory by one common definition. In fact, we had theorized such a contraction was quite possible.
Analysis of the report’s forward-looking implications will no doubt proliferate in coming days. But perhaps most worthwhile with respect to Wednesday’s report are a few reminders: As we’ve pointed out before, while the eurozone is typically treated as a uniform bloc, it’s most definitely still comprised of individual countries—each with its own economy. Granted, those economies are fairly tightly integrated, but primarily as regards monetary policy and the financial system. When it comes to manufacturing, services, exports, imports, political drivers, etc., each country remains almost completely independent. (Some would argue that’s precisely part of the eurozone’s problem, but that’s for another discussion.) Which undoubtedly makes eurozone data somewhat less useful in determining the area’s likely overall future course.
Because the eurozone’s composed of individual countries, fact is, it’s entirely possible those countries will grow at different rates. Their close integration from a currency and monetary policy perspective needn’t seal their fate when it comes to other areas of growth.
Also important to remember is one quarter’s number doesn’t tell you much about where the eurozone goes from here. Could Germany and France slide further and the region as a whole slip into recession? Possibly—but that’s been in the realm of possibility for over a year now. On the other hand, could recent indicators of improving eurozone sentiment and overall production pull some countries back into the black and strengthen further those already helping sustain the eurozone overall? Also possible.
Either way, the key is keeping the numbers in perspective, as well as remembering when it comes to moving markets, that’s typically the job of surprises. Not widely anticipated events. And the fact eurozone economies were weak in Q4 isn’t hugely surprising.