Fisher Investments Editorial Staff
Developed Markets, GDP

We’re Okay, Euro Okay

By, 06/08/2010

Story Highlights:

  • Against a backdrop of a supposed nasty euro contagion, Germany's April manufacturing orders surged 2.8% over the prior month, driven by domestic and foreign demand.
  • Demand from emerging markets like China is helping to underpin the rise—similar to what we've seen drive rising new manufacturing orders in the US as well.
  • Contagion fears persist, but note the 16-member eurozone region grew 0.2% q/q in Q1, marking the third straight quarter of GDP growth.
  • It's not clear sailing ahead for the eurozone, but it's normal for countries and/or regions to trade economic (and hence stock market) leadership from time to time, with overall growth helping the whole world along.

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Most eurozone headlines lately have slanted toward the negative, but encouraging signs still abound. Against a backdrop of a supposed nasty euro contagion, Germany's April manufacturing orders surged 2.8% over the prior month (vs. an expected -0.5%) and by almost 30% vs. the prior year. This recent data from Europe's largest economy shows the eurozone is perhaps more okay than widely presumed. 

Though demand from other eurozone nations weakened, domestic new orders rose 2.9%, while demand outside the currency bloc notched 5.5%. Demand from emerging markets like China is helping to underpin the rise—similar to what we've seen drive rising new manufacturing orders in the US as well. Positively, the demand for German goods is also leading companies to add workers, with unemployment unexpectedly falling to 7.7% in May. 

Countering fears PIIGS (or does Hungary make it PHIIGS now? PIGISH?) problems would check business growth in the region, April's 2.8% gain comes on the heels of March's upwardly revised 5.1% jump, adding to confidence Germany's economic recovery can be sustained. And despite worries of a falling euro tied to sovereign debt jitters, German exporters are benefiting from the weaker currency.  

PIIGS/PHIIGS contagion risks continue to rattle markets, but note the 16-member eurozone region grew 0.2% q/q in Q1, marking the third straight quarter of GDP growth—all while debt woes were supposed to be leading to a meltdown. Even Spain and Italy posted Q1 GDP gains of 0.1% and 0.5%, respectively—not stellar, but not bad for two naughty piggies. 

Hungary, which perhaps inadvertently placed itself in the PIIGS ranks last Friday and stirred the pot of sovereign debt fears, quickly ate its words this week to dispel suspicions of default—further dismissing the idea of widespread and damaging debt contagion. Plus, the Organisation for Economic Co-operation and Development (OECD) recently raised its growth forecasts for the eurozone region overall, in spite of weakness from Greece. 

It wouldn't surprise us if the European Union (EU) lagged the world economy a bit this year. In general, the EU has higher tax burdens and more hurdles to free change overall, which can create headwinds to a vibrant economic recovery. But we also wouldn't be surprised if the EU did better than folks expected, considering folks are generally fearing the worst (i.e., fiscal meltdown). 

Sure, it's not clear sailing ahead for the eurozone, but we'll likely get more positive signs from the region as austerity measures from its fiscally weakest members take clearer shape. But it's normal for countries and/or regions to trade economic (and hence stock market) leadership from time to time, with overall growth helping the whole world along.

 

*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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