The Worst is Not Yet Over for the European Economy

In the fist quarter of 2009 the Europe’s economy contracted at the fastest pace in at least 13 years. And although there are some signs that the second largest economy in the world is getting better, it will likely contract further during the next few months.

Indeed, the last few weeks have surprised us with a positive data due to lower inflation and governments spending plans. For example, Europe’s manufacturing and service industries contracted at the slowest pace in six months in April, with both indexes being up 2 points. And, the consumer confidence and the retail sales have improved for the first time in 11 months in April.

Even though there are plenty reasons to be optimistic we can’t forget that the unemployment rate across the continent rose to a three-year high in March and is likely to increase further. Moreover, the trade data doesn’t look promising and industrial orders are still weak. Although, total exports from the 16 nations using the euro increased in March, is still 22% lower from its peak in April 2008. Most importantly, the European Central Bank interest rate cuts and unlimited amounts of cash to banks to revive lending haven’t yet reached the real economy. In fact, loans to households and companies in Europe grew at the slowest pace in April since records began in 1991.

Anna Fedec,
5/29/2009 5:41:32 PM