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Wednesday, May 12, 2010

Europe Grows (Barely)... Future Expectations Muted

The NY Times details:

The economy in the euro area expanded only modestly during the first quarter of the year, as demand in countries like Germany and France remained sluggish despite the recovery in exports.

Gross domestic product expanded by 0.2 percent in both the 16-member euro area and 27-member European Union, compared with the previous three months, according to initial estimates from Eurostat, the statistical office of the European Union.

While full details of the euro-area numbers are not yet available, analysts noted that business surveys point to a stronger pickup from the end of first quarter going into the second.

Gilles Mo√ęc, an economist at Deutsche Bank in London, said that on one side, fairly strong external demand, helped by the depreciation of the euro, is giving exports a lift. On the other hand, the employment situation is grim, and “the consumer element is missing.”

The concern from here is the impact of austerity moves on these European economies. Per Business Week:

Greece’s economy contracted in the first quarter as the government cut spending and raised taxes in a bid to trim the European Union’s second-biggest budget gap. Gross domestic product shrank 0.8 percent from the fourth quarter, when it fell by the same amount, the Athens-based Hellenic Statistical Authority said in an e-mailed statement today.

The pace of the contraction will accelerate in the next two quarters as the austerity moves, coupled with higher inflation and job losses, lead to “a double-digit decline in household disposable income,” said Nicholas Magginas, an economist at National Bank of Greece SA in Athens. “The sharp drop in imports will only mitigate the negative impact on GDP growth.”

Source: Eurostat