The first estimates for first quarter GDP growth were released across the eurozone this morning, and the numbers leave a lot to be desired.
In France, the economy contracted 0.2%, matching the pace of contraction in the fourth quarter of 2012 but missing economists’ estimates for a smaller, 0.1% contraction.
In Germany, GDP rose 0.1%, but the data fell short of expectations for a 0.3% advance, and the contraction in the fourth quarter was revised to 0.7% from 0.6%.
In Italy, the economy shrank 0.5%, indicating a slowing pace of contraction after falling 0.9% in the fourth quarter, but missing estimates for a smaller, 0.4% contraction, and extending Italy’s recession to seven straight quarters – the longest on record.
Nonetheless, markets across the eurozone are advancing today, undeterred by the bad data.
“That we no longer need to deal with the consequences of bad data now rooted in policy attempts to reduce public spending means that the seemingly worsening economic picture can be treated with kid gloves,” says Andrew Wilkinson, Chief Economic Strategist at Miller Tabak.
Wilkinson compares the releases to a game show:
Indeed one can envisage the slew of economic data being presented by a sympathetic game show host, sugar-coating the bad news first-quarter growth readings that largely missed estimates. The host knows he can keep up hope amongst the audience by softening the blow as he says that the “EU team” as a whole didn’t do as well as hoped – “but that’s alright, because you did better than you did in the last round. So keep your spirits up, we’re getting there.” The EU-wide economy contracted by 0.2% in the first-quarter (two times as bad) but that was a lesser pace of contraction than in the fourth-quarter when output across the zone fell by 0.6%.
You can see the host shuffle his prompt cards, keeping his microphone close to his mouth as he moves on to the individual performances. “Italy – you shrank by 0.5% when we thought you’d do just a little better,” he says offering a stern look aimed at embarrassing the contestant. “But still that’s much better than in the last round. You slipped by 0.9% then, but we’ve got a long way to go.” And quickly flipping to the next card he excitedly jumps to the French contestant and claims that the Parisian contender fared just as well to start the year as he finished the last. Still, a revision up for Q4 was offset by a weaker first-quarter. GDP growth contracted by 0.2%, prompting a “zut alors!” from the host.
But the highlight of the show comes as the host turns to an exhausted-looking German contestant. “You did it! You’re back in the black and as team leader you made everyone else look good!” The German economy grew by just 0.1% following a slightly deeper pace contraction than was originally reported in the fourth when the economy sank by 0.7%. The audience, however, had been looking for a better performance of 0.3% growth, but that didn’t happen as the other team members prevented him from running as fast as he really could have done.
And so all said and done, the audience is taking the growth reports in its stride. The show wasn’t great, but the host delivered the news well and provided us with encouragement for the future. How could things get any worse?
It’s nothing new, but the saying that “bad news is good news” seems to be holding up pretty well today in the market.