Back in late July we declared that the European recession
was coming to an end.
It was clear from manufacturing data, as well as bank lending data that the corner had turned or would soon turn, and that although things would remain a holy mess, things would no longer get worse economically and that there would be a modicum of growth.
Since then, this view has grown in popularity.
In a note out last night, SocGen economic Brian Hilliard says this is the week we find that out for sure.
IS THE EURO AREA FINALLY EMERGING FROM RECESSION?
In recent weeks, a number of better than expected economic data have lifted the mood for the euro area growth outlook. This week we expect preliminary Q2 GDP data for France, Germany and the euro area to indeed point to a small improvement in growth, the first in nearly two years and better than we expected in our latest Global Economic Outlook in June.
While this may provide some welcome relief, we think it is too early to call an end to the euro area debt crisis. Firstly, looking more closely at the driving factors in Q2, we expect temporary factors to have been at play in both Germany and France. In Germany, the rebound from poor weather conditions in Q1 exaggerates the likely strength of growth in Q2 (we predict 0.7% qoq — euro area economist, Anatoli Annenkov, analyses this in A roaring rebound in German Q2 GDP expected) while for France, even with the help of strong energy consumption (unlikely to help in Q3) and net trade growth, only 0.2% qoq is likely.
Bear in mind, though, that this will signal the exit from recession. Diverging trends are still apparent, with strong German data contrasting with still lack-lustre data elsewhere. Secondly, we expect headwinds from financial fragmentation and additional fiscal austerity to weigh on growth in H2, with risks stemming from policy uncertainty remaining high. Progress with the Banking Union and the financial sector regulatory framework will in this regard be crucial.
Anytime anyone makes this call, people feel the need (understandably) to point out all of the looming pitfals for the Euro, including the ongoing austerity, the political uncertainty, and as SocGen does, the issues with the banking union. People point this out in part because it’s true, but also because they don’t want to seem glib about how bad things are in the real world there.
That being said, turns start somewhere, and if you wait until things are good until you start talking about them, then you miss the boat.