Europe's Economy Is Running On Fumes

One of the indicators I follow is the EuroCoin indicator, which provides a real-time look into Eurozone GDP. The indicator is released near the end of the month and is therefore a leading indicator when it comes to predicting euroland GDP. Well the September reading came in and it was not good, indicating that the problems in Europe continue to impact economic growth. From the press release:

· In September €-coin fell slightly,from 0.37% in August to 0.34%.The value of the indicator continues to indicate a slackening of the recovery compared with the first six months of the year.
· This month modest growth in long-term yields has held back the indicator, which has nevertheless been sustained by the favourable trend in share indexes.

As you can see the EU economy is practically on life support after the sovereign debt crisis. Growth is almost non-existent, which makes it hard for over indebted countries like Greece, Spain, and Ireland to grow their way out of their problems. Earlier this year, the euro was down substantially, which allowed EU countries to increase exports and gave them some breathing room. However, the euro has rebounded thanks to the anticipation of QE 2 by the Fed, which should prevent EU countries from growing exports in any meaningful way. Without exports it is hard to see how these struggling countries can ever turn turn things around. Austerity reduces domestic consumption and a stronger euro reduces exports. What else is left to increase economic growth? Money printing perhaps, which is the preferred tool of central banks is always a possibility but that does nothing to help the real economy.

Black Swan Insights


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