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Heed the Warnings and Economists Won’t Be Surprised

by on November 12, 2013 12:07 am GMT
 

The cut in the benchmark made by the European Central Bank seemed to hit the market by surprise much like the Federal Reserve’s decision not to taper, but the sad realization is that the analysts and economist are surprised by actions made when the signs were so, so clear.

This Thursday, France, Germany and Italy report their prelim GDP figures. In the third quarter, the eurozone gross-domestic product rose an atrocious, but positive, .1 percent as estimated in a Bloomberg survey of 41 economists. Within the survey, data is expected to show that growth in France will stagnant, while growth in Germany will continue to slowdown as it had over the last three months. And there is not much positive news floating around Italy. According to Nick Matthews, an economist at Nomura-London, Italy is likely to remain in contraction.

Growth in France is likely to be far from the last quarters reading of .5 percent, and there is not much faith in Francois Hollande’s administration to substantially increase medium-term growth outlook. The Standard & Poor’s credit agency dropped France’s crediting to AA.

Spain barely climbed out of a technical recession in the third quarter, but there is not much to be optimistic about. Unemployment still is  above 25 percent with youth unemployment well over 50 percent – that’s not growth when their people cannot find jobs. Portugal released their GDP figure after the eurozone’s print, and it is expected to be slightly positive.

The European Commission cut their forecasts for their euro-bloc growth outlook, down from 1.2 percent to 1.1 percent in 2014. EC officials also see unemployment still above 12 percent for the next year.

When tomorrow’s future cannot get a job today, there is a big problem. Youth unemployment in the eurozone is over 20 percent:

Youth Unemployment, provided by Markit

Youth Unemployment, provided by Markit

Europe's Unemployment, provided by Markit

Europe’s Unemployment, provided by Markit

Thursday we will get a sense of the progress, if any. However, the market must have seen that a rate cut from Mario Draghi & Co. was within the horizon given the low level of growth the eurozone has seen over the last several years.

The 2014 growth out look as a percent change on the previous year is a little more optimistic, but the vast majority of the eurozone will see flatline growth to 1.9 percent.

Euro GDP 2014, % Change Over Previous Year, provided by Markit

Euro GDP 2014, % Change Over Previous Year, provided by Markit

But in the new world of irrational exuberance, even the warning signs are not seen and the consequences ignoring them become a surprise.