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Is Europe Really Recovering?


Data that is "less bad" is being heralded as a sign of a bottom or nascent recovery, but just because something is declining at a slower rate doesn't mean there is improvement.

"Europe is getting better."

I keep hearing this on TV and just shake my head. I often wonder whether or not the person speaking those words has actually traveled there to see what's really going on. I believe it's quite safe to say that many of them have not.

The photo below is a prime example. On July 25, CNBC was discussing this very subject and used the graphic below as evidence that Europe is "bottoming."

Just a few days ago we did see better-than-expected PMI data for the eurozone, but let's take a look at each point quickly:

"UK: Q2 GDP Up 0.6%"

Excuse my cynicism, but since when has 0.6% been considered a good number? Everything is relative I suppose, and this is their best number since early 2011
. However, as this chart from the the London Telegraph shows, GDP has been in gradual decline for nearly a decade.

Click to enlarge

"German and Dutch Confidence Is Higher"

Again, this may be cynical, but this data is dependent on
the "emotions" of people and not necessarily based on any hard data. Maybe the weather was nice that day and everyone was happy? One can see from the chart below that confidence is, in fact, quite high in Germany, but it's been there all year, so why is now any different? It seems to me that CNBC is cherry-picking what little "positive" data there is.

But wait. Perhaps you noticed what just happened there. Consumer confidence was not the data point that was released. It was German Ifo Business confidence.

As you can see from Ifo's own data, this data has been trending down for the last few years as well.

CNBC actually proves my point because their final two data points aren't "green shoots" at all. Yes, Spanish jobless claims fell, but it fell to 26.20% from 27.16% in the previous quarter. Any improvement is good, but let's cobble together more than one month before we start calling for a change in trend. Anyone that pays attention to employment data points knows that there is a myriad of ways to manipulate the data. The media is so desperate to put a good face on what's happening that they often intentionally misrepresent data to make it sound better than it is.

France is not only a problem, but it very well may be the "pale horse" of the continent. In my opinion, people are wildly underestimating the problems that will come from France. Now we see that French jobless claims are hitting record levels. Almost 3.3 million French are out of work, and this is indicative of the vast majority of Europe. I'll circle back around to France in a bit.

To be sure, there are some pockets in and around Europe that aren't doing poorly, but like any puzzle, we must step back to see the full picture. What strikes me as interesting is how any piece of data that is "less bad" is immediately heralded as the sign of a bottom or nascent recovery. Just because something is declining at a slower rate doesn't mean there is improvement. It likely means that it's difficult for things to get much worse without some exogenous event. Based on the data I'm about to present, I believe that things in Europe are actually worse than they've ever been.

Beginning with the PIIGS, Greek GDP is expected to contract by 7% by year's end. Industrial output is down 4.6% year-over-year and the little manufacturing they have was also down 1.8%. Lending to business continues to fall, deposits are still leaving banks, and unemployment is a stifling 27.6% up almost 1% from last month (under 25, it's over 55%). Almost 1.4 million Greeks are out of work.
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