Cart (0)
business newsEurope Is the Weak Link in the Global Economy
By
James Kostohryz
Feb 23, 2010 10:00 am
One or two months of additional contraction could be all it takes to send the entire financial system into a tailspin.
PRINT
 |
|
Today’s news out of Germany and France, the EU’s largest economies, wasn't heartening in that regard.
In France, consumer spending, which was one of the only bright spots in Europe in the fourth quarter of 2009, disappointed significantly in January, contracting month over month by -2.7% versus an expected -1.1%. This compares to the 1.3% gain in December.
On a year-over-year basis, French consumer spending registered a 1.5% gain versus an expected 3.6%. This compares very unfavorably to the prior month’s figure of +5.8%.
In Germany, the IFO business climate indicator worsened from 95.8 in the prior month to 95.2 in the current month. This compares to an expectation of 96.1.
The deterioration of Europe’s outlook has caught the attention of Bank of England Governor Mervyn King, who remarked today that recovery in the 16-nation euro zone -- Britain's largest export market -- "appears to have stalled."
Furthermore, as far as the UK economy is concerned, King noted that “the risks to the committee's central view of a gradual recovery of output remain to the downside."
The reverberations from disappointments in the larger European countries will be felt more intensely in the smaller countries such as Greece, Portugal, and some of the Eastern European nations that depend on the larger nations for trade, tourism, and investment. Spain will also be hard hit due to its dependence on tourism and construction-driven demand from northern Europeans.A faltering of growth in Germany, France, and the UK could hammer in the proverbial “nail in the coffin” for these highly dependent economies.
Crises in some of the smaller nations and/or problems in Spain would devastate the highly interconnected and overly leveraged financial systems in Europe, potentially throwing the whole EU into crisis.
Europe is currently the weak link in the global economic chain, so watch Germany and France particularly closely. One or two months of additional contraction in those large economies could be all it takes to send the entire global financial system and economy into a tailspin.
See how Ron Coby & Denny Lamson are playing the foreign market weakness with a FREE 14 day trial to Minyanville's Grail ETF & Equity Investor newsletter. Learn more.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
