Not Quite a Recession

16 February 2005



German Economy Stagnates, Eurozone Grows Slower

Economists traditionally define a recession as two consecutive quarters of negative GDP growth – “negative growth” is their word for what normal people call “shrinking.” It is an arbitrary measure in many respects, but if an economy is flat to down over more than two or three months in a row, things are in need of improvement. The German economy, the biggest in Europe, has almost been in a recession since June. As a result, the Eurozone as a whole is feeling blue.

The Federal Statistics Office in Germany released fourth quarter GDP numbers yesterday, and the German economy as a whole shrank (or grew negatively if any economists are reading this) by 0.2%. Third quarter GDP was flat, and that isn’t quite the definition of a recession, but it isn’t a boom either. For the year, GDP was up only 1.6%, compared with projections of 1.7%. Still, it was better than the contraction of 2003 (another word for negative growth).

The German problem seems to be one of jobs. Just recently, the official figure for out-of-work Germans hit 5 million, which is in the ballpark of 11% of the workforce. Throw in rising oil prices and a surging Euro exchange rate, and it’s no wonder Germany isn’t growing. But the real problem is a structural one, since unemployment in the former Soviet Zone of Occupation runs at 18.8%. The former prisoners of communism still don't have enough capital or enough work to pull themselves up to the levels of their fellow citizens in the west.

Italy also had a growth problem, and its economy shrank 0.3% in the fourth quarter. Meanwhile, France and Spain experienced genuine growth, although at less than 1%. The statistics suggest that consumer demand in those countries is greater than in Germany and Italy, and as a result, there is more economic activity overall.

Already, the European Commission is reducing its expectations of the Eurozone’s prospects. First quarter growth was set to come in between 0.3-0.7% but a tenth of a percent has come off those. And the same figures will apply in the second quarter. For 2005, the commission expects 2% growth – but it may require more German jobs and more general spending for that dream to come true.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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