Euro Area GDP Data – Bad, But Describing the Past

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On Thursday we were inundated with GDP data from European countries, all of which were apparently 'weaker than expected'. We once again have to ask who exactly is doing all this 'expecting'?. It was blindingly obvious from the PMI releases over the last quarter of 2012 that GDP would follow the PMIs into the cellar – it always does after all, why should this time be any different?

Anyway, we learned that Germany's GDP contracted by a steeper than expected 0.6% in Qu.4, France's GDP contracted by 0.3%, Italy's by a hefty 0.9% and the entire euro area's by 0.6% (note that these are q-o-q numbers in the euro area, not the quarterly annualized numbers generally used in the US. So to in order to get the annualized data, one has to multiply these by four – just to put the data into proper perspective).

European stock markets wobbled a bit upon receiving the news, but they were recently quite overbought anyway. Still, the performance gap between euro-land and US stocks has lately once again increased a bit. However, it seems this can most likely be ascribed to the political jitters in Spain and Italy, as financial markets have largely decoupled from economic fundamentals recently anyway, mainly due to the mad hatter's generous dollops of QE forever (the effects of these tend to spill over into the whole world).

euro stoxx-50 14 feb 2013
The Euro-Stoxx 50 Index – a correction has begun, although so far, lateral support has held – click for better resolution.

It should however be pointed out here that the GDP data are essentially completely useless information. The fact that the contractions were 'worse then expected' should actually be no surprise, as negative news are almost always afflicted by the characteristic of undershooting expectations. Apparently most mainstream economists are either polyannas, or simply can't read a chart. The point is however that looking at these data means that one is looking into the rear-view mirror. They have no bearing on the future, except for the fact that they are confirming what we already knew beforehand: no major euro area government is likely to meet its budget deficit targets. When these deficits are published, everybody will surely be 'surprised' again.

Sound and Unsound Growth

While these backward looking data look bad, more timely indicators have been somewhat less bad of late. PMI contractions have slowed down, and industrial production managed a rare uptick of 0.7% in the euro area, which is not too shabby.

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About Pater Tenebrarum