Europe, Its Growth Crippled, Becomes A Global Concern Again

Europe’s growth has begun to slow, which will raise fresh questions about whether debt issued by the nations in the region has become risky again. Or, it may have been risky all along. Concerns about deficits in eurozone nations in the spring, along with contracting GDP caused sovereign debt investors to sell off paper offered by many of the countries. This caused unsustainable interest rates and eventually led to the bailout of Greece.

“The Markit Flash Eurozone Composite Output Index fell to a seven-month low of 53.8 in September, dropping well below market expectations and down sharply from April’s post-recession peak.” Markit is the official data and research group that tracks economic data in the region.  It found that GDP growth for the eurozone has fallen to .3%.

The engine of the region’s economic expansion is Germany, which is by far the largest nation in the eurozone based on GDP. “A sharper slowing was evident in Germany, where the Composite Output Index dropped 3.6 points to register the weakest rate of expansion since January,” the Markit report says.  It argues that the German slowing is temporary,  which would mean the nation could escape the economic stagnation facing other large economies particularly the US and Japan.

The report also showed an end to job creation in the region, which will damage consumer demand.

There was a brief period that lasted only a month or two when the economies in the eurozone began a modest recovery. Leaders of the nations there proclaimed that the sovereign debt crisis had ended and that their austerity programs would be sufficient to bring down national deficits. Those proclamations, which assumed some measure of economic growth, may have been premature.

Europe is still in trouble for a simple reason. The economies in the area are not growing and their expansion has weakened so rapidly that GDP in the eurozone may not be improved at all.

Douglas A. McIntyre