Thursday, December 18, 2014

Is Europe Shrinking or Growing?

According to a European data analytics company called Markit Economics, Europe is still growing despite poor projections. Based upon a survey of purchasing managers and their prospects throughout 18 nations in Europe, their index of economic growth moved upward from 51.1 to 51.7 showing a higher rate of growth than previous expect. Some economists predicted a slight contraction but improvement in the market appears to have lowered the pressure by improving the situation.

The study also shows that core countries like Germany and France are experiencing slower growth and waning job creation while those countries on the periphery are doing better. Combined Europe has a moderate rate of growth somewhere around .2 percent showing near stagnation. Such slow rates of growth give European officials pause in deciding their next course of action. 

Selling prices for manufacturing and services is slowing.  Stagnating wages, lower oil prices, and lower demand are putting downward pressure on production costs. Depending on how this plays out it could lead to greater exports or hints of deflation. Much of it depends on how administrators respond to growing challenges.

One thing for sure European officials are not likely to push for further stimulus anytime soon. The last round of stimulus had only a moderate impact, leaving countries like Japan and Greece in heavy debt, while still leaving many wonder what the long-term advantages were. The Economist put together a fairly strong analysis of the total costs when countries soared in debt topping 74% to 101%of GDP.

The problem with Europe's economy is that are tied to a global slowdown and have already spent a significant amount or resources on past stimulus. They simply can't afford to do another round now without serious consequences. Some of the nations seem to be doing well while anchor countries suffer to improve their positions. Understanding whether Europe is growing or shrinking might depend on whether you are the type who sees the grass half full or half empty.

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