Germany’s reputation as the healthy man of Europe has been reinforced by better-than-expected growth in gross domestic product (GDP – click here for an explanation) for the second quarter, as growth contracted in the broader euro zone. (via CNBC)
- On Tuesday morning, euro zone GDP data for the second quarter shrank by 0.2 percent, as predicted by analysts polled by Reuters.
- Germany, Europe’s biggest economy grew by 0.3 percent between April and July – not a huge leap, but better than most of the eurozone – as its export strength continued.
- “Germany shows to some degree the way forward to other countries,” Daniel Morris, global strategist at JP Morgan Asset Management, told CNBC Europe’s ” Squawk Box” Tuesday.
- “Germany’s point is if you run a low budget deficit you can still have economic growth. You can’t depend so much on government spending, fundamentally it has to be about the competitiveness of the economy, and Germany’s shown that.”
France also announced slightly better-than-expected GDP numbers for the quarter, with growth stagnating rather than the expected 0.1 percent shrinkage. There are even greater concerns about France’s economy, which is heavily weighted towards the public sector.
- “France has not even started to tighten fiscal policy. France is going into recession and it’s going to deepen next year,” Richard Cookson, global chief investment officer at Citi Private Bank, told CNBC.
- Business investment grew by 0.7 percent, after slowing ahead of France’s elections earlier in the year, but household consumption, one of the main drivers of the French economy, contracted by 0.2 percent in the second quarter.
- “France is more dependent on these large international companies,” Morris warned. “There’s got to be more doubts about how things will progress in France, particularly when you look at the tax changes coming in.”
The Netherlands, which will hold elections next month, reported a surprise rise in GDP of 0.2 percent for the quarter. It had been expected to shrink by 0.3 percent.
Meanwhile, other countries are not doing so well:
- “We have parts of the euro zone in a deep, nasty recession,” Cookson said.
- “We have capital flight from the periphery to the core and we have Greece leaving the euro zone at some point.”
- Greece’s GDP shrank by more than 6 percent during the second quarter, asausteritymeasures imposed as part of its bailout by international lenders continued to bite.
Greece in particular may be worse than we think:
- Though other parts of the continent are improving, Greece actually is worse up close than it appears from the outside, investor Wilbur Ross told CBNC.
- Ross, a vulture capitalist who seeks to turn around distressed companies and who has invested heavily recently in Ireland, toured the region and said he found the country in disarray, with many citizens expecting Greece to leave the European Union so it can establish its own currency and pay off its onerous debt.
- “There’s almost a feeling of resignation both among the people on the street and the wealthy people that eventually Greece doesn’t stay in the EU,” Ross said in a “Squawk Box” interview.
- That’s not necessarily a bad thing, said Ross, who believes that the impact of a Greek exit now will be less than it was earlier, when some economists feared that if Greece left it would trigger other debt-laden nations to do the same and lead to a larger crisis.
- Greece would benefit from having its own currency, which it could devalue and make it easier to repay its more than $400 billion in sovereign debt.
- “I’ve been in favor of Greece going out, frankly both from the Greek point of view and the EU point of view,” Ross said. “I think there are enough firewalls being built up, particularly now that (European Central Bank chief) Mario Draghi is acting like the lender of last resort, that I don’t think it would be that traumatic anymore. Most of the indebtedness of Greece is official debt, no longer private debt, so you don’t have the domino problem.”
- But leaving the EU and returning to the drachma won’t solve all of Greece’s problems. Local politicians are trying to capitalize on the economic fears by blaming the crisis on Germany, which has resisted several EU attempts to bail out Greece.