As if further evidence was needed that the long-dreaded global economic slump is now upon us, the Eurozone — the 15-nation economic bloc that uses the common European currency — was formally declared to be in recession, for the first time since the euro was adopted nearly a decade ago. Oddly enough, Asian and European equity markets responded to the dismal news by posting gains of between 0.5% to 4% throughout the day.
If, indeed, it was news of the recession that sent stock traders into a frenzy of buying on Friday, there may be more bullish boosts to come in the weeks and months ahead. A new forecast by the Paris-based Organization for Economic Cooperation and Development (OECD) predicts a 0.3% decline of its members' economies next year. That, the OECD forecasts, will be led by a 1% decline in growth in the U.S., a 0.5% contraction in Europe, and 0.1% downturn in Japan. Evidence to back that projection came with Friday's announcement that economic growth across the euro-zone decreased 0.2% in the third quarter of 2008 — the second consecutive contraction, which puts the region into recession by the most common benchmark.
Germany's Federal Statistical Office reported that Europe's largest economy had shrunk by half a percentage point in the third quarter, following a 0.4% decline the previous period. The UK revealed a 0.5% slide in GNP over the past three months, while Spain and Italy showed similar contractions. The one small bright spot on the map was France's unexpected 0.14% growth — fueled, just as surprisingly, by a 0.2% rise in consumer spending, and a 0.3% jump in investment outlays by businesses.
That modest, albeit startling growth allowed French officials to express the hope that a recession may yet be averted. But with the entire 27-nation European Union economy sliding .02% in the third quarter, and major industries such car manufacturing posting a combined 15% drop in sales last month, experts advise against viewing Europe's economic glass as anything but half empty, and leaking.
"The contention that France, Europe, or even the global economy isn't already in a recession that's likely to get worse, is a joke," says David Naudé, chief economist for the euro zone at Deutsche Bank in Paris. "The unexpected mini-advance in France notwithstanding, the news is bad, and all forecasts indicate the fourth quarter will be even worse."
Combined with the steady stream of statistics indicating an economic weakening in the U.S. and growth even in powerhouses such as China slowing sharply, expectations are rife that the entire global is rapidly sliding into a long, deep recession.
"It's a 'convergence recession', because there's a synchronization of the negative business and economic cycles around the world, which are gaining more strength and speed than we've ever seen before," Naudé warns. "Even the figures coming out of once inexhaustible emerging markets like China and India point to serious weakening. It took awhile to get here, but recession is here, and it's a serious one."
You wouldn't know that to look at the Friday's activities on European stock markets. After rises of nearly 4% during Friday trading, London's FTSE 100 index closed up 1.5%, while Frankfurt's Dax and Paris' CAC 40 ended the week up by 1.3% and 0.67% respectively. In the wake of Wall Street's 6.7% gain Thursday, Asian markets also largely advance Friday, with Tokyo's Nikkei closing 2.7% higher, and Hong Kong's Hang Seng finishing 2.4% stronger. Given the macro-economic moroseness, what's with the market giggles?
"The frequently illogical reaction of markets to daily evolution of the dark economic picture is pretty disconcerting, but it looks a little more coherent from a distance," Naudé explains. "Markets have lost over 40% of their value in the past year, and daily losses of -5%, -7%, -10% have far outnumbers the occasional gains of 3% or 4%. Don't be confused by today's advances, because they are the exceptions to the reigning rule of pessimism and losses."