EU -- a Forecast for 2012 Recession

Source: nationsonline.org

Overall, domestic demand is unlikely to support GDP growth in 2012, as the process of deleveraging continues across the sectors of the economy. — European Economic Forecast (Spring 2012)

The European Union has revised particular parts of its expectations for gross domestic product, and the revision is toward recession. Several countries in the region posted two quarters of economic decline in the fourth quarter of last year and the first quarter of 2012. There had been hope the numbers would improve and that strength in Germany and France would help overall numbers to hobble along with very modest growth. That hope disappeared with the new report. The contraction is expected to be by 0.3%.

The villains are no surprise. Spain’s GDP is predicted to contract by 1.8%, Greece’s by 4.7%  and Portugal’s by 3.3%. This, and a drop in GDP among other modest-sized economies in the region, will not be offset by 0.7% growth in Germany and 0.5% in France. As a matter of fact, the tepid growth forecasts for those two large economies are close enough to a flat line that the argument they could contract in the second half is reasonable.

The news will end up as part of the violent debate in Greece and more civil arguments in Spain and Portugal that austerity, imposed to a large extent by the philosophy of Germany, will wreck the chance for a recovery in 2013. Germany still believes these nations need a punishing year or two so they will understand that recession is a byproduct of inefficient government and private sector sloth.

If Germany is right, the pain will have to get worse and not better. Greece, Spain and Portugal have not gotten the message and may never believe it. And that may be because Germany is wrong.

Douglas A. McIntyre