USA, Britain Outgrowing Europe

The EU Observer notes:

The eurozone economy flatlined between April and June, while the EU-28 saw 0.2 percent growth, Eurostat confirmed Thursday. Latvia recorded 1 percent growth, the eurozone’s fastest rate, followed by Spain, Portugal and Slovakia. Germany’s output fell by 0.2 percent. The UK and Hungary were the strongest performers outside the eurozone.

These numbers, predictable as they are, report growth in the second quarter for 2014 over the first quarter. They are also adjusted for seasons, workdays and inflation. This puts a great deal of distance between these numbers and actual economic activity, kind of like the difference between plain coffee and a decaf cappuccino. The best numbers to analyze are those that are still inflation-adjusted, but nothing more, and to look at annual growth quarter-to-quarter, in other words second quarter 2014 over second quarter 2013. This is not going to happen, though, until Eurostat releases non-seasonally adjusted numbers from Q2. Until then we will have to do with the cappuccino version, but we can at least put the caffein back in it by calculating annual growth quarter to quarter.

When we make this adjustment, the negative news reported by the EU Observer are put in a better context:

LB 8 15 14

Source: Eurostat.

Again, the U.S. economy is moving forward in a reasonably paced recovery. So is the United Kingdom, which is noteworthy since the U.K. has kept its taxes at the low end of what the European Union allows. This is now paying off.

Once again, the growth rate for the EU, when Britain is subtracted, puts economic stagnation on full display. (The growth rates for EU-less-UK are almost identical to those of the euro zone.) As yet more evidence of this stagnation, the French economy grew at an annual rate of 0.11 percent, down from 0.79 percent in the first quarter and 0.77 percent in the last quarter of 2013. Italy continued a year-long trend of negative growth.

Eurostat has not yet published a full roster of member-state GDP data for Q2 2014, so we will certainly have opportunity to return to these numbers. For now, though, let us conclude that not even the cappuccino massage of raw macroeconomic data can hide the fact that the European economy is in a solid state of stagnation.

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