For the past year and a half, the Euro-zone has been in recession. It started in late 2011, as the financial turmoil of the prior two years came home to roost. Banking sector problems, government austerity, and currency turmoil led the area’s decline. Unemployment has stabilized after rising significantly. Exports to the US, UK, and China are picking up, and industrial production–a leading economic indicator–is rising.
There’s still a pretty strong north-south split in the, though. In Germany unemployment is 6.8%; in Denmark its 4.3%, while in Spain, Italy, Ireland and France it’s above 10%, and in Greece–which has been in recession for five years–unemployment is 26%.
But financial markets have been pretty calm for the past year, even as Italy’s elections led to a deadlocked government, Portugal’s government faltered, and tiny Cyprus needed a banking-sector bailout. Yields on Spanish and Italian bonds are still lower than they were a year ago.
Still, the consensus of most economists is just for modest growth. The US probably grew at a 1.7% rate in the second quarter of this year; the Euro-zone is likely to just eke out a positive number. While it’s better to grow, it isn’t time to break out the champagne yet.
Douglas R. Tengdin, CFA
Chief Investment Officer