Because industrial production for the Eurozone was estimated to have risen 2.4% in January, first quarter GDP was boosted to 0.6% (quarterly rate) as statisticians were expecting that European industry would at least hold up the rest of the quarter. While not figuring the same blistering pace, the GDP figure suggested at least the European economy holding on to that gain. The latest update for IP through March, however, shows that was wishful thinking. In March, industrial production was believed to have dropped 0.8% after falling 1.2% in February. Instead of what was called robust GDP it leaves barely any of the January jump with which to keep it that way.
The implications are that the next revision in European GDP will be sharply downward, undercutting a great deal of the regular ritual extrapolating any positive into “the” positive. A full part of that problem is believing that 0.6% is anything close to the necessary level of recovery to begin with. Even if the coming revision shows 0.0% growth, it truly isn’t any different than the first estimate of 0.6%. If it’s not something like 2% (meaning 8.5% to 9% or better at an annual rate) then it isn’t anything like actual growth.
That is what this “recovery” has become and it is a global reduction. Economists and the media have taken to splitting hairs over decimal point differences as if that were the division between actual success and failure; it is all failure. Not only that, nobody seems to appreciate how the global economy, not just Europe, not just the US, suddenly “forgot” how to grow all at the same time. It’s the biggest story this century; instead the media sells 0.6% as if it were monetary genius and proof of “stimulus” when it is only yet another quarter’s confirmation that the global economy is further synchronized in decay.
As you can see above, GDP is advancing again and has been since the middle of 2013 but that is far from the same as recovery. These positive numbers don’t even come close to matching the already downshifted growth in the middle of the last decade. In nominal terms, the comparison is even worse particularly when accounting for repeated and sustained “stimulus.”
There are some economists who still cling to the idea that the ECB (or any central bank) should switch to NGDP targeting as if they actually possess the ability to do it. It should be painfully obvious that they can’t; there isn’t even the hint of success in monetarism in Europe nor can policymakers be allowed to move the goalposts. Half the nominal growth rate is not evidence of “powerful” “stimulus”, it suggests only that these monetary programs had no effect that the natural bottoming in the economy did not (dead cat bounce).
Viewing GDP on these terms, however, obscures the full extent of the unfolding economic disaster and the powerlessness of the ECB to do anything about it. As I did with US GDP, plotting European GDP along its baseline reveals both a full measure of the damage as well as the remarkable familiarity of it.
Ben Bernanke actually tries to take credit for the difference between the US economy and Europe’s – as if there is any. The European economy is certainly worse off than what we find of the US, but that isn’t really a meaningful distinction in this big picture sense. Both economies are clearly stuck in dysfunction, and both hit that wall at exactly the same time(s). Even factoring that Europe’s economy follows a slower overall baseline, the timing and degree of downshifting (twice; once at the dot-coms and then again in the GR) is again remarkably consistent suggesting only a common cause.
Like the US, no matter what format of “accommodation” the ECB tries it does not move the economy (using GDP as a relatively decent proxy). Instead, the system seems totally unbothered by the ECB’s efforts, immune no matter what kind or to what degree the assumed interference becomes. The absence of any transmission is striking.
Prior to the GR, in nominal terms the European economy was very consistent at around 4%. Unfortunately, that consistency has transferred to the “recovery” era except at a tremendously reduced rate again despite every form of “money printing” the ECB comes up with. There is just no detectable influence at all. As suggested of US GDP, it offers only greater confirmation that global money and banking (redundant) are the combining cause.
Because of that lower trajectory, true recovery becomes more costly the longer this monetary decay continues. In terms of nominal GDP, had an actual recovery began as if those early (2009) and intense forms of “stimulus” worked would have meant around 6% (annual rate) nominal growth sustained for 3 years. That would have been a lengthy and slow recovery in its own right, but at least by the middle of 2012 GDP would have been back on track.
Delaying the actual recovery to the end of 2012, thus assuming the LTRO’s and SMP’s had worked, would have required then just about 9% nominal growth to accomplish the same actual recovery. Time is the biggest cost.
To find the newest run of monetarisms actually working, meaning a full recovery from this point (Q4 2015) forward three years, now requires boosted QE to channel 10.8% nominal growth for twelve straight quarters through to the end of 2018. Anything less isn’t a recovery, it would be further admission of a huge loss in capacity or potential.
Economists are trying to claim that there is “something” wrong with each of these economies while never acknowledging the thoroughness of the replication. And it isn’t just the US and Europe, as Chinese economic accounts, especially exports, demonstrate at least the global transmission of this “something” wrong. It isn’t surprising to find the same exact pattern repeated in Chinese external trade when its two largest customers share the same problem.
“Stimulus” will not work just as it so clearly hasn’t to this point because these are not cyclical swings within “normal” but separate economies. There is a unified purpose here that orthodox economics has expressly denied for decades. Because of this willful blindness, economists with be left trying to convince everyone that still might listen there is some great and meaningful distinction in the positive but dubious 0.6% and that they are to be congratulated for it.
The problem is one of reform not merely GDP. Because of this reductionism, central bankers claim success or at least the plausibility of it even though it is so far removed. The world has been conditioned that if it’s not negative then it is meaningfully positive when in fact if it’s not immensely robust by now then it is really the same negative; and the cost only rises each passing quarter. Recalibrating to useful expectations would change the view on how much longer this continual cycle of failed monetarism will be tolerated.