Saturday, 12 March 2011

A quick post on the euro-zone "recovery"

We lately hear a lot about the pending "recovery" in the Eurozone. Well, I think differently and say that there is no notable recovery whatsoever. Of course what I think is irrelevant. Here's a clue about what final consumption is contributing to EU growth (for the Euro Area17 area).

source: ECB

Hence most of the growth comes from elsewhere and not from final consumption. But when a big part of the emerging world is engrossed in fighting rising inflation to thwart the civil-unrest contagion what does that tell you? It tells me that there is a chance that growth over there is bound to come in lower than we expect. How is Europe going to export its way out of recession then? What effect will a gradual tightening have on households and is there a chance that interbank rates will spike? I don't know I am just wondering. All these thoughts make an interest rate hike from the ECB seem absurd to me right now...

All the worldwide developments lately do not consitute a pro-growth environment. We do not know what their effect is going to be ultimately or how long they are going to cast their shadow over the whole world, but when in doubt is tightening the way to go?

I hope that all the things going on lately signal a change in intentions over that matter, I'm not sure though...

I am gutted to hear all the things happening in Japan right now and I am tremendously sorry for the Japanese people...

P.S. A little add-on here. The inflation pressures nowadays are solely supply-side, there is no question about that (I think), but does this combined with the fact that consumers in the western world are financially-stretched reduce the potential upside for CPI?

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