Eurozone back in recession as social unrest grows

According to data released by the Eurostat this morning, the Eurozone has just entered its second recession since 2009 as data revealed that third quarter GDP dropped 0.1%. The Eurozone had managed to avoide recession due to the growth experienced by its core members – France and Germany, but this time not even these two engines could avoid the worst.

Although the data shows recession, some positive elements could be taken out however. Italy was able to almost halt the drop in it own GDP from the first quarter. Despite all the austerity measures, the country experienced a drop in GDP of just 0.2%, much better than what was expected and a significant improvement over last quarter decrease of 0.8%. The same applies to the Southern countries in general, as Spain and Portugal were also able to marginally improve their situation. On the negative side we have now Belgium and the Netherlands possibly entering recession. In Netherlands case, GDP decreased 1.1% – the largest drop in the Eurozone. It should also be noted that Germany is decelerating at an increasing rate and France continues to struggle around a flat growth profile.

Even though the Eurozone has only entered into what can be termed a “technical recession” over the last quarter, truth is that with a 11.6% unemployment rate be-devilling the region, sustained growth is very elusive in contrast with the US that seems to be enjoying a quickening pace (fiscal cliff notwithstanding). Greece is the main thorn in side of course with the pain being inflicted upon its people seemingly having no end…Austerity only served to put additional downwards pressure here and make it impossible for them to accomplish any of their debt targets.

Social unrest is rising throughout the entire eurozone and, for the first time, unions were able to coordinate a general strike across Europe which occurred yesterday. The tone is changing and it is becoming clear that something must be done to ease the harsh austerity measure that the European  population is enduring. We get the sense that collectively they will not accept much more hardship and will begin popularly to demand a Euro exit.

The latest poor data has weighed additional on equity markets with further losses experienced today and coming on top of the rout of the last few days. European markets have been in bearish mode right throughout November now, in sync with the US which largely coincided with the U.S. election outcome. Fears over the fiscal cliff are dragging equity indices the world over lower with a Republican-driven House of Reps continuing to insist on extending tax cuts to the richest at a time when it is not only unfeasible economically put also politically. Equities are due a rebound but that will depend mostly on fiscal cliff negotiations rather than on EU developments. If a compromise is found we expect a very sharp rebound to perhaps take us back towards the highs of the year in December.