Last week, when looking at the latest regional Industrial Production figures out of European nations, we made a simple observation: while GDP has yet to confirm, Europe is now in a recession.
And according to Bloomberg, just a few days later, Europe has indeed emerged as the world's weakest link, and perhaps more so than the outcome of the US-China trade war, "it is Europe that increasingly looks like the biggest threat to global growth."
As evidence, Bloomberg cites the same data that we highlighted last week, namely that industrial production across the 19-nation euro area is "falling at the fastest pace since the financial crisis, and deteriorating demand is evident as the region finds itself squeezed between international and domestic drags." According to Wednesday data, industrial output for the Euro area slumped 0.9% in December from November, double the forecast, while the annual decline was the steepest since 2009.
That leaves Europe's GDP at risk of barely reaching 1% in 2019, a sharp slowdown from 2018, with even continental powerhouse Germany in trouble. That, of course, is a polite way of saying that Europe is on the verge of a recession, if not already in one - as we claimed previously - and as seen in the following chart showing the recent series of disappointments in European economic data relative to expectations.
“The concern I have right now is in Europe,” said Salman Ahmed, chief investment strategist at Lombard Odier. “It’s clear China is going through a slowdown, but there’s also a strong amount of stimulus in the pipeline. However, in Europe, things are deteriorating quite fast.”
Germany’s prospects are crumbling after a protracted slump in manufacturing. Household spending has also ground to a halt in France, which is beset by the Yellow Vest protests.
"Together those two countries account for about half the euro-area economy", and any coordinated contraction in the two assures a Eurozone recession, best summarized by the following quote from Ludovic Subran, deputy chief economist at Allianz.: "If France stops consuming and Germany stops producing you have a major problem in the euro zone."
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