Friday, May 24, 2013

The Eurozone's economy could surprise to the upside

This may be an unpopular suggestion, but those with a contrarian view of the world will surely appreciate the logic here. The chart below from Goldman shows the consensus economic forecast for 2013 GDP growth of the large Eurozone nations. Again, this is not the actual GDP, but a forecast over time.

Source: GS

It shows that the "herd" of forecasters following each other in the realization of how dire the recession has been across the area. But keep in mind that these are some of the same forecasters that 18 months ago were calling for a "shallow" downturn in these nations (see discussion). Many weren't even talking about a possible recession. And now they are continually downgrading their predictions - after the fact?

Today we got the latest PMI numbers from the Eurozone. France is clearly struggling and Germany's growth has been slower than many had hoped - due primarily to global economic weakness. But take a look at the rest of the Eurozone. While still in contraction mode, it shows an improving trend.


Spain printed a trade surplus last month (surprising some commentators), which may be a signal to rethink how valid some of these forecasts really are. Nobody is suggesting we will see Spain or Portugal all of a sudden begin to grow at 5%. But given the extremely pessimistic sentiment of many economists (a contrarian indicator), it is highly possible we are at or near the bottom of the cycle. People should not be surprised if we start seeing some positive growth indicators - especially in the periphery nations - in the next few quarters.

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