Global Contraction Fears Soar As German, European GDP Misses Send Markets Broadly Lower

Tyler Durden's picture

Just when Europe managed to get away from the headline rotation for one whole day, it is back with a thud, reminding everyone that at the heart of it all is not a liquidity crisis but a solvency one, after both German and EU GDP surprisingly missed consensus. And what a surprise it was: while everyone was talking about stagflation in the US, the UK, even China, few if anyone dared to mention that word in the same sentence with Germany. That may change after Q2 GDP expanded by just 0.1% in Q2, on expectations of 0.5% growth and down from a downward revised 1.3% (from 1.5%) previously, (2.8% growth Y/Y vs exp of 3.2%). According to the stats office the weak result was primarily due to weaker net trade and consumption. Well if export-focused and mostly wealthy Germany can't generate enough growth through these two core sources of economic output, then nobody can. The immediate result of this datapoint was Commerzbank, and soon other, analysts lowering their GDP forecasts for 2011 to 3% from 3.4%. Germany is still expected to grow faster than the rest of the Eurozone but not by much any longer as this latest decoupling thesis starts to implode. And speaking of Eurozone GDP, it too surprised to the downside, printing at 0.2% on expectations of 0.3$ Q/Q, down from 0.8% previously (or up 1.7% Y/Y on expectations of 1/8%). The accelerating contraction of the European (and German) economy proves that just like in 2008, the ECB's series of rate hikes was the most misguided decision possible by the world's most clueless central bank, and anyone hoping for more rate hikes can kiss such dreams and aspirations goodbye.The net result: yesterday's entire no volume stock market levitation is about to be undone. Too bad the ECB can't buy some extra GDP for its insolvent (and solvent... for now) member countries.

Goldman with some more color on the Eurozone GDP miss...

GDP details are not released so far and there is also not enough information available on the country level to gauge the Euro-zone aggregate with any precision at this point.


Looking at the country data it is noteworthy that Italy and Spain grew stronger than Germany, France, and the Netherlands in Q2, implying that the divergence among EMU5 countries did not proceed further in Q2 (see below). That being said we think that the German and French Q2 GDP figures somewhat understate the underlying momentum and we expect the periperhal economies to underperform again in Q3. 


Today's GDP figures will weigh on the minds of ECB Governing Council members. The ECB saw the risk to growth as being "broadly balanced" in August, but the sluggish Q2 GDP figures in conjunction with the further weakening of July business surveys may tilt the balance now towards "downside risks".


Country figures (quarterly change):
Germany: +0.1% after +1.3%
France: 0.0% after +0.9%
Italy: +0.3% after +0.1%
Spain: +0.2% after +0.3%
Netherlands: +0.1% after +0.8%
Belgium: +0.7% after +0.7%
Austria: +1.0% after 0.8%
Finland: +1.2% after +0.4%
Portugal: 0.0% after -0.6%.

And on Germany...

The recovery in Germany came to a halt in Q2 as GDP edged only 0.1%qoq higher after +1.3%qoq in Q1 (revised down from +1.5% initially).


A detailed breakdown of the headline figure will be released only at the end of August but the statistical office already stated that net trade contributed negatively to growth in the second quarter. Consumption and construction investment were apparently also a drag on growth. Note, that the negative contribution from net trade comes on the back of imports rising faster than exports and that exports, according to the statistical office, gave a "positive impulse" to growth.


While these figures are clearly disappointing we think that the headline figure understates the underlying momentum. For one, industrial production was up 1.1%qoq in Q2 which, at least on past form, would have pointed to healthy growth in the second quarter. Moreover, manufacturing orders rose 3.2%qoq suggesting that industrial activity will expand robustly in the coming months.


Business surveys are also not consistent with a stagnating economy. The assessment of business conditions in the German Ifo, for example, stood around 20 points above its long-term average in the second quarter. 


We will have to wait for the GDP details in order to get a better read on the Q2 GDP figures (how much of the negative surprise was due to stronger imports?). But judging from the information available so far we would not take the headline figure at face value.   


The statistical office also released a new revised GDP path together with today's Q2 GDP figures. The new path shows a somewhat deeper recession than previously thought and GDP is now still slightly below its pre-crisis peak (see chart).

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oogs66's picture

we are down this much and they haven't even disappointed on the eurobond front yet?

ZeroPower's picture

Disappointment will be from the 530GMT news conference of MerKozy. Nothing is supposed to come of it firstly. They'll ratify the agreement reached at the 21 July Summit and leave further discussions for future meetings... Merkel will likely be concerned about ensuring that peripheral economies continue to impose further austerity measures and also that there is close surveillance in meeting fiscal targets.

Quintus's picture

They can certainly agree to press ahead with the ratification process, but this requires a vote in the parliaments of both countries and neither Merkel or Sarkozy can deliver that today.

The outcome of this meeting will be a short press release full of platitudes and happy talk.  Nothing more can reasonably be expected.

youngman's picture

"The outcome of this meeting will be a short press release full of platitudes and happy talk. Nothing more can reasonably be expected."


And that is exactly what a kick the canner wants...happy faces, handshakes, butt slaps, high fives, all is good talk, we are one, ....yep all is good in La La Land..pass the strudle

Smiddywesson's picture

Well they have bought up a boatload of gold and kept the price below $1800, so we can't say kicking the can has been a failure.  From the perspective of central banks and soverign wealth funds who have gold, it is working okey-dokey.

Quintus's picture

Yeah - this afternoon could be interesting.

Thing is though - does anyone seriously expect any progress on the Eurobond issue today?  I don't think the Germans could be any clearer that it is not even being discussed.

Normally I'd take official statements about what is and isn't on the agenda with a grain of salt, but I don't think there's any subterfuge here.  Merkel will not be in a position, politically, to seriously discuss Eurobonds until the Eurozone project is within a day or two of collapse (if even then) and, of course that's far too late to do anything about it.



Bobbyrib's picture

The country holding the EU together had almost no growth.


This is definitely bullish. /sarcasm

speconomist's picture

the ECB's series of rate hikes was the most misguided decision possible by the world's most clueless central bank

So, are you trying to say that ZIRP is better?

Fantasy Planet's picture

Circling the drain...

Smiddywesson's picture

They stopped trying to fix things at the end of 2009.  Since then, it is all kick the can and buy gold.  That's their game plan.

thunderchief's picture

Euro-Bonds to the rescue.  Dive in head first. 

Boilermaker's picture

Then Pan-Euro bonds, then Pan-Sino-Euro bonds, then...

Pay Day Today's picture

Only Pan-Galactic bonds can save us.

sampo's picture

Might be, but in my view he just described a reasonable path to the monetary NWO.

Boilermaker's picture

LOL, yea, well, they'll gun the markets higher anyway.

papaswamp's picture

"Doctor!....the patient is going into convulsions!!!"

"Use that zappy thing on him nurse..."

FoieGras's picture

That dumbass German secretary of commerce was talking about some kind of "economic boom in Germany that was going to last 10 years" just some 2-3 months ago. Where is this idiot now?

Boilermaker's picture

Well, they said something about a reich that would last 1,000 years know.  Take it for what it's worth.  Germans are always quick to proclaim superiority in all circumstances.

Pay Day Today's picture

I'm sure that this is just a run of the mill business cycle downturn...

Smiddywesson's picture

People stopped believing in the China lie, like China could bail out its customers and be the engine of blah, blah, blah...

thunderchief's picture

Gone to join the one thousand year army.

lolmao500's picture

Obama should send a trillion $ stimulus package to Germany... right?

Boilermaker's picture

He sould buy the world a coke.  That should do it.

The Limerick King's picture

The Germans are starting to tank

The Jap GDP is just rank

Britain's in trouble

China's a bubble

We have Mr. Greenspan to thank.


sudzee's picture

A slowdown in world gdp should reduce the need for base metals. A bright spot could be an intensifying shortage of silver as most ag is a bi-product. Industrial use will decline but supplies will crater.

chump666's picture

dax goes 3% negative, s&p will capitulate

Cdad's picture

Good morning and thank you Tyler,

It's good to have a place to go right off in the morning to discover what fundamentl thing, or what steaming pile of crap, is moving the markets.  The BlowHorn [CNBC] is prattling on about nothing, of course, and ES this morning did, indeed, peak my curiosity.  Now I can go ahead and finish my coffee without worrying about ES reversing in any meaningful way in the few minutes it takes to drink it and refill it.

That should be it, the story of the day...because if Germany rolls over.  No more bail outs.



Boilermaker's picture

But, Bob Doll from Blackrock just said it's a buy and that if you can sell on the up 400 days and buy on the down 400 days...then everything is great.

Man, you are cynical.

Cdad's picture

He is one of the biggest shills in the industry.  Never listen to Bob...NEVER!  Some people are simply useless.  He is one of them.

**Oh, and brother boiler...the RIETs have been looking for a reason to drop.  This will probably suffice.  Over owned.**

papaswamp's picture

It will be interesting to hear what Merk/Sark meeting puts out....I suspect nothing. France will say sorry can't help much we are fucked...Germany will say can't help much we are about to be fucked. Germany will have to go defensive to save it's own skin.

Boilermaker's picture

Correct me if I'm wrong, but do they have the authority to commit to a Euro-bond?  Isn't that the responsibility of their congressmen?

Cdad's picture

For a year now, the band of merry Euro bailout kings have been making it up as they go along.  They have long since exceeded the rules governing the Euro nations.

The time to member exits on the Euro is very near.  I'm not sure most people know how close that day is.  This could be part of why the Euro dollar is rising...front running by insidious banker clowns.  The collapse that will come from this will be epic.  No corner of the Earth will be spared.  

Smiddywesson's picture

Correct me if I'm wrong, but do they have the authority to commit to a Euro-bond?  Isn't that the responsibility of their congressmen?

We need Alexander Haig to rise and calm the situation.

Smiddywesson's picture

That should be it, the story of the day...because if Germany rolls over.  No more bail outs.

Sorry, Cdad, you must have some irish whiskey in that coffee.  Logic won't help you if you view the situation vis a vis the old system. 

This steaming hulk will continue to cartwheel down the highway as long as they can lie, cheat, and steal, because that is exactly what the central banks will do as long as they can continue to buy cheap gold.  The only long term action they are taking is buying gold. 

Nothing being done to fix the economy is intentional.  They don't care how badly they damage the old economy, because it is unrepairable.  All they care about is positioning themselves for the new economy, and gold figures prominently in that new economy.  Nothing else matters to them.  They will shrug off Germany and soldier on.  If gold goes vertical, game over.  

dick cheneys ghost's picture

Can they blame new zealand? It did snow there.........

A Dim View's picture

MerCosy will be discussing the imminent Eurozone breakup into its 2 blocks.

the fun loving, vino quaffing, suntan lotion importing Psuedo based around the new Europop Centrale Banque (floating at 1:1 Pseudo:Yankees) headquartered in Toulouse 


the hard as steel, inflexible, Bundesliga kuchen, bier trinken Neuro based around the Zetral Handel Bank in Frankfurt (floating at 1.60:1 Neuros:Yankees).

Job done.


Archimedes's picture

This is actually really bad and important data. If a exporting powerhouse like Germany can't sell its goods then the global economy is truly slowing down.

The next 12-18 months are gonna be ugly. Good thing I have been preparing for the last four years!



choorles's picture

all this negative news if far more entertaining when you own gold, silver and bitcoins..

shortus cynicus's picture

I'm tired of this GDP scam. Nobody should take it serious. At least we should subtract debt-founded government spending to see less manipulated number.

2.5% GDP growth - 2.5% deficit spending = 0%


PaperBear's picture

More like time is running out to jump in the lifeboats.