Europe is travelling badly compared with Australia and the US, but within Europe itself, Germany is now in a class of its own as the world’s 4th biggest economy heads south at a rapid rate.
Official estimates released on Friday showed the first quarter was the worst on record at European level; GDP fell 2.5% in the March quarter from the last quarter of 2008, both at the level of the 16-country Eurozone and the broader 27-country European Union group, according to the EU statistics office.
The fall was significantly faster than the 1.6% contraction in the December quarter when the credit crunch saw economies suffer a near total collapse in lending, spending, exports and a surge in employment.
Germany led the way down with a nasty 3.8% slump, the worst since World War II. Current forecasts suggest Germany could see GDP drop 6% this year, making for the worst performance for fifty years.
In fact there’s every chance the German economy could end up underperforming the US and Japanese economies by the end of this year. The country’s banking system is weaker, according to some it’s weaker than Japan’s and especially America’s.
Germany’s plight has been underlined by news the country’s second biggest department store chain wants Government loans of 650 million Euros, otherwise it can’t rollover 710 million Euros of debts next month and will therefore collapse.
The Financial Times reported on the weekend that Arcandor, which controls the Karstadt retail chain, UK travel company Thomas Cook and a huge mail order business, said it will ask the government for 650 million Euros of credit guarantees and a loan of as yet undetermined size as it tries to secure funding to replace loans expiring in June. Thomas Cook is Europe’s second largest travel group but high oil prices last year and the global recession has slashed the number of people using its services.
The group is thought to be the first German company outside the financial services and automotive sectors to approach the government for assistance. Engineering firm Schaeffler, burdened by the over-priced takeover of car-parts maker Continental, has joined the stricken General Motors’ Opel division in seeking government loan-guarantees. And the FT said that big German computer chip maker, Infineon has also started seeking Government assistance.
The European Union has forecast a jobless rate of 9.5% by the end of 2009, and 11.5% through 2010. The rate hit 8.9% last month, when Germany’s rate hit 8.3% and is forecast to go over 10% next year and remain high into 2011.
The Der Speigel website reported this morning that BMW and Porsche had been inquiring as to the possibility of loans or support for parts of their businesses (car finance mainly).
Apart from bailing out banks and taking over the stricken real estate lender, Hypo Real Estate (which has swallowed 102 billion Euros of aid and loan guarantees). The German Government’s biggest area of assistance has been to the country’s huge car industry through the scrapping bonus that will now cost an estimated 5 billion Euros by the end of 2009 when it is due to finish.
Meanwhile, the French Government has been helping newspapers, banks and other financial groups, car companies and several other major employers, but that has stopped the country from sliding into an official recession in the first quarter.
The French economy shrank for the fourth consecutive quarter, with GDP falling 1.2% from the December quarter. In Italy, the economy contracted 2.4% from the previous quarter, the largest decline since the country’s statistics office began publishing data in 1980.
The data came a day after Spain, the other big Eurozone economy, reported a 1.8% contraction in the first quarter. The smaller economies of Austria and the Netherlands both contracted by 2.8% for the quarter. Czech and Hungarian GDP reports showed the biggest falls since records began.
Britain, which has been crippled by the credit crunch (more so than by the current recession) contracted by 1.9%, which is better than the EU as a whole and a lot better than the US and Japan for instance.
US GDP slid an annual 6.1% in the first quarter, not quite as deep as the 6.3% annual rate in the December quarter. Quarter on quarter the fall was around 1.5% — a bit better than Europe and elsewhere.
By way of comparison, according to the Reserve Bank of Australia we will contract 1% this year after a rise of 0.3% over 2008. So Australia’s not doing too badly, for all the hype from both sides in Canberra.