August 15, 2003

Little Fear of Accelerating Inflation in Europe

More bad news about the pace of economic growth in the euro zone. It leaves me, once more, scratching my head and trying to figure out what the ECB thinks that it is doing.

WSJ.com - German Economy Shrank 0.1% In Quarter, Confirming Recession: FRANKFURT -- The euro zone, collectively the world's second-largest economy, stagnated during the second quarter, highlighting its relative weakness against the U.S. and even perennial laggard Japan. Although economists say the worst may be over, several major European nations -- Germany, Italy and the Netherlands -- saw their economies shrink, the European Union's statistics agency said. For Germany, it was the third straight quarter of contraction; Europe's largest economy is in its second recession in two years...

Posted by DeLong at August 15, 2003 03:55 PM | TrackBack

Comments

According to the Economist (latest edition), if the surge in defense spending attributable to the war in Iraq is excluded, America's 2.4% GDP growth in the last quarter drops to less than 1%. So the underlying growth rate in the U.S. is still pretty anemic. Moreover much of the rest of the disparity between the U.S. and Europe appears to be attributable to America's faster population growth. Over the past four years America and the EU's per capita GDPs both average about 1%.

Posted by: Todd Bass on August 15, 2003 09:04 PM

"It leaves me, once more, scratching my head and trying to figure out what the ECB thinks that it is doing."

Wasn't the title that there is little fear of accelerating inflation? Then you know what the ECB is doing... its job! To get the German economy rolling they need help from the fiscal side. Looks like they are finally going to get it once they pass this new round of tax cuts.

Posted by: PAM on August 15, 2003 09:18 PM

todd
there is a -0.8 in the gdp due to the change in inventories . so US still had a growth rate of about 1.6-1.7% . more recent numbers in some other categories indicate it will be revised upwards . it is indeed anemic but still there is around 2% gdp growth which will accelerate further in second half . i have not completely followed last few blog entries .( i am not an economist but take an interest in it , i am a biological scientist by background ). what i find troubling was the conclusion that it will need a gdp growth greater than 4% to get any real job creation due to enhanced productivity . if it is correct than lot and lot of people are in for trouble.

Posted by: badri on August 15, 2003 09:53 PM

There needs to be more leeway in the Euro bank mandate to balance price stability and growth needs. The Euro bank may have been following the mandate on inflation, but botched policy. Inflation was never the issue.

There is little reason to believe growth in America or the Euro block will soon be strong enough to lead to significant job growth. At least the Euro block is ignoring the mandate on fiscal contraints for now.

Growth in America has picked up, but the boost from military spending in the last quarter will not be repeated and re-financing has sharply declined. The tax cut checks have helped consumer spending, but there are all sorts of state fee increases as for tuition that will be a drag. Mortgage rates are up. This growth pick up is still iffy.

Anne F&B

Posted by: anne on August 16, 2003 09:26 AM

I often hear that the ECB is holding the European economy hostage in an attempt to force the governments to make some badly needed structural reforms. Anyone know whether this is true or not?

Posted by: Patrick S. Winslow on August 16, 2003 03:03 PM

"I often hear that the ECB is holding the European economy hostage in an attempt to force the governments to make some badly needed structural reforms."

I think they're just sticking to their (very low) inflation target of under 2%. As long as they focus on keeping inflation within a range, it is fair for them to blame high unemployment on government policy.

Posted by: snsterling (fairly balanced??) on August 16, 2003 10:20 PM
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