The Eurozone’s Economy May Surprise on the Upside

By Walter Kurtz, Sober Look

This may be an unpopular suggestion, but those with a contrarian view of the world will surely appreciate the logic here. Figure 1 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.

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 (see figure 2). 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.



(Figure 1 Source: GS)


(Figure 2)


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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  • Andrea Malagoli

    This argument sounds like “growth is so low that it cannot get any lower”.

    The problem with Europe is structural, not economic. There is a super-bloated welfare state (the same one the current administration wants to impose on the US) that needs reform. So far, nothing has happened. Nothing else matters.

  • jldasch

    The welfare state argument comes from a very limited, narrow minded, dogmatic understanding of the world, rather than from one that understands the flows in independent of an inherent dogmatic view.

    If you write down the coupled differential equations that describe the economy anyone understands this view is based upon irrational dogmatic thinking. One can optimize these coupled equations with any of a massive set of parameters. When someone is so blinded by irrational thinking that they make comments like those above you understand the the biggest hinderance to a better system is people who think like this.

    Being educated and intelligent requires that one evaluate all positions in view of the available data and models. When someone makes comments like “There is a super-bloated welfare state (the same one the current administration wants to impose on the US) that needs reform. So far, nothing has happened. Nothing else matters.” they have decided that they have rejected the approach of intelligence and rational thought.

    The biggest danger we face is from irrational people like this. They have rejected intelligence as an approach to view the world, yet sometimes they mistakenly think they are intelligent, when provably they are not. The lack of a robust intellectual tradition in the US is a severe hinderance in our future trajectory. This is a front and center example where an inability with critical thinking influences peoples views.

  • Edward

    That is the most arrogant, pompous post I have read in some time.

  • Tom Brown

    Edward, try this one on for size:

    Sumner argues today the public is just too darned ignorant to be involved, and should be ignored for their own good:

    … but perhaps these guys are right!

  • LVG

    Aren’t you the guy who accused Cullen of basing his thinking on equilibrium theory? That’s like calling him an Austrian economist and then claiming you understand where he’s coming from. “Sheesh” is right.

  • Ted

    The question is not will economy get better but are current valuations pricing something worse than what will happen? It’s about valuation and sentiment, not the economy. That can’t forecasted and when it can it will be too late.

  • marius

    what about relative valuation? does that matter maybe?

  • Adam P.

    Wow ! We have a genius here that is able to describe the economy with just a coupled differential equations but, of course… one can optimize these coupled equations with any of a massive set of parameters…

    jldasch you’re mathematically a troll

  • S.E.

    Has anyone read “The Great Rebalancing, Trade, Conflict, and the Perilous Road Ahead for the World Economy” by Michael Pettis.

    The chapter on Europe is excellent. Germany faces eventual disaster staying on the current course.

  • Steve w

    I’m not sure if you’re trying to make only a point about a lack of rigorous intellectual exercise in these posts, or if you’re hinting at some proof you have that the EU welfare state is jus fine. Given the fact that Spain’s unemployment rate is around 27%, and that about half of the unemployed are under age 30, I think the risk of social unrest are high —- the sort that reveals the flaws in the welfare state (in part) that is being overwhelmed. Rather than just insult other people commenting, how about sharing some real data and history?

  • Steve w

    I was trying to reply to jldasch.

  • Richard Whitney

    @jldasch…don’t worry about the posts critical of you here. As you have proven, by mentioning the writing down the coupled differential equations (optimized with a massive set of parameters) that describe the economy, that they are blind, irrational, dogmatic and lack critical thinking. Which you have eloquently proven by simply making the aforementioned statement. Proof and facts are beneath your intellectual heft, unbiased, mentally rigorous, broad-minded and rational as you obviously are. Your argument speaks for itself.

  • pantmaker

    A hundred bucks says that was an 17 year old kid on his mom’s compute after a few bong hits. There is just something very odd about the grammar… it’s wacky…like when you smoke and try to shoe horn fancy words into everything you say. You think you sound like Christopher Hitchens but you really sound like the leprechaun on the Lucky Charms box. It’s harmless fun….chilling out…talking economics and the world politics.

  • SS

    Does “Being educated and intelligent” always include the inability to spell basic words in the english language?

  • Nico

    oh come on are you cheering on Spain’s trade surplus?

    Spain has a trade surplus because they can’t import as much as they used to. Hai mas dinero entiendes? they might still sell a couple of oil and wine bottles, but they can’t afford the brand new BMWs anymore

    what is there to celebrate? You have an impeccable record on US economy predictions, but be careful with Europe, my Spanish sales guy could entertain you at lengths on how the balance sheet is rotten there, you simply have no idea

    you cannot mention one fraction of Spanish reality, in a biased way, and not study the rest. We could start with the scary number of brains who have left Spain those last 4 years, this loss is immense and very arduous and lengthy to reverse. A lost generation for Spain, really

  • Nico

    wozza i had not seen this was a guest post, sorry. But general comment stands.

  • Incognito
  • bankster

    Middle class civil war in Greece: latest update and conclusions

  • Anonymous1

    A couple of weeks ago a friend of mine told me he put money in a European fund because it’s undervalued relative to the US. He’s my friend but he’s a parrot that repeats what his broker says verbatim. More likely it’s just the investment company’s current promotional sales strategy, a sales angle if you will. I’ve held a fair amount of European funds and for a fundamentalist like myself something like the FTSE is easily 10% overvalued. Most European stocks are overvalued (and probably the US too). …..but of course with SUPER EASY money worldwide we all know what they say about irrational.

  • Andrea Malagoli

    Again, same flaw. Just because some stocks are cheap it does not mean that they can get cheaper. It is the change on the margin, not the level, that matters.

  • Andrea Malagoli

    jldasch – Sometimes I do not know whether to take your comments seriously and respond as appropriate, or to have a big laugh at the absurdity of your arguments. Luckily, other bloggers have taken care of putting you in your right place.

  • Dismayed

    People may call you pompous for speaking the truth, but please continue!

  • Dismayed

    “European funds and for a fundamentalist like myself something like the FTSE is easily 10% overvalued.”

    Seriously? If you’re a really good forecaster you’ll get the order of magnitude correct.

  • Anonymous1

    Note the key words “for myself”. But since you’ve brought it up how are those European banks and miners doing, and European risk generally? On the fund side if you look at something like VTRIX, I’d never choose a limited growth risky investment with a 2% yield, for me that’s playing the greater fool theory that the next dummy is willing to accept a 1.95% yield, but hey go for it. As I said it’s MY belief that with this super easy money worldwide they are all getting overvalued. I’ve seen a lot of mighty trees, none have grown to the sky.

  • Gregory Barton

    It’s also the greatest pile of waffle.

  • joey

    Super bloated welfare state? There are 27 counties in the EU, with radically different spending prioritizes on essential services. Phrases like super bloated welfare state allow you to switch your brain off.