Global Contraction Fears Soar As German, European GDP Misses Send Markets Broadly Lower
by Tyler Durden
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.