It was recently reported that the Gross Domestic Product (of all goods and services produced) by the Eurozone, the 19 member nations which share the common currency, grew by 0.3% during the fourth quarter of 2014. It is also projected to grow by 0.9% for the entire year. The numbers for the nine European Union members that do not use the Euro as their primary currency should be similar, since nations often transact a large portion of their foreign trade with neighboring countries. And, trade promotes GDP.
Germany, has reported a 0.7% growth rate for the quarter, and 1.4% for the entire year. To put that into context, it is the largest economy in Europe, representing some 24% of the Eurozone by population, and 34% of the GDP for 2014. Also, when you consider the five largest members of the overall 28 member European Union–Zone members Germany, France, Italy, Spain and non-member U.K.–they represent 63% of the E.U, by population, and 83% by GDP. These statistics are important because Europe represents roughly 25% of the Global Economy.
There are two points to consider: one quarter’s statistics, whether good or bad, do not make for a good or a bad year–nor an end to a downward slump or the beginning of an upward surge. Significant fluctuations can oftentimes be due to recent activity that was caused by seasonal factors, such as retail spending toward year-end, or some unexpected circumstance(s).
The potential economic impact of the sudden drop in the price of oil since last June would certainly be a great example of an unexpected economic factor. Also, even though the price per barrel on the Global Oil Market has risen somewhat lately, it is still down almost 50% from last June. When the price of such a necessity drops, that means that consumers have more disposable income for household spending. But, if the price of oil rises again, then consumer spending could decline again, as well.
In fact, the four largest economies within the Eurozone–Germany, France, Italy and Spain, plus non-member U.K.–comprise 79% of the total population of the entire European Union, and 84% of the total GDP. Accordingly, the size and growth of the entire European Union–Zone members or not–moves with the several large ones at the top. In essence, as goes the “Big Five”, so goes the Zone and the E.U.
The U.K. is expected to hold National Elections in May, and the Conservative and Labour Parties poll at a virtual statistical dead heat (for this far ahead), with 32% and 33%, respectively. Last September, British Prime Minister David Cameron, a Conservative, had offered to grant the Scots even more autonomy in order to encourage them to vote NO on the Independence Referendum. Since then, Wales and Northern Ireland have also been clamoring for the same Federalism. Additionally, there is considerable interest in the U.K. for leaving the E.U. and/or a promise to never join the Euro. Keep in mind that the U.K. is the second-largest economy in the E.U.
So, it is much too soon to tell whether the Eurozone has finally turned the corner after seven years of economic stagnancy. The challenge of working out a deal with Greece to repay its considerable level of debt to the Troika–the European Commission, the international Monetary Fund, and the European Central Bank–and remain in the Eurozone, is a huge barrier to tranquility for all of Europe at the moment. There is another headwind which is bearing down on Europe, and it is encouraged by the new Greek government’s challenge to the Troika, which is the growing interest by a parties, on both the Right and the Left, for their various countries to leave the Eurozone, the European Union or both.
SO, STAY TUNED!