It had nothing to do with the coronavirus. It happened last year. The Eurozone’s economy grew at a rate of 0.1 percent in 2019’s final quarter, a slowdown unmatched since the currency crisis of 2012.
The rate blew apart hopes that the region’s economy was beginning to improve.
Germany was the greatest disappointment, reporting zero growth in the period after notching 0.2 percent in the year’s third quarter.
Declines in factory production were the chief culprit (see related story), but other sectors sank as well.
Retail sales were off 1.6 percent in December, the steepest drop in ten years.
On 14 February, however, the Stoxx 600 index of the Eurozone’s biggest companies, struck a record high as bond prices also rose, forcing interest rates lower. The yield on Greece’s 10-year bonds fell to an all-time low of 1 percent.
The market index and bond prices rose in the face of bad data because investors are betting that the European Central Bank will cut interest rates further into negative numbers and boost its bond-buying to stave off recession, possibly from its current €20 billion a month to €40 billion.
“I worry about low interest rates because they are a symptom of a deeper problem in the global economy,” said Janet Yellin, former Chair of the U.S. Federal Reserve. “It has put central banks in a position where they don’t have a lot of ammunition. If we have a serious recession, we’re probably not going to be able to count on central banks to offer up a significant response.”
TREND FORECAST: We forecast the European Central Bank will cut interest rates and ramp up its bond-buying, possibly as early as its March meeting.
Lower interest rates and more quantitative easing will not boost Europe’s economy.
Furthermore, calls for fiscal stimulus, such as government spending to invest in infrastructure and create more jobs will, at best, produce short-term positive economic results.
Already weakened economically, Europe will greatly suffer when the “Greatest Depression” strikes in 2020.
