Investment Contrarians

Economic Growth Estimates Slashed for 2013

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Economic Growth Estimates Slashed for 2013I realize many people might be getting tired of hearing about the eurozone and the lack of economic growth in that union; however, we must be aware that what does occur in the eurozone and the trajectory of its economic growth can and will have an impact on the American economy. The global economy is more closely tied together now than ever before, and a lack of economic growth in one area could spread into another nation.

As I wrote several days ago in my article “Global Recession Fears Grow as Strong Nations Weaken,” Finland is showing signs of extremely weak economic growth. On Friday, we had more reports from the eurozone that economic growth is far below what is acceptable.

Germany’s central bank, the Bundesbank, announced that its estimate for economic growth in 2013 will only be 0.4%, a huge decrease from earlier estimates in June for economic growth in 2013 to be 1.6%. Austria’s central bank also slashed its 2013 estimates to 0.5%, as compared to previous estimates of economic growth of 1.7% in 2013. (Source: “German, Austrian central banks see grim 2013 as crisis bites,” Reuters, December 7, 2012.)

The level of adjustment in economic growth rates for both of these central banks is massive, and it’s a sign that the eurozone is far weaker than anyone previously thought. A good example of how weak economic growth is in Germany, the core country within the eurozone, is the statement by the Bundesbank that “The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff.” (Source: “German, Austrian central banks see grim 2013 as crisis bites,” Reuters, December 7, 2012.)

The important point when looking at data is the direction and extent of the revisions. If the eurozone were to show signs of stronger economic growth in the future, we would see positive revisions. But we are constantly seeing country after country within the eurozone revising their economic growth forecasts down. This is not a positive sign.

Americans should be cognizant that economic growth might be more difficult in 2013, because in addition to our own domestic issues there will also be global problems to deal with, such as the eurozone. All of these downward revisions in the eurozone for economic growth don’t even include shocks to the system; this lowered economic growth forecast is based on current trajectories.

If a shock to the financial system were to occur, such as a default by a country or one of the members leaving the eurozone outright, this would be a massive hit not only to the eurozone but to global economic growth as well.

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