Thursday, July 22, 2010

European Growth Heats Up Again

While Keynesian pundits have argued that Europe due to its austerity measures will barely grow at all-and grow much slower than in America-, most signs point to accelerating growth.

Industrial production in the euro area in May was up 0.9% compared to the previous month and 9.4% compared to May 2009, while industrial new orders (a leading indicator of future industrial production) in the euro area in May rose 3.8% compared to April and 22.7% compared to May 2009. Meanwhile, both the manufacturing and non-manufacturing surveys for July showed accelerating growth.

Just because growth is robust -especially by European standards- right now doesn't necessarily mean of course that it will stay that way. However, the biggest risk factor isn't really the austerity measures. Latvia had above average growth both with regard to industrial production (+13.2%) and even more so industrial new orders (+69.0%) "despite" its tough austerity program. Instead, the risks consist of a potential downturn in America and a potential serious slowdown in Asia, as well as further rapid appreciation of the euro (which is up about 8% from its lows).