Sacre Bleu! Mein Gott! Eurozone growth leaves les Rosbifs behind

Led by France and Germany, Eurozone growth has overtaken the UK, with Q1 GDP rising by 0.8%.

by Andrew Saunders
Last Updated: 06 Nov 2012
Hear that well-oiled whooshing sound drifting in from across La Manche? That’s the sound of the Eurozone economic recovery in full swing. The German economy grew by no less than 1.5% in Q1 this year, while France was not so far behind at 1%. That’s enough to take the German economy back to its pre-recessionary size, a pretty respectable performance however you look at it. The Eurozone as a whole - including such well-known basketcases as Portugal, Italy and Spain - managed a far from shabby 0.8%.

All of those numbers are decidedly rosier looking than the UK’s anaemic 0.5%, so overhearing the economic buzz of our continental neighbours might be as close to recovery as we are going to get this year. Only five of the 13 countries which have reported so far are growing more slowly that the UK, a nothing-to-be-proud of group which also includes Finland and Cyprus. To complete our national economic humiliation, even bailed out disaster area Greece, which according to the smart money is all set to default on its crippling debts, is boosting its GDP faster than the UK, at 0.8%.

So why are our old rivals the French and the Germans in particular, doing so much better than we are? Well the new German Wirtschaftwunder is driven by its outstanding manufacturing export performance, the best since records began in the 1950s, especially to the aspirational consumers and booming industries of China and the far East. We can’t match that here anymore - although some of the UK’s specialist manufacturers are among the best in the world, there simply aren’t enough of them to really make that much difference to the overall picture.

French exports are also doing pretty well, if not quite so swimmingly as the Germans. But the French domestic economy is more robust, with consumer confidence remaining solid. France also suffered a less severe recession than either the UK or Germany. It must also be said of course that they do not have economies which are so reliant on a single sector as the UK’s, nor do they have our levels of debt. Their respective governments also spent rather more of the surplus generated by the noughties boom on infrastructure and investment and rather less on unproductive public sector expansion.

So, were all those Europhiles who said we should have joined the single currency back when we had a chance right after all? Well, that depends. The UK economy would almost certainly be in even worse shape were it not for the fact that we’ve been able to deflate sterling and boost our export competitiveness, set out own interest rates, monetary policy and so on. On the other hand an ECB-led bailout of the UK banks would have shared that particular burden out rather more widely.

On balance, here at MT we think that we’re better off out than in. Especially as the real pain for the Eurozone may be yet to come. Although these numbers look pretty good overall, the single average 0.8% figure masks an increasingly hard to sustain spread of economic performance across the zone. How can one currency be expected to meet the requirements of nations growing at rates of between -0.7% (Spain) and 2.1% (Estonia)? And the better the key players do in relation to the also-rans, the wider the gap becomes.  

It’s just as well that France and Germany are in such relatively rude economic health, because they are going to need deep pockets and iron political determination if they are to hold the singe currency together over the next decade or so.

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