News that the eurozone experienced its first positive quarter of growth since 2011 could signal the European economy is improving, but it still has a long way to go. The end of the longest recession in the bloc’s history doesn’t come with a parade of positive statistics. In fact, the opposite is still true, and the recovery is being described as fragile by Olli Rehn, economic and monetary affairs commissioner for the European Union.
“This slightly more positive data is welcome—but there is no room for any complacency whatsoever. I hope there will be no premature, self-congratulatory statements suggesting ‘the crisis is over,’” Rehn wrote in a recent blog. He also warned against taking recovery for granted, saying that the region would have to “avoid new political crises and detrimental market turbulence” to continue its progress.
Although Eurostat, the statistics office of the European Union, reported a collective boost of 0.3% in the 17-member currency group, the largest margin of growth came, surprisingly, from Portugal, where GDP increased by 1.1% in Q2. After that came Germany, which clocked in with growth of 0.7%, and after that France, at 0.5%, both faster than expected. Some of the upswing is due to an improvement in the weather that kept shoppers home earlier in the year, according to Chris Williamson, chief economist at Markit Economics.
Another factor is “…volatile industrial production[, which] was driven by a surprisingly strong jump in production of durable goods, led in turn by a 15.7% surge in car production.” Williamson said in research. That is “the largest ever increase seen since data were first available in 1991. This increase not only looks unsustainable but is also at odds with the PMI data, which tend to give a better picture of the underlying health of the manufacturing sector as a whole.”
Asked what might have been responsible for such a massive surge in auto sales, Williamson said, “There’s a suggestion that they’re ramping up production in the prospect of economic revival in the EU market, and sales have also done well in China and AsiaPac. However, the global environment hardly seems conducive to a production increase of this magnitude, which raises the prospect of production sliding in the third quarter as firms adjust inventories down.”
In fact, while German auto sales were up in both Q1 and Q2, exports fell in July, as indeed they have been falling all year, according to the German Association of the Automotive Industry (VDA)—that despite the fact that in the U.S., German auto manufacturers are close to setting a new sales record. Mercedes-Benz has seen rising demand for compact models and for SUVs, and worked extra shifts both at home and in the U.S. to meet demand. Volkswagen has seen sales increase in the Asia-Pacific region, but watched them fall in Europe.
France’s PMI and GDP numbers, as Williamson cautioned, do not bear out the growth the country has experienced, and INSEE, the French government’s statistics body, has credited the economy’s 0.5% gain to rising domestic demand and an upturn in inventories, neither of which might last through Q3. In addition, INSEE reports that consumer confidence is still hovering near its all-time low—and unless demand picks up further, inventories will be cut.