Friday the 13th, GDP figures were announced for the euro-area and represented a worrying signal. That Europe was feeling the effects of the Credit Crunch far more than first people expected.
The euro-area GDP fell by 1.5%, just as much as Britain did and even more than America. Germany was down by 2.1%, Italy by 1.8%, France by 1.2% and Spain by 1%.
You may be asking, wasn’t this expected? Well the answer is not really to this extent. Germany is the great paradox in all this. Germany unlike Britain has a huge surplus current account and so does not need foreign capital to maintain its stability. Its economy is based on manufacturing rather than financial (which is why Britain is affected) and it did not get involved in the whole housing and credit boom. Therefore the people there enjoy high rates on saving and suffer from low debt level when compared to us.
This same problem though is the one that exists in Japan, a high export, high saving economy, that has suffered immensely. The reasons for this are 2 fold one is if people are so cautious with their income in boom years imagine how they are in economic downturn. The other reason is that the rest of us have far less requirements to import goods from these countries as we make do with the goods we have already. This means less foreign demand, means less orders which has meant less investment in growing their economy and so creates a vicious circle.
The solution to this is not a simple one, but although unemployment is not quite as high as in Britain, the expectation is that major job loses could follow in these European economies.
A glimmering hope to our own economy is that while the value of the pound is falling more so than other currencies, this could serve us well in exporting our own goods and so could help stimulate our economy in the long run……
