This Isn't the 50s, Europe Won't Lead Growth: Economist
Data this week is expected to show Germany’s economy continues to outperform its peers in the euro zone and the US, but one economist is warning investors not to get carried away.
“A spurt of growth in Germany has, in recent weeks, provided a prop to battered confidence in the global economic upswing," Stephen Lewis, the chief economist at Monument Securities, told CNBC. "The euro zone, which was widely seen earlier this year as lagging in the recovery, is nowadays viewed as a potential locomotive for world expansion, filling in for the sputtering US growth engine.”
But Europe has not driven global growth since the 1950s and it won't start now, Lewis said.
“The German second quarter GDP data, impressive though they were, should not lead us to suppose that Europe has been transformed into an economic powerhouse,” Lewis said.
“It seems, rather, that the European economy is displaying its usual characteristics as a lagging beneficiary of demand cycles generated elsewhere," he said. "If, as seems to be the case, those demand cycles are now pointing downwards, the likelihood is that Europe’s growth, too, will soon be slipping."
The euphoria will last a few more weeks and then the European Central Bank is likely to raise its forecast for 2010 euro zone GDP, but this could be down to inventory building and unsustainable, Lewis warned. (Check Europe credit-default swaps prices.)
“Demand from this source is unlikely to be sustained into the second half of this year, which will also suffer by comparison with the corresponding period in 2009 as last year’s fiscal boost gives way to the likely negative impact on growth from government attempts to rein in budget deficits," he said.
“On balance, while euro zone GDP may well exceed 1.3 percent this year, it is unlikely to top that rate by much," Lews said. "Since euro-zone domestic demand will enjoy none of the advantages in 2011 that helped its recovery in 2009-10, it is by no means assured that the euro zone will grow at all next year."