Portugal feels sting as EU creeps near recession
Issued on: Modified:
New figures show the European Union's economy fell by 0.2% in the second quarter, with Portugal being hit especially hard by the region's austerity drive.
The economies of the European Union and the smaller 17-member single-currency eurozone shrank slightly between April and June of this year, according to new official figures. Eurostat, the statistical office of the EU, revealed on August 14 that the region’s GDP fell by 0.2% during the second quarter of 2012, with especially poor performance by Portugal.
Germany and France, the eurozone’s two biggest economies, did better than expected, even if their second quarter performances were far from being success stories. Germany’s GDP grew by 0.3%, beating its own forecasts, and France flat-lined at 0% growth, but avoided slipping into a much feared recession.
On news of Germany and France’s numbers, stock markets bounced up and share prices rose across the continent. Britain’s FTSE 100, Germany’s DAX and France’s CAC-40 all finished with slight gains on Tuesday.
According to Jeremy Batstone-Carr, director of client research for Charles Stanley, a financial advising firm, the figures as a whole should be a cause for worry. “According to further looking projections, data for Germany suggests the next six months will be just as bad if not worse,” he said.
The data also showed a clear divergence between the region’s northern core countries and weakness in the southern periphery countries, which threatens to exacerbate existing problems. Hard-hit over the past three months were Italy (-0.7%), Finland (-1.0%) and Portugal (-1.2%).
On another gloomy note, Britain’s economy shrank by 0.7 percent, according to Eurostat. That compared to .03% negative growth for the first quarter of the year, which meant that Britain has been in recession for the last nine months. Recession is defined by economists as two consecutive quarters of contraction.
During the same three-month period, GDP increased by 0.4% in the United States and 0.3% in Japan - Europe’s main economic partners.
“It would be more comforting for economists and strategists if there was a single coherent solution… the divergence suggests there is no cohesion of EU policy,” Batstone-Carr noted.
Portugal losing patience
For many observers, Portugal’s ongoing economic woes are further proof that Europe’s current austerity push is making matters worse and not better.
Data from Portugal’s National Statistics Institute (INA) also revealed that unemployment increased in the second quarter of 2012 to 15% - worse than the 14.5% forecast by officials, and a 22.5% increase compared to last year’s figure for the same period.
“Austerity measures are sending us into poverty,” Armando Farias, an executive committee member of the Confederation of Portuguese Workers, told the Associated Press. “We need development and investment, and we can’t get them this way. We need to change path. Something needs to be done, and quickly.”
Portugal, like other southern European countries, has asked for loans to help its economy keep its head above water, but has been forced to sign off on austerity measures as a trade-off.
In May 2011, the EU and IMF offered Portugal a €78 billion euro bailout. The lifeline has come with sweeping cuts and higher charges for public services.
The country has also been forced to sell valuable state assets, like the electricity grid operator REN and the utility company Energias de Portugal. But the belt-tightening and privatization regime have so far failed to turn the tide.
“This shows you can’t cut your way out of growth,” Batstone-Carr said, adding that despite the bad news Portugal’s governement had few options on the table. “Once you have taken the EU’s and IMF’s money, you have ceded economic control; policy can be imposed on you. It’s normal for people who lend money to want to get it back.”
Pierre Lenders, a hedge fund expert with the asset management company HDF Finance, said international investors were growing weary over Europe’s austerity-centred drive. “It’s actually counterproductive… shooting too much for a deficit target when there is no productive motor to reach those targets. It’s kind of a death spiral,” Lenders said.
France’s Socialist President François Hollande has led a charge with Italy and Spain to demand that growth stimulus be added to the EU’s fiscal pact meant to resolve the region’s debt crisis. That push met resistance from Germany, which is reluctant to give Europe’s debt-drenched southern economies any leeway.