Better News Emerging From Europe

By: Dr. Mike Campbell

The UK economy surprised many economists by putting on growth figures representing an annualised 1.1% rise in GDP for Q2 2010. Whilst this is poor performance in historical terms, and frankly embarrassing when compared to Chinese figures, it is almost twice the anticipated level of growth that had been expected which was a lack-lustre 0.6%. It is the UK’s best growth rate since 2006, before all the current nastiness began and nearly four time the Q1 figure (0.3%).

The UK Chancellor has been quick to lay the seeds of this triumph at his own door, attributing the success to the policy of cuts in public sector spending that he introduced to tackle the UK deficit. A more prudent man would wait until the Q3 data comes in, but politicians love to claim credit for any good news and hang the bad news on a convenient opponent.

Meanwhile, Europe’s largest economy, Germany, has seen the largest surge in business confidence in 20 years (don’t forget that we are working from a low base here). The IFO business climate index rose from 101.8 in June to 106.2 in July; this is the largest jump seen since German re-unification in 1990. The survey revealed optimism going forward for the next 6 months. Could Germany’s economy be leading Europe into a sustained recovery?

To top off the upbeat news emerging from Europe in recent days, the European purchasing manager’s index also indicated that things are looking up. With the results of the stress tests on EU banks also suggesting that they are well placed to deal with any future crisis, perhaps confidence will return to European markets and trigger a rally in the Euro.