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Tuesday, November 04, 2014 12:21 PM

EC Slashes Eurozone GDP Forecasts (But Not Enough); Goldman's Model Shows Europe in Recession Now

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The European Commission slashed Eurozone GDP Estimates (yet again), yet they remain in positive territory.

Revision Summary

  • The EC revised Ireland, Malta, and Slovenia up. 
  • Greece and Netherlands were flat. 
  • The EC revised every other country lower from forecasts made in May of 2014.

Notably, the EC cut the Germany forecast from 2% to 1.1% now. France went from 1.5% to 0.7%.

Still Too Optimistic

The revised forecast still seems very rosy.

Unless one uses the strict definition of two consecutive quarters of declining growth, Europe is arguably in recession right now. Greece, Spain, and Italy are actually in economic depressions.

Greece GDP may be positive, but from a crushingly low level and Greek unemployment remains over 26 percent. Youth unemployment is over 50%. It's tough to view the state of affairs as anything other than an economic depression with unemployment rates that high.

France is at best treading water, and Germany has slowed markedly. Absurd sanctions on Russia hurt the entire Eurozone, and the slowdown in China is icing on the cake.

Goldman's Model Shows Recession

As I was pondering the ridiculousness of those European Commission forecasts, Zerohedge reported Europe In Triple-Dip Recession, Goldman's Internal Model Finds.

Goldman's model is called "Retina". Text snip below is from Goldman, as reported by ZeroHedge. No link available.
Since our previous update in mid-October, RETINA's median estimate of Q3 GDP growth has moved deeper into negative territory, driven largely by a disappointing print for area-wide industrial production in August. The downside risks to our +0.1%qoq [quarter over quarter] judgemental forecast for Q3 GDP now look skewed to such an extent that our point estimate no longer falls within a 50% confidence interval around RETINA's median reading.

RETINA Sees Negative GDP Growth

From mid-September to mid-October, RETINA's median estimate for third-quarter GDP growth (the red line in Chart 1) fell from around +0.3%qoq to just short of -0.2%qoq. Following a disappointing contraction in area-wide August IP [Industrial Production] on 14 October, RETINA's median estimate fell a further 10bp -- yet deeper into negative territory. Having stabilised at around -0.3%qoq in the past fortnight, RETINA's median estimate is now some 40bp weaker than our current judgemental forecast for Q3 GDP growth.

This is yet more pessimistic than the latest available poll among other private-sector economists (collated on 8 September), which envisaged Q3 growth of around +0.35%qoq.
Retina Summation

Retina vs. Eurostat Summation

  • Eurostat's Eurozone Q3 GDP Estimate: 0.9%
  • Goldman's Initial "Judgemental" Forecast: 0.4%
  • Goldman's Revised "Judgemental" Forecast: 0.1%
  • Goldman's "Retina" Forecast: -0.3%

Mike "Mish" Shedlock

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