Europe is ready for cautious optimism

PAUL HUNT, MANAGING DIRECTOR, PHOEBUS SOFTWARE
PAUL HUNT, MANAGING DIRECTOR, PHOEBUS SOFTWARE

Pessimists should glean hope from Europe. European economic growth accelerated sharply in Q2, thanks largely to a super-charged Germany.

Booming sales to fast-growing markets – notably Brazil, China and India – have brought German industry its strongest quarter in decades. The newly affluent in those countries are rushing to buy Audis and Mercedes, as well as luxury goods from Europe.

Companies that suffered when demand for durable goods dived have returned to capacity far sooner than they had dared expect.

Even Germany’s unemployment rate of 7.6% is a little lower than at the start of the financial crisis. Its recovery has more than made up for the struggles of Spain, Ireland and recession-ravaged Greece.

But Europe’s economic fortunes are also bound to those of the US. So we have to ask how valid the risks of a double dip in the US are.

Well, the recovery there has lost some momentum but that’s partly because shops and warehouses are fuller so the initial boost to demand from restocking is fading.

And the housing bust is still casting its shadow. As households save to work off excess debts, firms fearful of weak consumer spending are cautious about investing. And bank credit is scarce.

But a slide into a second recession would require firms to cut back on stocks, capital spending and jobs. The cash buffer corporate America has built up makes a fresh shock of that kind unlikely.

I’m not saying it won’t be a hard slog but on the evidence don’t expect the global recovery to halt.