Tuesday, April 10, 2012

Is Europe's recession spreading beyond the Eurozone?

When Sweden's Q4 GDP fell 1.1% from the previous quarter, most analysts thought of it as a temporary blip. After all the Q4 GDP was still positive on a year-over-year basis.

Sweden GDP YOY (Bloomberg)

But the "temporary blip" out of Sweden has turned into something more ominous when the February industrial production numbers came out this morning. Here we are no longer talking about Q4 which was challenging for most major economies.
Reuters: Swedish industrial production suffered its sharpest fall since 2009 in February, jarring a reassuringly rosy outlook painted by other recent economic indicators and calling into question expectations the central bank will not take rates any lower.

Sweden Industrial Production YOY (Bloomberg)

Industrial orders have also turned sharply negative.

Sweden Industrial Orders YOY (Bloomberg)

Of all the European economies, Sweden was supposed to be fairly insulated from the Eurozone problems, particularly given its decent debt to GDP ratio of 37% and export oriented economy.
Reuters: The Nordic country, sheltered by robust public finances, has so far weathered the downturn spawned by the euro zone debt crisis with relative ease and recent gauges of economic activity had pointed to a moderate recovery.

But the sharp fall in industrial output raised doubts about the extent to which Sweden's export-dependent economy can escape the pain as large swaths of the European economy, its biggest export market, tread into recession.
This may be an indication that the recession is not contained to just the Eurozone periphery, a development that bodes poorly for global growth in 2012.

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