Recently, multiple economies in the Eurozone experienced serious downturns. One the most troubled economies was Greece. In fact, Greece was the origin of this economic crisis in Europe. This can be seen with a decrease in yield for Greek bonds. According to a chart in the Wall Street Journal, Greek bond yields have dropped to 6.828%. During the peak of Greece’s economic problems, which were in 2012, the yields were very close to 35%. In the near future, there will be a €8 billion, or $11 billion buyout to pay back bonds that are maturing. The country is also feeling optimistic. Alpha Bank expects the economy to grow 1.1% this year.
Greece’s silver linings could be attributed to the positive outlooks for the rest of the Eurozone. There is an article by David Jolly in the New York Times about this. Part of this economic growth is the unexpected improvement in the French economy. The article discusses Markit’s composit index of economic activity, which is based on a survey of purchasing managers. If this survey were to generate a reading of 50 or higher, then this would mean that there is economic growth. Anything below 50 would represent contraction. The reading for this month was 53.2, which means that there is growth. Last month’s reading was 53.3, which is the highest reading in the last 32 months.
An article in the Washington Post from about a month ago explores growth in various countries in the Eurozone. The GDP grew by about .3% from October to December, which contributes to an analyzed rate of 1.2%. According to this article, growth in the third quarter was a little slow, but it picked up in the fourth quarter. Part of the reason for this was activity that was higher than expected in Germany, France and Italy, some of the Eurozone’s biggest economies. These fourth quarter growths were .4%, .3% and .1%, respectively. The Netherlands achieved growth rates of .7%, and two other troubled economies, Spain and Portugal grew by .3% and by .4%, respectively.
In a previous post, I mentioned that there is more than what meets the eye in economic data. Mankiel confirms this in his book. Previous trends are not always the best way about making investment decisions because an investment moves in a random pattern. There is no way to be sure if it will go up, down, sideways or back and forth. The same can be said about an economy. Recent figures have shown that Europe is seeing economic recovery. Even some of the troubled countries, such as Greece, Spain and Portugal are recovering. The Markit index for France is showing a reading above 50, so we know that its economy is growing. However, we do not know what will happen in the future. Some event, such as another liquidity crisis, could happen that could have a large impact on the Eurozone. If this were to happen, a lot of economies would tank. We have no way of predicting this, much like how we have no way of predicting where an investment will go in the future.