Economy

Is Europe's Recession Really Over? It's Too Soon To Say

The line outside an employment office in Madrid last October. Spain's economy has been among the hardest hit in Europe. i i

The line outside an employment office in Madrid last October. Spain's economy has been among the hardest hit in Europe. Dominique Faget /AFP/Getty Images hide caption

itoggle caption Dominique Faget /AFP/Getty Images
The line outside an employment office in Madrid last October. Spain's economy has been among the hardest hit in Europe.

The line outside an employment office in Madrid last October. Spain's economy has been among the hardest hit in Europe.

Dominique Faget /AFP/Getty Images

These headlines this morning make it sound like Europe's economy is up and running again:

— "Euro Area Exits Longest Recession on Record." (Bloomberg News)

— "Euro Zone Emerges from Recession." (The Wall Street Journal)

— "Euro Zone Economy Grew 0.3% in 2nd Quarter, Ending Recession." (The New York Times)

They're all based on the news that Eurostat, the keeper of economic statistics for the European Union, says GDP grew 0.3 percent within the EU's borders from the end of March through June.

The stories may turn out to be right. But, unfortunately, reports of the European recession's death are (to borrow from Mark Twain) greatly exaggerated.

As Olli Rhen, Eurostat's vice president, writes on his blog: "I hope there will be no premature, self-congratulatory statements suggesting 'the crisis is over.' " He calls the GDP report only another sign of "a potential turning point in the EU economy."

The quick conclusion by some economists and some in the news media that a slight rise in one quarter's GDP means a recession is over ignores how experts figure out when an economy is either in a significant downturn (a recession) or enjoying steady growth (an expansion).

In Europe, just as in the U.S., the official arbiter is a committee of economic researchers who look at much more than just quarterly GDP data. As the European Centre for Economic Policy Research says of its business cycle dating committee's work:

"First, we do not identify economic activity solely with real GDP, but use a range of indicators, notably employment. Second, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, 'a significant decline in activity.' "

It adds that the data it examines include GDP, investment, industrial production and "Euro area employment."

In other words, the referees will be waiting to see more numbers before deciding if the EU recession that started in the third-quarter of 2011 is really over.

Among the things they'll be watching, of course, is whether the third-quarter GDP figure released Wednesday is revised on Sept. 4 when Eurostat isues its next report about the second quarter. If the figure is revised down, that would certainly support the case that it's too soon to declare that happy times are here again. An upward revision would add to evidence that things are getting better.

All this underscores why CBS MarketWatch looked at Wednesday's news and reached this conclusion:

"For now, tempting as it may be, it might be better to keep the champagne on ice and pop the cork only when the euro zone is into a more sustainable recovery."

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