In the first quarter of 2013, the eurozone continued to witness an economic contraction. The gross domestic product (GDP) of the 17-nation region declined 0.2%. This decrease in the GDP marked the sixth straight quarter of economic contraction in the eurozone and the longest since 1995. (Source: Reuters, May 15, 2013.)
The debt-infested countries in the eurozone, such as Greece, Spain, Italy, and Portugal, are already experiencing severe economic contraction; and to say the very least, they have a lot of issues to resolve before they even come close to seeing any economic growth.
What concerns me the most is that the stronger nations in the eurozone are starting to show weakness—the economic slowdown is picking up speed. It could make the economic contraction in the entire region much more severe and could send the eurozone into another downward spiral.
Consider the French economy—the second-biggest economic hub in the eurozone. In the first quarter of 2013, France witnessed an economic contraction—GDP declined 0.2% and France entered a recession. (Source: Bloomberg, May 15, 2013.) For the past few quarters, France’s economy has been witnessing severe pressures, and unemployment in the country continues to be a major problem.
Similarly, Germany—the biggest nation in eurozone by GDP—grew at a dismal pace in the first quarter of 2013, below economists’ estimates. The German Federal Statistical office reported that the German economy grew 0.1% in the first quarter, and the revised calculation showed the country experienced an economic contraction in the last quarter of 2012, when its GDP declined by 0.7%. (Source: Destatis, May 15, 2013.) But there are even more troubling statistics; looking at it from a year-on-year basis, Germany’s GDP declined by 1.4% in the first quarter of 2013.
All of this shouldn’t come as a surprise to the readers of Profit Confidential; I have been harping on about more economic contraction in the eurozone for some time now. All the pieces of the puzzle are just falling into place.
Dear reader, the troubles in the eurozone are important to observe, because the region as a whole can create a significant amount of demand in the global economy. If the area struggles further, it will weigh heavily on global trade. More specifically, major U.S.-based companies that operate in the eurozone will see their profitability decline.