Opinion: Economic data results are bad and will get worse. Better get used to it. But what does it mean?

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Markets took in their stride the bad (very bad) news about the sharp decline of the European economy in the first quarter of the year. Gross domestic product in the eurozone shrank 3.8% in the period, with a corresponding fall of 3.5% in Europe. And two of Europe’s largest powers, France and Spain, saw their economies shrink 5.8% and 5.2%, respectively.

Cue the headlines about “the worst decline since World War 2 (when data started being collected in individual countries.) And brace for the worst, which is yet to come. The lockdowns across the region only started around mid-March in most countries, whereas the second quarter of the year will be impacted by their full, and dreadful, economic impact.

The Stoxx Europe 600 index SXXP, -2.02% was stable on Thursday, down 0.2% in mid-day trading.

Investors and markets have some good reasons to shrug off the news brought daily by economic data. The first is that they don’t really tell us anything we don’t already know. Contrary to nearly all previous economic crises, the current economic slump is one created deliberately by governments in the name of the higher good — survival and health of their people. The beginning of the end will be declared when governments decide to re-open their economies — provided, of course, that they don’t rush into it and trigger a second spike in infections.

The second reason data have to be taken with a grain of salt is that they are skewed by the lockdowns. Surveys don’t mean much when the surveyed are confined at home and bombarded every day by gloomy headlines and social media messages about the evolution of the crisis and governments’ and businesses’ struggles to cope with it. What is “business confidence” supposed to look like in such conditions?

As for hard data — about what has really happened to the economy — that will also be compromised by the difficulties encountered by statisticians to collect it. For example, the EU’s statistics institute Eurostat cautions on its website, “the price observations needed to compile inflation statistics are both harder to collect and, for many goods and services, even missing.” Not to mention that data have to be collected over the phone, or other problems due to missing staff.

There is, however, one mechanical certainty: the economy is headed for the worse, and the many strategies of lockdown exits implemented by European governments can’t hide that reality. A few days after it allowed stores to reopen, Germany, hailed as the country that is best dealing with the outbreak, noticed a pick-up in infections.

That should put a damper on markets’ hopes that the rebound is around the corner. It is not. But that is also not a reason to panic every time a new indicator shows the extent of the virus’ destruction. In the next two months, there will be many more.

Originally Published on MarketWatch

Home of Science
Follow me

- Advertisement -




Nike latest brand to leave Russia permanentlyon June 23, 2022 at 4:38 pm

Russia's economic isolation deepens as more Western brands leave the country.Nike has announced plans to leave Russia, becoming the latest Western brand to quit...

Wales secure at least World Cup play-off place after Spain winon November 11, 2021 at 10:25 pm

Wales are officially guaranteed at least a place in the World Cup play-offs after Spain beat Greece 1-0.

Stocks making the biggest moves after hours: Tesla, Dave & Buster’s, Chewy and more

Tesla — The automaker’s stock shot up 16% in extended trading after Tesla reported that it had delivered around 88,400 cars in the first quarter of 2020....

The Papers: ‘Ride the wave’ and ‘testing rules to be relaxed’on January 5, 2022 at 12:06 am

The papers cover the PM's hope that England can avoid more restrictions and plans to ease staff shortages.

Biodiversity: The tale of the ‘un-extinct’ fishon December 29, 2021 at 1:04 am

A Mexican fish species has been "brought back from extinction" after a decades-long rescue mission.Image source, Chester Zoo"It's just a little fish, not very...
Home of Science
Follow me