Another green shoot? Europe's recession may have bottomed

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Here's another possible 'green shoot' for investors: Europe's recession may have bottomed.

Gross domestic product in the 16-nation euro-zone contracted by 2.5 pecrent in Q1 compared to Q4 2008, mainly due to falling exports and investment, according to data compiled by Eurostat, the E.U.'s statistics office (pdf).

Further, the euro-zone contraction is now four quarters long and represents the long and biggest contraction since European-level record keeping started in 1995. However, at least one economist, Alexander Koch of UniCredit Bank, senses a bottom is forming on the European continent.

"The latest ugly GDP figures should, however, mark the trough of the current 'Great Recession'," Koch told Reuters. In addition, recent European business surveys suggest new order declines have stabilized, and when combined with large declines in inventories, that could set the stage for a second-half rebound.

In Q1, Germany's economy contracted 3.8 percent, France's GDP fell 1.2 percent, Spain's dropped 1.8 percent, and Italy's declined 2.4 percent. Meanwhile, Q1 GDP in the nearby United Kingdom – which is not a part of the euro-zone – fell 1.9 percent.

A quick European GDP "snap-back"?

In general, most economists calculate that Europe is later in the economic cycle than the United States, so the U.S. will begin to recover from the recession sooner than Europe, and recent U.S. economic data further supports this argument. The U.S. economy has contracted for three consecutive quarters, but recent data (manufacturing surveys, housing starts, jobless claims, among others) suggest that the pace of the contraction may be slowing. Still, that does not necessarily mean that Europe will remain in recession appreciably longer than the U.S., says economist Richard Felson.

"Europe may get a large tailwind from emerging market economies in Eastern Europe, from Hungary, Poland, and the Baltic states," Felson told DailyFinance Monday. "These economies still have underdeveloped infrastructures, and there's an enormous reservoir of demand for consumer goods that will benefit Western European manufacturers and other companies, as they did before the financial crisis and recession set in."

The impact on U.S. investors? "A quicker snap-back creates a growing European region at an earlier date, and that is bullish for the U.S. economy, given the extensive trade ties between the U.S. and Europe," Felson said. "Most certainly, if Europe's economy takes less time to heal, that will boost U.S. GDP growth."

Economic Analysis: We'll get a more extensive GDP report from the critically important German economy on Wednesday, but right now, it appears the recessions in two major regions of the world, the euro-zone as well as the U.S., are bottoming. Assuming credit markets continue to loosen, and fiscal stimulus programs start to kick in, that could set the stage for the start of the U.S. and European recoveries in the second half of 2009.
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