A couple of more hints deficits may be high enough for stability and even a bit of positive GDP growth:

German Industrial Production Increased More Than Forecast in May

By Jana Randow

July 6 (Bloomberg) — German industrial output rebounded more than economists forecast in May as construction buttressed Europe’s largest economy against the sovereign debt crisis.

Production rose 1.6 percent from April, when it dropped 2.1 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 0.2 percent, the median of 36 estimates in a Bloomberg News survey shows. Production was unchanged from a year earlier when adjusted for working days.

The European Central Bank cut interest rates to a record low yesterday as the worsening debt crisis threatens to tip the euro area, Germany’s largest export market, into recession.

While German business and investor confidence have slumped amid signs growth is slowing, record-low unemployment and demand from outside the region have helped insulate the economy. Factory orders unexpectedly rose 0.6 percent in May, the Economy Ministry said yesterday.

“German factories are still doing quite well, but we’ll see some skid marks as a result of the euro region’s debt crisis in the coming months,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “In the euro area, everything points toward recession and the global economy has slowed to an extent that it can’t compensate for the weakness in Europe.”

Manufacturing output gained 1.8 percent in May, driven by a 3.8 percent jump in production of consumer goods, today’s report showed. Investment goods production rose 1.7 percent and construction activity was up 3.1 percent.

France’s Trade Deficit Narrowed in May to 5.3 Billion Euros

July 6 (Bloomberg) — France’s trade deficit narrowed 7.7 percent in May as exports rose.

The deficit in May was 5.325 billion euros ($6.6 billion) compared with 5.77 billion euros in April, the country’s customs office said in an e-mailed statement.

Exports rose 1.3 percent from the previous month to 37.44 billion euros while imports rose 0.1 percent to 42.77 billion euros.

For the first five months of the year, the deficit narrowed 10 percent from the same period a year ago to 29.4 billion euros

Airbus exported 22 planes for 1.58 billion euros during May, compared with 28 planes for 2.23 billion euros the previous month.

8 Responses

    1. still a good chance the euro gets a lot stronger.
      we’ve had a day and a half sell off by portfolio managers and traders on the mistaken assumption that the ecb rate cut is inflationary

      1. @WARREN MOSLER,

        Why do you reckon there’s a good chance of the euro getting stronger? ECB comments about the (lack of) ESM bank license have taken my initial tiny tiny hopes away again 😉

        “Draghi Still Opposed to Granting ESM a Banking Charter”

      2. relatively tight fiscal (though maybe deficits large enough for gdp stability)

        ‘improving’ trade

        low risk free rates

        increased tax compliance efforts


        (this is not meant as a ‘buy right now’ recommendation)

  1. Insufficient to support the periphery (via exports) though.

    One good note though, employment came very well in May in Spain (thanks to tourism jobs), biggest employment expansion in 4 years. Weaker euro is helping.

    I fear situation will further deteriorate in Q4 this year as heavier cuts are being done.

  2. Warren, I don´t quite follow why `negative´ deficits, so to say, are good for the economy. I can see that a ´positive´ deficit, i.e. government spending more to employ everyone, so overall the country´s production increases. A ´negative´ deficit, self-imposed or caused by external factors, will not employ any more people to do stuff and increase overall GDP. So overall the country should be in the same position, and ´negative` deficit should not influence GDP.

    1. True, spending cuts and tax increases reduce GDP.
      not good.
      But the slowdown also causes transfer payments for the newly unemployed to go up
      and actual tax collections to go down due to falling incomes and sales.

      but as the economy weakens and sales fall, the rising deficit is an ‘automatic stabilizer’ that at some point
      is sufficient to keep gdp from weakening further, as the unemployed (and others) spend their additional benefits
      and the net govt spending/deficit spending adds that much net income and net savings of financial assets.

      Of course if the govt tightens up again it all goes down some more until the deficit grows sufficiently to stabilize things.

      Not my first choice for policy!!!

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