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Thursday's reports on EU gross domestic product were a figurative bloodbath of economic misery. With the great European experiment sliding into the economic abyss, the biggest surprise is why this has had so little effect on the global economy.
Countries within the European Monetary Union fell an average of 0.9 per cent year over year during the fourth quarter of 2012, highlighted by a 1.7-per-cent contraction in Spain and a 2.7-per-cent drop in Italy. Growth also evaporated in Germany, where GDP was reported 0.6 per cent lower.
The European Union is the world's largest economy at $16.1-trillion (U.S.), slightly larger than the U.S. at $15.6-trillion, and significantly larger than China's $12.4-trillion. To date, a renewed credit-driven infrastructure boom in China and a partial recovery in the U.S. housing market have prevented the European malaise from stalling global growth. For China in particular this must feel like treading water while tied to an anchor – the EU has historically been the country's largest export market.
The weakness in Europe will be transmitted to the global economy through lower import demand and a weaker currency. The euro is already giving up recent gains against the dollar this morning. A continuation of this trend will improve the competitiveness of European exporters at the expense of global competitors.
The hope among economists is that monetary policy can halt the economic slide and lay the groundwork for a recovery in the second half of 2013. Thursday's data, however, throws these projections into the doubtful – and possibly delusional – category.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.