What’s Going On Here?The eurozone and the US will have to find new ways to make themselves feel big: they revealed late last week that their economies suffered their biggest shrinkages on record last quarter (tweet this). What Does This Mean?First the eurozone, which announced on Friday that its economy shrank by 12% in the second quarter compared to the one before. Seeing as it also contracted in the first quarter, the region is now officially – and, let’s face it, unsurprisingly – in a recession. The biggest of its economies, Germany, shrank by 10%, while the hardest-hit, Spain, shrank by almost 20%.
The US is in a recession too: it revealed its economy shrank at an annualized 33% last quarter, following a decline in the first. That’s not directly comparable to the eurozone’s non-annualized 12% shrinkage, but a quick back-of-the-envelope calculation suggests the eurozone’s comparable figure is around – oof – 36%. Why Should I Care?For markets: Always look on the blight side.
Tucked behind America’s headline figure was a 50% drop in private investment and 35% fall in personal consumption. The only good news was a 3% rise in government spending, which makes sense given the trillions it’s poured into support measures. But with the next round of aid still in gridlock, economists worry even that shot in the arm won’t last much longer. At least economists in Europe are feeling optimistic: they reckon the bloc’s support package and spending plans for the next few years better position its economy to bounce back.
For you personally: Come rain or shine.
Last week’s report also revealed Americans’ personal savings rate as a proportion of disposable income rose to 26% last quarter – its highest in years. Put simply, Americans are saving lots. That’s partly because early government support offset workers’ lost income, and partly because consumers are keeping money aside for rainy days. But with record low interest rates, that cash isn’t doing much in the dry either – so it’s worth considering growing that pot with an investment or two. | 