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Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is cautioning that 2015 will be an even more challenging year for the eurozone as the region’s biggest economies face stagnation and even contraction.“Over the last two years, the mainstream media has been saying the eurozone economy is rebounding. Looking at the same economic data, though, told me that the eurozone’s economic problems were only going to get worse,” says economist and lead contributor Michael Lombardi. “Having seen the deterioration in the eurozone economy firsthand, I’m predicting the worst is yet ahead for the world’s largest economic region in 2015.”
Germany, the region’s biggest economy, recently staved off a recession when it announced third-quarter GDP growth of a paltry 0.1%; in the previous quarter, the economy contracted the same amount. Going forward, Germany’s central bank, the Bundesbank, slashed its 2015 economic forecast in half. It now expects the German economy to grow by just one percent in 2015, though in its previous forecast, it forecasted the German economy to grow by two percent. (Source: “Bundesbank halves 2015 growth forecasts,” TheLocal.de, December 5, 2014; www.thelocal.de/20141205/bundesbank-cuts-growth-forecasts.)
“France, the region’s second-biggest economy in the eurozone, announced anemic third-quarter GDP growth of just 0.3%. The fact that this anemic growth is the fastest pace in more than a year is worrisome,” Lombardi adds. “The country’s unemployment rate is still near 10%, twice that of Germany’s. Not surprisingly, high unemployment cuts into consumption and economic growth.” (Source: Horobin, W., “French GDP rises 0.3% in third quarter, beats view,” MarketWatch.com, November 14, 2014; http://www.marketwatch.com/story/french-gdp-rises-03-in-third-quarter-beats-view-2014-11-14.)
Italy, home to the third-largest economy in the eurozone and ninth-biggest in the world, returned to a recession in the third quarter, after its economy fell 0.1%; this represents the thirteenth consecutive quarter that Italy has failed to report economic growth. Unemployment is rampant, with youth unemployment above 43% and overall unemployment at 13%, the highest since 1977. Italy is currently going through its worst recession since World War II, and ratings agency Standard & Poor’s recently downgraded Italy’s debt to one notch above junk. (Source: Boston, J., “Italy Hit With Unemployment And Inflation Blows,” Finances.com, November 28, 2014; www.finances.com/news/forex/41604-italy-hit-unemployment-inflation-blows.htm.)
Lombardi explains that during the second week of December, the Greek stock market lost 19% of its value, bringing its total loss for the year to 28%. Interest rate yields on Greek bonds are now at their highest level since 2012. Further, Greece’s citizens are poised to return to the polls to elect a president, placing more uncertainty on the economy. The turmoil in Greece that started several years ago never ended; it just got worse.
“Almost half of S&P 500 companies derive sales from the eurozone, so the weaker economy there will put pressure on their earnings. For example, 11 of the 30 companies on the Dow Jones Industrial Average provide their revenue figures from Europe in their financial reporting. In the third quarter of this year, eight of those companies reported lower year-over-year growth figures and six reported year-over-year sales declines in the eurozone,” Lombardi concludes. “Continued bad news from the eurozone will work against North American stock markets in 2015.” (Source: “More Dow 30 companies reported sales declines in Europe for Q3,” FaceSet.com, November 24, 2014; www.factset.com/insight/2014/11/earningsinsight_11.21.14#.VI8MFjHF_pw.)
To find out more about Profit Confidential and to see Michael Lombardi’s market commentary, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.
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