The Week in Review: Europe Growth Stalls, U.S. Consumer Spending Rises

A number of economic indicators suggest a surprise slowdown throughout Europe, while American spending doubles but remains pressured by moribund wage growth.

This week the UK announced that its economy had risen by only 0.3%, a decline from the previous quarter despite expectations that quantitative easing in the European Union, combined with Britain’s own economic growth trend and growth policies by the Conservative party. The growth rate was about half of analysts’ estimates.

A number of economic indicators suggest a surprise slowdown throughout Europe, while American spending doubles but remains pressured by moribund wage growth.

This week the UK announced that its economy had risen by only 0.3%, a decline from the previous quarter despite expectations that quantitative easing in the European Union, combined with Britain’s own economic growth trend and growth policies by the Conservative party. The growth rate was about half of analysts’ estimates.

The fall in growth is particularly worrying for the Conservatives, who face an election next week. Conservative Prime Minister David Cameron has promised a higher growth rate to the country, arguing that the party’s controversial austerity measures have been effective in keeping growth high.

The opposing Labor party has fought Cameron on this point, saying his promise to voters rings hollow. Earlier this week, Cameron said “with me you keep the jobs, you keep the growth, you keep the security,” but Labor has replied noting that the data shows no consumer spending growth, as more Britons fear economic uncertainty and thus curb their spending.

“While the Tories have spent months patting themselves on the back these figures show they have not fixed the economy for working families,” said Labor economic spokesperson Ed Balls.

Grexit Unlikely

While the UK is stalling, economists and political pundits alike debate the debate over Greece’s future in the European Union. Quelling such talk, the ECB has stated they are not planning on Greece leaving the Eurozone or the EU. Earlier this week ECB Executive Board Member Benoit Coeure said in an interview, “the exit of Greece is not a scenario we are working on,” Coeure said. 

At the same time, the ECB worked on increasing lending to Greece as it met to life the lending cap it currently had on Greece by 1.5 billion euros, or about $1.6 billion, after Greece approached its limit.

U.S. Consumer Spending Rises

Unequivocally negative news in Europe was met by slightly more positive data from the United States, even as the country posted disappointing economic growth for the first quarter.

The Commerce Department announced this week that consumer spending rose 0.4% in March, a sharp rise from the 0.2% growth in February. The growth rate was 0.3% when adjusted for inflation.

Again, volatility in oil costs is attributed to the change, with a rise in energy costs partly responsible for the change. More worryingly, some analysts point to flat wage growth, which the Commerce Department also noted in its report. Some economists warn the combination of higher spending and flat wages is unsustainable and cannot sustainably drive growth.

Yet consumption is not currently driving growth, which the Bureau of Economic Analysis announced this week was just 0.2% annualized, much lower than the 2.2% real GDP growth that the BEA saw in the fourth quarter of last year.

Lower personal consumption contributed to the growth deceleration, which was worsened by a fall in exports and nonresidential fixed investment. However, private inventory investment and federal government spending contributed to the GDP growth.

The growth rate was a major disappointment after economists expected 1% GDP growth for the first quarter. That project was lowered after leading economists at the World Bank, the International Monetary Fund, and leading investment banks had downgraded growth in the U.S.