Peter Warburton to Moneynews: European Economic Improvement 'Just a Technical Rebound'

Friday, 18 Oct 2013 10:21 AM

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Peter Warburton, director of Economic Perspectives, a United Kingdom-based consulting firm, isn't too impressed with Europe's recent economic recovery.

The eurozone's GDP increased 0.2 percent in the second quarter from the first.

But the economy is coming from a pretty bad place, Warburton tells Newsmax TV in an exclusive interview.

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"The European economy was in a very dire state in July of last year, and so the improvement we've seen is just a technical rebound from that," said Warburton, author of "Debt and Delusion: Central Bank Follies that Threaten Economic Disaster."

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The bounce includes a rebuilding of inventories, a rebound in industrial production and a shrinkage of external deficits in countries like Spain and Greece.

"Now in the case of Spain, they've had some improvements in exports, but in other countries it's just been cutting back on imports," Warburton said. "So it's not such an optimistic future."

But European growth could accelerate slightly, depending on two factors, he says. "It rests on businesses reviving investment, which is currently in a very weak state. The other is that consumers, particularly German consumers, are still basically staying away from the shops."

The corporate sector has the means to do more hiring and fixed investment, "but there's really very little sign of it, and the jobless rate in Europe is 12 percent and still rising," Warburton said.

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To be sure, in Spain, some businesses really are strengthening, he says. "So in Spain you've got some kind of strong brand, obviously you've got a lot of auto production in Spain." Spanish stocks have been beaten down and have room to rise, Warburton says.

European stocks overall have been strong performers in recent months, but Warburton is skeptical that will continue.

Germany is leading the way, but "we're still waiting for Germany to form its coalition government," Warburton said. "We're still not sure how severe the new government will be in terms of its attitudes toward southern Europe."

Greece needs another bailout and Portugal is close to needing one, Warburton says. "There are some issues bubbling up, and people are talking about the European Central Bank (ECB) having to make another move before the end of the year," he said.

Presumably Warburton was referring to an interest rate decrease by the ECB.

Meanwhile, Europeans are satisfied with the selection of Federal Reserve Vice Chairwoman Janet Yellen as the new Fed chairman, Warburton says.

"Janet Yellen has been thought of for some time as being the most natural continuation of the policies of [current Fed Chairman Ben] Bernanke," he said.

"So, Europeans are probably not that different from investors generally in really being somewhat relieved at having someone who's been in the room for these last few years."

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