The fourth-biggest hub in the eurozone, Spain, is facing a severe economic slowdown. According to Spain’s National Statistics Institute in Madrid, the unemployment rate in the country has surpassed the 27% mark, with more than six million people jobless—the highest number since 1976. (Source: Bloomberg Businessweek, April 25, 2013.)
Furthermore, the Bank of Spain reported that the Spanish economy contracted 0.5% in the first quarter of this year after witnessing a decline of 0.8% in the last quarter of 2012. The International Monetary Fund (IMF) expects this eurozone nation to contract 1.6% this year.
While Spain seems to be at the forefront of headlines about the eurozone, other nations like Portugal are witnessing a severe economic slowdown as well. The country has been experiencing a recession for three years, with its unemployment rate at a record high of 17%. (Source: Wall Street Journal, April 23, 2013.)
The situation in the eurozone is very critical; but if you look at the key stock indices, they do not portray this.
Even though Ford Motor Company (NYSE/F) was able to earn a profit in North America in the first quarter of 2013, its losses in Europe are piling up. The company posted a loss of $462 million in the first quarter in Europe, an increase of more than 210% compared to the same quarter of last year. (Source: Wright, R., “Ford reveals deeper European losses,” Financial Times, April 24, 2013.)
Ford is just one example of how U.S.-based multinational companies can face severe losses in the eurozone as the economic slowdown continues to take its toll on Europe. Even with all the austerity measures and bailouts by the European Central Bank, the eurozone is deteriorating further.
More troublesome is the fact that strong eurozone nations are starting to show weaknesses. Take a look at the two biggest economies in the region: France and Germany. Their growth is anemic at best, and the economic slowdown in those countries seems to be strengthening.
As I have been harping on about in these pages over the past few months, the eurozone’s economic slowdown is far from over, and I expect it to continue for a long, long time. Eventually, just like Ford, U.S.-based companies, especially the 40% of them listed on the S&P 500 that have sales in the eurozone, will see their losses mount—and stock prices reflect as much.
What He Said:
“What group of stocks are next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in Profit Confidential, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.
More Business articles from Business 2 Community: