General – bad news from West, promising news from East; incoming economic data in Europe's major economies have been weak in 12Q1.

UK's economy contracted once again suggesting a recession is now a reality. The Italian and Dutch GDP contracted for the third quarter in a row. And the French economy surprised on the upside by simply stagnating.

Unfortunately, leading indicators suggest these economies will contract (once again) in 12Q2. The good news is that some major emerging countries are taking measures to stimulate growth. 

France – French bastion shows first cracks
Several signals point to a contraction of private consumption in the current quarter. To this end, we can expect GDP to contract in 12Q2. President Hollande cannot significantly alter this outlook despite his preference for a growth-based strategy. This is because France cannot get away from fiscal austerity measures in the coming years. Therefore, the outlook for the French recovery remains weak.

Italy – Recession continues…
In the first quarter of 2012, the Italian GDP fell back for the third in a row. Consumer and producer confidence has deteriorated over the past months. This makes it very likely that the recession stretches out into the third quarter of 2012, making deficit reduction by the government very challenging.

United Kingdom – Assessing strength of recovery is getting complicated
GDP contracted by 0.3% q-o-q in Q1. This means a technical recession is now a reality. The contraction of GDP was largely thanks to the rapid pace of destocking by British firms. Going forward, output will bounce around over the next few quarters due to the Queen's Diamond Jubilee and the Olympics. The deterioration in May's manufacturing PMI suggests that GDP may contract once again in Q2.

The Netherlands – Economy remains fragile
In the first three months of 2012 the Dutch economy contracted for the third consecutive quarter (q-o-q). Thus the Netherlands is still in recession. Consumption remains low, held back by (proposed) tax increases and cutbacks combined with low consumer confidence. During the first quarter, exports continued to be the engine of the Dutch economy. The outlook for the rest of the year is moderate.

Emerging Markets – A few scattered bright spots
Both growth and currencies appear to be on the slide in emerging markets around the World. In Brazil, China and India, governments are coming to the fore trying to keep growth at reasonable levels. Brazil uses monetary policy, China fiscal policy, but in India the policy room seems limited given sticky inflation. There are a few scattered bright spots though.

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