Snow and bitter cold could mean another weight on European growth
If there's one thing Europe doesn't need, it's more drag on economic growth.
Yet that's just what it could be getting, with a fresh dose of snow and frigid weather. The recent European cold snap has killed hundreds, closing airports and schools, cutting power to many, and even breaking a dam and causing flooding in Bulgaria . As people stay in from the cold and commerce shuts down, the cold could mean further stress on a continental economy strained by a debt crisis.
In more robust economic times, the economic effects of bad weather might be nothing more than bump in the road, but in a place already teetering on the brink of recession, the stakes are higher. The U.K. economy, for example, shrank by 0.2 percent in the fourth quarter of 2011, and the additional pressures from bad weather could make for another disappointing quarter.
"[E]ven relatively limited disruption from snow and freezing conditions could very well be enough to tip the balance towards the economy suffering further contraction in the first quarter of this year, which would put it officially back into recession," writes Howard Archer, chief European and U.K. economist of IHS Global Insight, in a commentary on the cold snap.
The U.K. economy showed growth in manufacturing and consumer confidence in January, but too much additional friction could pull those figures down. "Obviously the longer that the snow and freezing conditions last, the more will be the disruption to economic activity, and the bigger the risk that the first quarter will see further contraction in [U.K.] GDP," writes Archer, pointing to the fourth quarter of 2010, when inclement weather helped to shrink U.K. GDP by half a percent.
Many of the hardest-hit areas are in eastern European countries like Ukraine and Romania, where many villages and cities are isolated and without power.
But the effects of a deep freeze could stretch to economies that are seeing milder weather.
Germany, Europe's biggest economy, could see up to a 0.2 percent downtick, says Timo Klein, a senior economist in Europe and CIS economies at IHS Global Insight. And while that doesn't seem like a lot, now is an especially bad time for more drag on momentum, he adds.
The German economy grew 3 percent last year but contracted by 0.25 percent in the fourth quarter. And as the Associated Press reported last week, the German unemployment rate edged upwards in January, influenced in part by the winter's effects on the construction industry.
Klein agrees that the latest blast of cold weather will hurt construction. However, he also stresses that Germany's mild December and January could offset a brutal February. Klein also says that the detrimental effects of the latest deep freeze can easily be mitigated by stronger growth later in the year.
"Past experience suggests that if a winter is indeed fairly severe, much of this can be caught up again during the second quarter," he says in an e-mail to U.S. News.
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