France To Create More Troubles For The Eurozone?

My take on the eurozone is that the smaller financially-troubled countries will eventually lead the bigger countries into a further economic slowdown and cause more problems for the eurozone. We can see this right now. While Germany, the biggest economic hub in the eurozone, has kept strong ground, France, the second-largest economy in the eurozone, has become a victim.

According to the National Institute of Statistics and Economic Studies, manufacturing output in France declined 1.1% in the third quarter from the second quarter of 2013, and dropped two percent on a year-over-year basis. Demand in the country is in the slumps; manufacturers of electrical and electronic equipment witnessed a decline of 1.9% in output, and manufacturers of food products and beverages saw their output plummet 2.3% year-over-year. (Source: National Institute of Statistics and Economic Studies, November 8, 2013.)

But the misery for the French economy doesn’t end with those bleak output figures. Standard & Poor’s (S&P), the credit rating agency, recently slashed the credit rating of France one notch lower. The statement from S&P: “We believe the French government’s reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France’s medium-term growth prospects.” (Source: “S&P lowers France credit rating, cites slow reform pace,” Reuters, November 8, 2013.)

The French economy facing a further economic slowdown shouldn’t be overlooked by investors here in the U.S. economy. As I repeatedly say in these pages, the U.S. economy isn’t isolated from what happens elsewhere in the global economy.

The eurozone remaining in an economic slowdown (and it could actually get worse before it’s over) tells me the global economy is vulnerable. When the eurozone crisis was at its peak, we saw the economies in countries like China and Switzerland lag. This scenario can very well play out again, and it can become an obstacle for U.S. growth. American companies with operations in the eurozone will face scrutiny ahead.

As stock market indices here in the U.S. continue their ascent to new highs (in spite of economic fundamentals that do not support the advance), severe economic problems in the eurozone are only one example of the market’s “closed eye” to what’s really going on. Investor, beware!

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