The US sneezes and the Eurozone catches a cold: The Eurozone has been infected by the US slowdown | CEPR Skip to main content Mobile menu Search VoxEU Columns Blogs&Reviews VoxTalks VideoVox Vox Webcasts VoxEU Debates About VoxEU Research Programme Areas Research Policy Networks (RPNs) Research Projects and Networks Research Policies Data Sets Publications Publication Series Books and Reports Discussion Papers Covid Economics Papers Policy Papers Economic Policy Journal Search All Publications Archive Events Calls for Papers Forthcoming Events Past Events Event Series Audio and video Search all multimedia content VideoVox Vox Webcasts VoxTalks About CEPR People News Press Governance Support CEPR Partners Jobs at CEPR Themes Search Themes Themes Key Themes Central Banking Climate Change Competition Policy Development & Growth Economic History Energy EU Economic Architecture Inflation Political Economy Poverty and income inequality Women in Economics Other Themes Business Cycles Covid 19 Exchange Rates Finance & Fintech Health Economics International Finance International Trade Labour Markets Migration Monetary Policy Productivity and Innovation Taxation Active Debates The Economic Consequences of the War EU Economic Policy and Architecture after Covid Populism Main navigation VoxEU Columns Blogs&Reviews VoxTalks VideoVox Vox Webcasts VoxEU Debates About VoxEU Research Programme Areas Research Policy Networks (RPNs) Research Projects and Networks Research Policies Data Sets Publications Publication Series Books and Reports Discussion Papers Covid Economics Papers Policy Papers Economic Policy Journal Search All Publications Archive Events Calls for Papers Forthcoming Events Past Events Event Series Audio and video Search all multimedia content VideoVox Vox Webcasts VoxTalks About CEPR People News Press Governance Support CEPR Partners Jobs at CEPR Secondary Menu About CEPR CEPR Offices User account menu Log in Secondary Menu About CEPR CEPR Offices User account menu Log in Themes Key Themes Central Banking Climate Change Competition Policy Development & Growth Economic History Energy EU Economic Architecture Inflation Political Economy Poverty and income inequality Women in Economics Other Themes Business Cycles Covid 19 Exchange Rates Finance & Fintech Health Economics International Finance International Trade Labour Markets Migration Monetary Policy Productivity and Innovation Taxation Active Debates The Economic Consequences of the War EU Economic Policy and Architecture after Covid Populism Search the site Search / VoxEU / Columns In this section Columns Blogs and Reviews VoxTalks VoxEU Videos Vox Webcasts VoxEU Debates About VoxEU VoxEU Column Global economy The US sneezes and the Eurozone catches a cold: The Eurozone has been infected by the US slowdown Alberto Caruso Thomas Hasenzagl Filippo Pellegrino Lucrezia Reichlin / 22 Feb 2016 Recent data releases related to the Eurozone have been disappointing. This column argues that momentum from the long-delayed 2014-15 recovery is faltering because the Eurozone economy is affected, with a lag, by the US slowdown. The traditional, lagged relationship between the EZ and US business cycles – which disappeared in the aftermath of the Global Crisis – is now reasserting itself. Authors Alberto Caruso Thomas Hasenzagl Filippo Pellegrino Lucrezia Reichlin Share Twitter Facebook LinkedIn On Friday 12 February, the fourth quarter GDP numbers for the countries of the Eurozone were released. Germany and Italy disappointed – at 0.27% and 0.11% respectively, the quarterly growth out-turns were below consensus expectations of professional forecasters. One question worth asking is whether the recent unexpected weak numbers for the Eurozone are a consequence of the US slowdown, in which case we should expect further weakening down the road. Recent bad news from the Eurozone arrived after a disappointing 2015 in the US. Figure 1 shows the evolution of the forecast for 2015 GDP growth by Now-Casting (red line), from a survey of professional forecasters (Focus), and from several official forecasters. It shows that downward revisions of growth estimates have persisted since the beginning of 2015 – year-on-year GDP growth for 2015 was estimated at 3.65% in January 2015, while by the end of January 2016 estimates pointed to a rate of 2.3%.1 Figure 1. US GDP now-cast, 2015 (YoY%) Source: Now-Casting Economics. If we now focus on the first quarter of 2016 and compare the evolution of our estimates of quarterly GDP growth for the US (in red) and the Eurozone (in blue) (Figure 2), we can see that from November 2015 to January 2016, Now-Casting was revising down for the US and revising up for the Eurozone. Recently, however, things have changed for the Eurozone. In January, survey data related to January rang the alarm and in February, industrial production releases referring to December signalled that the weakening of the recovery had started already in the fourth quarter of 2015. Today, the estimates for the first quarter of 2016 for the US and the Eurozone have converged and point to a disappointing annualised rate of growth of below 1.5%. Figure 2. GDP now-cast comparison: US vs Eurozone, Q1 2016 Source: Now-Casting Economics. What is the historical relationship between the US and the EZ business cycles? Can past data help us interpreting the recent weakness of EZ numbers? Traditionally, the EZ business cycle has followed the US cycle with a few months’ lag (Giannone and Reichlin 2005; Giannone et al. 2008). Let us illustrate this with two figures. In Figure 3, we report GDP levels for the US and the Eurozone since 1970 (1970=100), marking recessions as identified by the NBER for the US (shaded red) and by CEPR for the Eurozone (shaded blue). The figure shows a close correlation between recessions on the two sides of the Atlantic, and often a lag of EZ recessions with respect to those in the US. The only exception is 2011-2012, where the recession was specific to the EZ economy; this recession was related to the debt crisis.2 Figure 3. GDP (1970=100) Sources: BEA, Eurostat, Eurozone Wide Model. But the lead-lag relationship is even clearer in Figure 4, where we show a synthetic indicator of the state of the real economy produced by Now-Casting, smoothed with a centred moving average. The lead-lag relationship is quite stable, with the exception of the world recession of 2008. Figure 4. Now-casting coincident indicator Source: Now-Casting Economics. These figures suggest the following story. The Eurozone experienced an idiosyncratic recession in 2011-2012 related to the debt crisis. In 2014, it started to recover and during 2015, the recovery gathered strength. However, that momentum is now faltering because the EZ economy is affected, with a lag, by the slowdown of the US. The EZ economy is now paying the price for having started to recover when the US, after more than six years of recovery, is naturally slowing. References Eurostat (2016), “Flash estimate for the fourth quarter of 2015”. Giannone, D. and L. Reichlin (2005), “Eurozone and US Recessions, 1970-2003”, in L. Reichlin (ed.), Eurozone Business Cycle: Stylized Facts and Measurement Issues, pp. 83–93, CEPR. Giannone, D., M. Lenza and L. Reichlin (2008). “Business cycles in the Eurozone”, NBER Working Paper No. w14529, Cambridge, MA. Endnotes [1] According to the flash release of fourth quarter growth from the BEA, the out-turn for the year was 2.24%. [2] Notice that 2001 is consistent with the rule as both economies experienced a slowdown, but the NBER classified it as a recession while CEPR did not. 3,884 Reads Authors Alberto Caruso Senior Economist Centro Studi Confindustria Thomas Hasenzagl Filippo Pellegrino PhD candidate in Statistics London School of Economics and Political Sciences Lucrezia Reichlin Fellow British Academy; Research Fellow and Trustee Centre for Economic Policy Research; Fellow Econometric Society; Trustee IFRS International Financial Reporting Standards Foundation; Professor of Economics London Business School Themes Global economy Keywords Eurozone Business cycle recession dating US slowdown Share Twitter Facebook LinkedIn VoxEU Video Why integrated trade networks matter 23 Sep 2022 ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Global economy ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) International trade VoxEU Column The economic consequences of the Ukraine war: A new eBook Luis Garicano Dominic Rohner Beatrice Weder di Mauro 14 Sep 2022 ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Global economy ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) International trade ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Macroeconomic policy ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Politics and economics ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) War in Ukraine ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Ukraine war ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Russian sanctions ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Armed conflict VoxEU Video An economic case for global vaccinations 3 Aug 2022 ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) COVID-19 ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Global economy ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Global governance ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png) Covid-19 vaccination Themes & Current Issues Business Cycles Central Banking Climate Change Competition Policy COVID-19 Development & Growth Economic history Energy EU Economic Architecture Exchange Rates Finance and Fintech Financial Markets Financial Regulation and Banking Health Economics Inflation International Finance International trade Labour Markets Migration Monetary Policy Political Economy Poverty and Income Inequality Productivity and Innovation Taxation War in Ukraine Women in Economics Sign up to our newsletter follow us Copyright 2021 CEPR / designbysoapbox.com Contact Us Contact Cookies Privacy Policy