The Eurozone economy is more than weak. It is in deep contraction, and the data is staggering.

The Eurozone Manufacturing purchasing managers’ index (PMI), compiled by S&P Global, fell to a three-month low of 43.1 in October, the sixteenth consecutive month of contraction. However, European analysts tend to ignore the manufacturing decline using the excuse that the services sector is larger and stronger than expected, but it is not. The Eurozone Composite PMI is also in deep contraction at 46.5, a 35-month low, and the services sector plummeted to recession territory at 47.8, a 32-month low.

Some analysts blame the energy crisis and the ECB rate hikes, but this makes no sense. The eurozone should be outperforming the United States and China because the energy crisis reverted almost immediately. Between May 2022 and June 2023, all commodities, including natural gas, oil, and coal, as well as wheat, slumped and fell to pre-Ukraine war levels. A mild winter and the impact of monetary contraction created a strong stimulus that should have helped the eurozone, and there were no supply disruptions. In fact, the contribution of the external sector to GDP helped the area avoid a recession, as exports remained healthy while imports declined.

The United States is borrowing its way to disguise recession.

The headline economic figures for the United States look robust. However, details show concerning weaknesses.

Real GDP growth surged to 4.9% in the third quarter, above the consensus estimate of 4.5%. However, some analysts, including Bloomberg, expected up to 5% growth based on the nowcast estimates.

According to the U.S. Treasury, year-end data from September 2023 show that the deficit for the full year 2023 was $1.7 trillion, $320 billion higher than the prior year’s deficit. As a percentage of GDP, the deficit was 6.3%, an increase from 5.4% in FY 2022. This means that the United States will likely post the worst GDP growth excluding debt increases since 1929, or, in other words, that the country is in a recession disguised by bloated deficit spending.

This disastrous result shows that the Keynesian science fiction of the public sector multiplier does not work. The Biden administration increased taxes, but revenues declined. Governmental receipts totaled $4.4 trillion in FY 2023 (16.5 percent of GDP), 9.3% lower than in 2022 and below the budget projections. This decline is mostly due to $456 billion in lower individual income tax receipts and $106 billion in lower deposits of earnings by the Federal Reserve due to higher interest rates, according to the Treasury.

Many investors are warning of the risk of a debt crisis, but governments are ignoring all the signals.

In an inflationary crisis, the government should reduce expenditures to help curb price increases while also anticipating a significant increase in borrowing costs. However, in this crisis, the United States administration is ignoring all the warning signs and continuing to borrow at a record pace.

Debt crises always happen when even the most conservative investors refuse to add to a sovereign bond portfolio that is loss-making to begin with. Central banks may decide to purchase those unwanted government bonds, but then the inflation problem worsens and the losses at the central bank accumulate.