The Deutschland Dip

 | Oct 20, 2011 | 9:00 AM EDT  | Comments
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This commentary originally appeared on Real Money Pro on Oct. 20 at 7:39 a.m. EDT.

In the fullness of time, the eurozone will come to some sort of solution to paper over its debt problems. In all likelihood, the solution will be weak-kneed, lacking with power of resolution.

After the resolution of the European crisis, we have to address the downside implications for that region's economic growth rate. Toward that end, last night Germany reduced its GDP forecast for 2012 to +1.0% from a previous projection of +1.8%. I would expect further revisions lower in the country's growth outlook in the months ahead.

With Germany being the "best house in a bad neighborhood," one can only envision how weak the European region's aggregate growth rate will be in 2012-2014.

In my conversations with companies over the past month it is clear that demand for their products has meaningfully weakened in Europe. As an example, American Express (AXP) discussed in last night's conference call that European billed business softened throughout the quarter (and that October's trend worsened).

Europe is in a recession, and the only question is how deep -- that is where the next debate will unfold.

I believe this will help to explain why an Oct. 23 eurozone agreement will be met with a muted response.

Doug Kass writes daily for Real Money Pro, a premium service from TheStreet. For a free trial to Real Money Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here.

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