Is the End in Sight for Record-Breaking EU Recession?
The EU recession has now reached a record length, as data coming out later in the week is expected to confirm the longest negative growth period in EU history. The EU’s jobless rate increased to 12.1 percent in March, with 19.2 million people looking for work.
After a group of seven finance ministers met in the UK last week to discuss monetary measures, the global recovery is being treated as fleeting, as growth across the EU remains pitiful, and China’s industrial sector and fixed-assets investments growth have failed to meet market estimates, coming in 0.2 percent below target. Germany remains the lone bright spot in an otherwise drab picture of EU economics. With an estimated growth rate of 0.3 percent, the country appears to have escaped the contraction that afflicted it in Q4 2012. Moreover, Germany is experiencing increased rates of consumption in line with its high wages and a decade low jobless rate.
France and Spain represent the darker side of the euro zone, though. In Spain, unemployment is at its highest point since 1976, with nearly 27 percent of the labor force out of work. The weak Spanish employment picture prompted Spaniards to flee to Germany in record numbers in 2012, with 29,910 people seeking economic refuge there. This represented an increase of 45 percent from the previous year, and Germany is similarly experiencing a rapid increase in immigration from other struggling EU countries.
France too, is seeing its share of economic atrophy, with a record 3.225 million looking for work. France partook in a fourth quarter contraction last year as well, and business sentiment remains rocky there, while the government plans how to gain additional revenue through taxes, and other structural reforms. French President Francois Hollande’s government launched meetings with labor unions and employers on Monday to explore options in addressing the country’s large pension obligations. The move was prompted by the European Commission granting an additional two years for the country to lower its deficit, in return for structural changes. However, Hollande’s approval ratings are already at record lows and the issue of pension reform caused many political headaches for the president’s predecessor.
China seems unable to maintain the global push for growth alone, as it too has seen slower growth this year. Of the key metrics for growth analysts were hoping to see, only retail sales exceeded market expectations, rising 12.8 percent in April from the previous year. However industrial output underperformed, as well as growth in the country’s fixed-asset sector, and growth isn’t expected to pick up past 7.8 percent in the second quarter unless the country takes additional stimulus measures. Rising house prices and an already lax monetary policy limit Beijing’s ability to act, as cutting interest rates further could result in property inflation.
U.S. Treasury Secretary Jacob Lew advised countries to seek “the right balance” between austerity and growth, while ECB president Mario Draghi predicted a gradual recovery later this year. Specifically, he forecasts further contraction of 0.5 percent before heading into 2014 where he expects to see growth of 1 percent. The central bank announced yesterday that it was considering buying asset-backed securities to provide lending for small and medium-sized businesses through the euro zone.