World Economy’s Back On Its Feet, But What About Europe?
Gross Domestic Product growth is traditionally used by economists to measure economic progress; if GDP is expanding, the economy is strong and the country is moving forward. Just this week, the World Bank lowered its forecast for the euro-area’s economy this year, predicting a 0.6 percent contraction following the 0.5 percent drop in GDP in 2012. Similarly, it also cut earlier forecasts for global GDP growth from 2.4 percent to 2.2 percent. But the bank noted that the United States economy was expected to expand 2 percent this year, up from a January estimate for growth of 1.9 percent.
The expansion of global GDP is being held back by the halting improvement in the jobless rate in many countries, particularly in the United States and in the European Union. In the EU, many nations have posted double-digit jobless rates as well as GDP contractions. According to economists, these contractions have been accelerated by austerity programs. Still, the World Bank noted it its Thursday report that “the world economy appears to be getting back on its feet as risks from advanced economies ease.”
The world economy may be strengthening slowly, but here, slowly is the operative word. Evidence of this is reflected in economic data released the Organisation for Economic Co-operation and Development, or OECD, on Thursday. In the 20 largest economies in the world — known as the Group of Twenty, or G20 — quarterly GDP grew 0.7 percent in the first three months of 2013, compared to the 0.6 percent in the previous period. However, the aggregate G20 economic growth rate masks patterns across the world’s largest economies, namely the vast difference between GDP growth rates in the European Union and the United States.
In the European Union and the euro area, the numbers did look slightly better in the first quarter than in the previous period. In the EU, GDP contraction slowed, falling from -0.5 percent to -0.1 percent, while in the euro area, contraction dropped from -0.6 percent to -0.2 percent. Conversely, in the United States GDP growth is accelerating, rising from 0.1 percent in the fourth quarter to 1.6 percent.
Even with these marginal improvements, U.S. Secretary of the Treasury, Jacob Lew, said he believes that the world economy needs faster U.S. and European growth, especially as populations continue to age. “There are policies they could pursue that would help that, but at the core, the demographics are part of it, and we can improve that with immigration reform,” he said Thursday at the Clinton Global Initiative America meeting. “I’m struck when I meet with my European counterparts at how low their horizons are in terms of what they think their growth can be because of their shrinking population.”
While the United States looks economically stronger, Lew said, “When I look at where we are and where we need to be, I see, unfortunately, some self-inflicted wounds that we’ve had to overcome,” referring to the months-long debate in 2011 between the administration and Congress over raising the debt limit.
There is a lot to complain about regarding the U.S. economy — unemployment is not decreasing fast enough, manufacturing is weak, and gross domestic product is expanding modestly, at best. Yet, one positive thing can be said for the recovery: it is ongoing. “The current expansion can continue another four to five years,” Northwestern University professor and member of the National Bureau of Economic Research committee, Robert Gordon told Bloomberg. If expansion does continue that long, it will be the second-longest upswing on record since the end of World War II, only falling behind the 10-year period that spanned the 1990s.
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