EU economy: Between recession and indiscernible growth

Viviane Reding, Vice-President of the European Commission in charge of Justice, Fundamental Rights and Citizenship recently went to Sofia where she participated in a debate about the future of Europe. Around 250 citizens were present. The main messages were: the protests in Bulgaria and youth unemployment. (EC Audiovisual Services 23/07/2013).

Triumphant announcements, that the European economy has entered in a new growth path just because unemployment in June has decreased in the EU27 by one decimal point and the Economic Sentiment Indicator (ESI) in July increased by 1.2 points in the euro area cannot stand a rigorous critic. Incidentally unemployment in the euro area was stable compared with May while youth unemployment in Eurozone increased by 43 000. If the employment outlook was not grim member states wouldn’t go on borrowing to give out large subsidies to the business sector. Just this week PSA Peugeot Citroën group got Brussels clearance for more state aid in order to maintain employment levels even if officially the new subsidy is granted for ‘restructuring’. Let’s take one thing at a time.

Unemployment

According to Eurostat, the EU statistical service, “The euro area (EA17) seasonally adjusted unemployment rate was 12.1% in June 2013, stable compared with May. The EU27 unemployment rate was 10.9%, down from 11.0% in May. In both zones, rates have risen compared with June 2012, when they were 11.4% and 10.5% respectively”. This is the first time after almost two years that the month to month unemployment rate in the EU27 is decreasing. Yet youth unemployment in Eurozone in stuck in its years old upwards path, signalling that new job creation is still unable to touch the most vulnerable and crucial part of the labour force, the young workers.

No wonder why the young Europeans are increasingly distancing themselves from main stream sociopolitical developments, being attracted by extremist political groups of both ends of the spectrum. This fact made the President of the European Parliament Martin Schulz to wonder: “are young people as important as the Banks?” He was absolutely right to say so. Not to forget that Eurozone banks have received state aid of €4 500 billion during the past three years in comparison with €6bn set aside in the EU budgets to combat youth unemployment during the 2014-2020 seven-year period.

It’s not only youth unemployment that reveals the inability of the EU economy to create more and high quality jobs. June data as released by Eurostat describe an always fragmented and persistently incapable EU labour market to offer more jobs where they are badly needed. The relevant Press release reads like that, “Among the Member States, the lowest unemployment rates were recorded in Austria (4.6%), Germany (5.4%) and Luxembourg (5.7%), and the highest in Greece (26.9% in April 2013) and Spain (26.3%)”.

Economic sentiment

Things seem somewhat better as far as the economic sentiment indicator (ESI) is concerned. According to the Commission “In the euro area, the ESI’s increase was driven by improved confidence among consumers and managers in industry, services and retail trade. Only in the construction sector confidence weakened. Economic sentiment improved in four out of the five largest euro area economies, i.e. Italy (+2.9), Spain (+1.2), France (+1.2) and Germany (+0.7), while it deteriorated in the Netherlands (-2.0)”. Appropriately betterment is being observed where it is urgently needed, namely in the south, but obviously it is not enough to change the grey labour market landscape. Understandably in the construction sector, which is the main culpable party of the current economic crisis, resumption of activities is still not visible at the end of the tunnel.

The most noticeable improvement however is the increase by 1.4 points of consumer confidence for the eighth successive month. This was mainly due to a perception of easing unemployment and better savings expectations over the next 12 months. In reality though this is not a net positive development but rather a less pessimistic consumer attitude towards the immediate future.

Last but not least the Business Climate Indicator increased in July for the euro area by 0.14 points to 0.53. According to the Commission “The assessment of past production improved sharply and also production expectations and the level of overall order books were appraised more positively”. The Commission seems to believe that this last BCI measurements appear to point to a pending exit of the manufacturing sector from recession. It remains to be seen if this prediction comes true.

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