Inflation down to 0.7%, unemployment up at 12.2%: Bad omens for Eurozone

Press conference by Olli Rehn, Member of the European Commission, on the spring economic forecasts for 2012-2013. The economic situation differs considerably across Member States, also in view of the ongoing adjustment to the large disparities in external positions and structural conditions that have come to the fore over the past years. (EC Audiovisual Services).

Press conference by Olli Rehn, Member of the European Commission, on the spring economic forecasts for 2012-2013. The economic situation differs considerably across Member States, also in view of the ongoing adjustment to the large disparities in external positions and structural conditions that have come to the fore over the past years. (EC Audiovisual Services).

Eurostat, the EU statistical service, estimates that euro area inflation in October fell to 0.7% from 1.1% in September. It was 1.6% in July and then fell to 1.3% in August. This is an alarmingly fast deceleration of consumer price dynamism, threatening Eurozone with real disinflation, way below the 2% benchmark set by the European Central Bank. This development together with the expressed intention of ECB to further lower its basic interest rate now at 0.5% may produce a negative synergy, leading to long-term disinflation and GDP stagnation. This prospect becomes even more plausible given that mainstream economic policies in euro area are persistently restrictive and there is a progressive deleveraging in both the government and the private sector, not to say anything about banks.

On top of that, the fundamentals of the real economy are equally disappointing. Unemployment is stubbornly high at 12.2% in September as in August. Even Germany is now under pressure, with subdued inflation and unemployment stuck at 5.3% for more than a year now. However, it’s even more discouraging that in this country, despite the much-advertised robustness of the economy, the number of people threatened with poverty, increased to 17% in 2012 from 12% only some years ago. As for the Teutonic export super performance, it has started to annoy not only the country’s Eurozone partners, like France and Italy but also the US and its other western allies.

US slams Germany

It is very characteristic that the US Treasury’s semi-annual economic report, which was published yesterday, uses very strong language against Germany’s export-led growth. In this respect, the US has changed the target of its criticism from China to Germany, blaming now Berlin that with its export targeted economic policies, it undermines the growth prospects not only of the rest of Eurozone, but of the global economy too. This is not the usual economic criticism between allies, but rather a rejection on the political level of Germany’s fundamental policy choices.

Later on yesterday, the German government reacted equally strongly. An announcement issued by Berlin’s Federal Ministry of Economics said “The trade surpluses reflect the strong competitiveness of the German economy and the international demand for quality products from Germany.” This development comes on top of the latest confrontation between the two countries, which was aggravated by the Press reports about Chancellor Angela Merkel’s mobile telephone taping by the American National Security Agency.

Coming back to Eurozone’s economic juncture of fast falling inflation, stubbornly high unemployment and financial deleveraging all over the euro area, it constitutes a non-promising synergy. In such an environment, the exorbitant discrepancies between member states seem to increase further, supporting the weak growth of surplus countries like Germany, to the detriment of the worst hit ones. In this respect, unemployment is still rising to unseen before levels in Greece, Italy, Spain, Portugal, Ireland, France and elsewhere while some of those countries keep losing large chunks of their GDP.

No light in the tunnel

The problem is that the world economy is also in a weak growth period, with only China having resumed a path of very strong GDP development. Consequently, there is no light at the end of the tunnel for the deficit Eurozone countries, while prospects of the surplus member states point to stagnation rather than growth.

The European Sting has repeatedly noticed that Eurozone is heading fast to close to zero inflation. The Eurostat flash estimate for the October inflation at 0.7% confirms this danger. Within three months, from July till October, the rate of change of the consumer price index lost more than half of its dynamic, from 1.6% to 0.7%. During the same time the euro has gained a lot of grounds with the dollar from the region of 1.32 to 1.38. This is an additional impediment to Eurozone’s weak growth prospects making exports of goods and services more expensive. Unfortunately, the expensive euro threatens the weak economies of the south more than the surplus countries, because their exports are more price sensitive than the German machinery and cars.

All in all, the fast deceleration of inflation to levels far below the 2% benchmark set by the ECB, is not a good omen for Eurozone. Inflation below the unit betrays a sluggish economy with no internal dynamism.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Erasmus+: an expected budget of €3 billion to be invested in young Europeans and to help create European Universities in 2019

Security Council renews mandates of UN force monitoring separation area between Israel and Syria; AU-UN hybrid mission in Darfur

A Europe that Protects: Commission calls for continued action to eradicate trafficking in human beings

How we overhauled healthcare amid Venezuela’s crisis

3 charts to help you understand the American shale boom

Halting spread of drug resistance from animals to humans: deal with Council

Brexit and migration dominates the debate on October’s EU summit

Economic sentiment and business climate stagnate in miserable euro area

In a time of rising xenophobia, more important than ever to ratify Genocide Convention

IMF cuts global growth outlook, but predicts pick up later in 2019

The EU Commission vies to screen Chinese investment in Europe

How will the NATO-EU competition evolve in the post Brexit era?

Ukraine turns again to the EU for more money

Australia needs to intensify efforts to meet its 2030 emissions goal

Humanitarian visas would reduce refugees’ death toll

MWC 2016 LIVE: T-Mobile US reveals 5G trial plans

Banks suffocate the real economy by denying loans

Guterres in Davos: ‘Dysfunctional’ response to common problems, shows need for effective multilateralism

Polluted lungs: health in the center of environment discussion

EU Parliament approves CETA: the EU-Canada free trade deal sees the light in Trump’s gloomy era

‘Continue working together’ UN chief urges DR Congo, as country heads to polls

Medical students as the critical link to address climate change

It’s not summer holidays what lead to the bad August of the German economy

A ‘charismatic leader’ dedicated to making the world a better place for all: officials bid farewell to former UN chief Kofi Annan

Combatting terrorism: EP special committee calls for closer EU cooperation

European Youth Capital 2019 announced: Novi Sad, Serbia

Three ways to improve your corporate culture in the #MeToo era

Disintegrating Tories will void May’s pledge for Brexit deal in seven weeks

UN chief welcomes Taliban’s temporary truce announcement, encourages all parties to embrace ‘Afghan-owned peace’

Engaging women and girls in science ‘vital’ for Sustainable Development Goals

2,300 migrant children in Central American ‘caravan’ need protection, UNICEF says

Why income inequality is bad for the climate

Businesses, governments and consumers to implement a more climate-friendly approach to #BeatPlasticPollution on World Environment Day 2018

Here’s what keeps CEOs awake at night (and why it might be bad news for your next job)

EU Commission and ECB rebuff Germany on the Banking Union

5 ways students can graduate fully qualified for the Fourth Industrial Revolution

Finland has giant supermarkets that only stock second-hand goods

German and French bankers looted the Irish and Spanish unemployed

Brexit update: Will Theresa May’s last-minute desperate efforts procrastinate Brexit?

Development aid drops in 2018, especially to neediest countries

It’s time for financial services to embrace the Fourth Industrial Revolution. Here’s why

A refugee from Syria cries out: “I’m not just a number!”

Eurozone has practically entered a deflation trap

MWC 2016 LIVE: 5G to embrace unlicensed bands and Wi-Fi

Migrant caravan: UN agency helping ‘exhausted’ people home

How oysters are cleaning New York’s polluted harbor

Half of Eurozone in deflation expecting salvation from monetary measures

UNESCO experts ready to assist reconstruction of iconic Notre Dame, following devastating blaze

The European Parliament launches a website on European election results

Greece to stay in the euro area but the cost to its people remains elusive

Service and Sacrifice: Ugandan ‘Blue Helmets’ support UN efforts to bring peace to Somalia

Scotland in United Kingdom: It’s either the end or the beginning of the end

Will Eurozone be able to repay its debts? Is a bubble forming there?

Lack of investment and ambition means Youth Guarantee not reaching potential

The world to teach Germans to…un-German

Islamophobia is driving more US Muslims to become politically engaged, suggests report

The EU sides with China against the US; but has Germany capitulated to America?

EU prepares itself to fight back against hostile propaganda

Cutting money transfer fees could unlock $15bn for developing countries. Here’s how

Does the world have strong enough institutions to handle risks like Trump and Brexit?

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s