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.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

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

Endocrine disruptors: A strategy for the future that protects EU citizens and the environment

Victims of terrorism remembered

UN agencies welcome green light for Rohingya projects in northern Myanmar; urge ‘more effective access’

Slovakia and its failure to abide by the European law

European Parliament the most trusted EU institution

Parliament’s proposal to reinforce flagship programmes is worth 39 billion euros

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

Here’s how to bring agility into the boardroom

What if the doctor become a patient?

What COVID-19 tells us about the changing nature of disaster risk

Australia wants to build a giant underground ‘battery’ to help power the nation

Solutions for cultural understanding: medical students’ perspective

How robotics can help humanitarians bridge the digital divide

Japanese law professor elected new judge at the International Court of Justice

Mobile Technology saving lives: changing healthcare systems with simple technology solutions

Is friendly public transport the answer to the loneliness epidemic?

How the world can ‘reset’ itself after COVID-19 – according to these experts

The true EU unemployment rate may have soared to 21.9%

Switzerland: prepare for population ageing to maintain high living standards

On World Bee day, human activity blamed for falling pollinator numbers

5 droughts that changed human history

Want more climate action? Let’s show how good a planet-friendly life can be

EU’s Mogherini visits Turkey “to step up engagement” and highlight interests

There is huge talent in the world’s refugee camps. We must realize this overlooked potential

Germany and France only care about keeping their borrowing cheap

The rise of alternative medical practices in modern sports

‘Working night and day’, UN health agency seeks to prevent global coronavirus crisis

WEF Davos 2016 LIVE: “Chinese economy has great potential, resilience and ample space for policy adjustment”, China’s Vice President Li Yuanchao reassures from Davos

World’s Press Calls on the United Kingdom to Address Press Freedom Concerns

G7 summit: Trump Vs. G6 leaders on trade and climate change

A reality check on inclusive innovation

“The markets have moved on renewables, policy makers must keep up”, A Sting Exclusive by Erik Solheim, Head of UN Environment

European Commission and World Bank Group renew agreement to strengthen development cooperation

Coronavirus global response: EU Humanitarian Air Bridge to Iraq and new funding

Impressive African health gains at risk from changing trends: WHO report

AIESEC @ European Business Summit 2014: The Digital Era: A New Business Frontier

‘New tech’ business model threatens decent work conditions, warns UN

Commission launches consultation to seek views on Digital Services Act package

Towards a European Republic

The hazards of “heroism” in the time of COVID-19

Cyprus banks under scrutiny

Fossil fuel support is rising again in a threat to climate change efforts

Ukraine-EU deal sees the light but there’s no defeat for Russia

Free movement of services: Commission takes further action to ensure a well-functioning Single Market for professionals

A day in the life of a Rohingya refugee

How to close the gender pay gap in three steps

The mental health of health professionals: is it worth it?

UN chief condemns deadly attacks in Pakistan

Hot air behind your cold fridge? Why the future of cooling must be sustainable

The world to teach Germans to…un-German

5 futuristic ways to fight cyber attacks

World Health Organization calls crisis meeting over deadly Ebola outbreak in DR Congo

Brazilian officer a ‘stellar example’ of why more women are needed in UN peacekeeping

Mergers: Commission approves Assa Abloy’s acquisition of Agta Record, subject to conditions

The European Union and Central Asia: New opportunities for a stronger partnership

EUREKA @ European Business Summit 2014: Innovation across borders – mobilising national R&D funds for transnational innovation in Europe

Bulgaria: MEPs call for EU values to be fully and unconditionally respected

How COVID-19 is taking gaming and esports to the next level

Don’t understand the US-China trade war? This metaphor could help

3 cognitive biases perpetuating racism at work – and how to overcome them

More Stings?

Advertising

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