Is Eurozone heading towards a long stagnation?

José Manuel Barroso, President of the European Commission (in the centre), and László Andor, Member of the EC in charge of Employment, Social Affairs and Inclusion, participated in the 3rd annual Convention of the European Platform against Poverty and Social Exclusion. Herman van Rompuy, President of the European Council, also took part in the Convention (in the rostrum). (EC Audiovisual Services, 26/11/2013).

“The euro area seasonally-adjusted unemployment rate was 12.1% in October 2013, down from 12.2% in September”. These are the first two lines of a brief announcement issued yesterday by Eurostat, the EU statistical service. One decimal of a percentage unit in a statistical survey conducted by a sample of thousands to draw conclusions for a population of hundreds of millions, obviously may mean nothing. The margin of statistical error must be much larger than that. Even if it is absolutely accurate and unemployment truly receded by one decimal point of a percentage unit, from a macroeconomic point of view, this may be completely meaningless. In short there is no ground to argue that unemployment is falling.

Still in October, 26,654,000 men and women were unemployed in the EU28, of whom 19,298,000 million in the euro area. Eurostat says that “Compared with September 2013, the number of persons unemployed decreased by 75,000 in the EU28 and by 61,000 in the euro area”. In contrast on a yearly base unemployment rose. The same source estimates that “In relation to October 2012, unemployment rose by 512,000 in the EU28 and by 615, 000 in the euro area”.

Of course the worst is always plaguing the south that is in the hardest hit countries. Eurostat states that, “Among the Member States, the lowest unemployment rates were recorded in Austria (4.8%), Germany (5.2%) and Luxembourg (5.9%), and the highest in Greece (27.3% in August 2013) and Spain (26.7%).

There is an additional problem however. Unemployment doesn’t plague anymore only the usual ‘suspects’. It extends its devastating presence in the core countries. Holland recorded one of the largest increases of people without a job between October 2012 and 2013, from 5.5% to 7%. Fortunately in Eurozone there are some positive developments too. Ireland, one of the worst hit by the debt crisis countries, recorded one of the largest decreases of unemployment during the same twelve month period, from 14.5% to 12.6%.

Youth unemployment

Seemingly the good news is exhausted in this Irish attainment. Eurostat found that, “In October 2013, 5.657 million young persons (under 25) were unemployed in the EU28, of whom 3.577 million were in the euro area. Compared with October 2012 youth unemployment decreased by 29,000 in the EU28, but increased by 15,000 in the euro area. In October 2013, the youth unemployment rate was 23.7% in the EU28 and 24.4% in the euro area, compared with 23.3% and 23.7% respectively in October 2012”. Youth unemployment continues to engulf the young population in Greece (58.0% in August 2013), Spain (57.4%) and Croatia (52.4% in the third quarter of 2013).

Industrial investment

Understandably, industrial investment is the core economic variable determining the evolution of employment. The news from this front is not encouraging either. According to the bi-annual investment survey carried out in October/November this year by Eurostat, “real investment in the manufacturing industry is expected to decrease by 3% in the euro area in 2013. In the previous survey conducted in March/April 2013 managers expected an increase by 1%”. Eurostat’s finding that in Eurozone the industrial confidence indicator in November was -3.9 is a bad omen for next year too.

Business Climate Indicator

On the contrary there is some good news from the Business Climate Indicator. Always according to Eurostat in November 2013, it turned positive for the first time since March 2012. “It increased by 0.26 points to +0.18. The assessments of past production, the level of overall order books and export order books improved sharply. Also production expectations increased, though to a lesser degree, while managers’ assessment of the stocks of finished products remained broadly unchanged”.

All those statistical information doesn’t constitute a positive image for Eurozone’s economy. It might not get worse, but it doesn’t improve either. A noticeable bad development is the deterioration in the Dutch economy, with increasing unemployment and its credit rating degraded by Standard & Poor’s, from AAA to AA. It becomes clearer every day that Eurozone needs a good economic policy reshuffle, in order to come out from this stagnant conjuncture.