The EU Commission predicts a decimated growth in the next years

Press conference by Olli Rehn, Vice-President of the European Commission, on the winter economic forecasts for 2013-2014. (EC Audiovisual Services, 25.2.2014).

Press conference by Olli Rehn, Vice-President of the European Commission, on the  Winter 2014 economic forecasts. (EC Audiovisual Services, 25.2.2014).

Yesterday, the European Commission after acknowledging that unemployment will continue ravaging more than half of Eurozone in the foreseeable future and predicting for this and next year a 0.1% ‘strengthening’ of the quite anemic growth rate, it found the courage to state that, “Recovery is gaining ground in Europe”. A lot of courage and probably an even larger dose of humor were needed to discover in the present stagnant economy, ‘a strengthening of growth’.

Eurozone suffered from a long recession for four straight years. Finally the downward path was arrested during the second quarter of 2013 with a 0.3% increase of the GDP. Then, in the third quarter of last year, growth retreated to a merely positive 0.1%, to crawl again back to 0.3% during the last three-month period of October-December. To put all that in a context, the Commission released yesterday its winter 2014 forecasts. As it came out it increased its prediction for growth in Eurozone for the next two years by one decimal point of one percentage unit, above its autumn forecasts. Pompously and more erroneously than honestly, the EU’s executive arm announced “a continuation of the economic recovery”, a wild estimate based on just one additional decimal point.

Happy with 0.1% more growth?

In detail, the Commission Press release issued yesterday states that, “After exiting recession in spring 2013 and three consecutive quarters of subdued recovery, the outlook is for a moderate step-up in economic growth. Following real GDP growth (predicted) of 1.5% in the EU and 1.2% in the euro area in 2014, activity is seen accelerating in 2015 to 2.0% in the EU and 1.8% in the euro area. These figures each represent an upward revision of 0.1 percentage points compared with the autumn 2013 forecast”.

However, in this announcement the Commission forgot to say that the exit from the recession may have occurred during the second quarter of 2013, but only in comparison with the previous quarter. On the contrary the evolution of GDP on a yearly base continued to be negative until the entire third quarter of last year. On that three-month period of July to September 2013, the GDP receded by 0.3% compared to the same period of 2012. Only in the last quarter of 2013 the GDP grew on year to year base of comparison. The conclusion is that the fall of the GDP was arrested six months later than what the Commission says, let alone that this is was growth but rather stagnation.

The obscure limits between truth and lie

To create a better picture than the actual stagnation in the Eurozone economy, the Commission touched the region of lies. It took refuge to a ‘technic’ to create the impression of falling unemployment, while the opposite is true. In reality what happens in the European labour markets is beyond imagination, with unemployment in more than half of Eurozone countries in unseen before levels. Greece and Spain have broken all records, with 28% of working age people being unemployed. As for the young, more than half of them are without a job.

To avoid telling the real story, which is that Eurozone has completely failed the aspirations of the majority of Europeans, the Commission takes refuge to a technic, permitting a lie, but giving ground to defend it with true-like arguments. The relevant passage of the Press release goes like that, “The labour market is characterised by slowly stabilising employment, with unemployment remaining high, as labour market developments typically lag those in GDP by half a year or more”. For one thing unemployment is not stabilizing, unless the average rate of 12% in Eurozone all along the past months is a stabilized percentage. It rises continuously after 2008. Of course this 12% is an average, which invariably hides the truth. Around 28% of Greeks and Spaniards are without a job, in Ireland this figure is 14% and in Italy 11.5%.

Yes but no…

Now let’s analyze the passage that says, “…as labour market developments typically lag those in GDP by half a year or more”. The Commission insists here that in six or a few more months after the GDP starts growing, employment will also start to rise. A few lines before that the Commission stated that Eurozone exited recession in the spring of 2013. This means the GDP started then to grow. Unfortunately today, almost ten months after the spring of 2013 and unemployment doesn’t seem to respond to Commission wishes, nor is it predicted to do so in the foreseeable future.

The next passage though tells the truth, “the outlook is for a modest rise in employment from this year onwards and a decline in the unemployment rate towards 11.7% in the euro area by 2015, with cross-country differences remaining very large”. This is a frustrating projection though. Hopping for a reduction of unemployment by three decimal points after more than twelve months is just an illusion to say the least. In any case, in Brussels and in some other EU capitals, the political elites will be forced to recognize the realities of the labour market, while reading in the results of the May EU elections.

In reality, three decimal points of less unemployment, from 12% to 11.7% is all the growth the Commission predicts, but is afraid to state it bluntly. There are people like Chancellor Angela Merkel and Minister of Finance Wolfgang Schäuble who don’t like to be disturbed with the ugly social images that appear when crossing the Alps southwards.

 

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