Eurozone stagnates after exporting its recession to trading partners

José Manuel Barroso, President of the European Commission, Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship, and Michel Barnier, Member of the EC in charge of Internal Market and Services, participated in the High-level conference on the future of the European Security and Defence sector. Dimitris Avramopoulos, Greek Minister for National Defence and President in office of the Council of the EU, was also present. (in the first row of seats, from left to right) Philip Dunne, British Minister for Defence Equipment, Support and Technology, with responsibility for Defence Procurement and Defence Exports, Antonio Tajani, José Manuel Barroso and Dimitris Avramopoulos. (EC Audiovisual Services, 04/03/2014).

José Manuel Barroso, President of the European Commission, Antonio Tajani, Vice-President of the EC in charge of Industry and Entrepreneurship, and Michel Barnier, Member of the EC in charge of Internal Market and Services, participated in the High-level conference on the future of the European Security and Defence sector. Dimitris Avramopoulos, Greek Minister for National Defence and President in office of the Council of the EU, was also present. (in the first row of seats, from left to right) Philip Dunne, British Minister for Defence Equipment, Support and Technology, with responsibility for Defence Procurement and Defence Exports, Antonio Tajani, José Manuel Barroso and Dimitris Avramopoulos. (EC Audiovisual Services, 04/03/2014).

Today Eurostat, the EU statistical service, published its second and more accurate estimate for the euro area and the EU28 Gross National Product during the last quarter of 2013, and confirmed its flash estimate of 14 February when it had reported GDP increases of 0.3% and 0.4% respectively, in relation to the previous quarter. On a yearly basis though Eurostat found that for the whole year 2013, GDP fell by 0.5% in the euro area and rose by 0.1% in the EU28.

It has to be reminded that the Eurozone marked a first GDP increase of 0.3% during the second quarter of last year, after persistent losses during four consecutive years. In the third quarter of 2013 GDP grew by a mere 0.1%. Now Eurostat confirms a GDP increase by 0.3% in the last three month period of last year. No question then why the resumption of economic activities in Europe is termed as anemic. The EU statistical service also stated that “Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.5% in the euro area and by 1.1% in the EU28 in the fourth quarter of 2013, after -0.3% and +0.2% respectively in the previous quarter”.

Of course, there are large differences between member states. Greece, Cyprus (-1.0%), Denmark (-0.5%), Finland (-0.3%) and Estonia (-0.1%) continued losing ground towards the end of last year, while other countries kept growing (Sweden +1.7%, the Czech Republic +1.6%, Romania +1.5%, Lithuania and Slovenia both +1.2%).

Exorcising consumption

It’s very interesting to follow the sectorial analysis of growth. The same source states that, “During the fourth quarter of 2013, household final consumption expenditure rose by 0.1% in the euro area and by 0.2% in the EU28 (after +0.1% and +0.3% respectively in the previous quarter). Gross fixed capital formation increased by 1.1% in the euro area and by 1.4% in the EU28 (after +0.6% and +0.7%). Exports rose by 1.2% in the euro area and by 1.1% in the EU28 (after 0.0% and -0.1%). Imports increased by 0.4% in the euro area and by 0.2% in the EU28 (after +1.0% and +1.1%)”.

It becomes clear that household consumption growth remains at close to zero levels. Given that internal consumption is by far the largest component of GDP, it represents the strongest growth engine for any developed economy. Consumption covers around three quarters of the GDP. Without a strong upwards impetus in this bulk internal driver, overall growth cannot assume a sustainable and strong level. This is the main reason that Eurozone is still considered a stagnating economic area.

Exporting recession

Coming to investments (fixed capital formation) and exports, they appear as the only supports of the Eurozone for a long time. However, investments cannot resume their role as a strong growth driver, because the business sector receives negative or stagnation signals from consumption. This is a strong handicap not only for the consumer goods industry but also for investment goods producers. If the consumer goods sector avoids increasing its productive dynamic, there is no demand for investment equipment.

This leaves Eurozone depending on the exports sector for a growth support. However the developing world, a very important customer for European exports, is now facing mounting financial difficulties with the famous American monetary policy tapering and the reversal of quantitative easing. In the foreseeable future countries and regions and like South America, South Africa, Turkey, Indonesia, India and even China will cut down on imports..

Germany holds back growth

On top of that, developed counties like the US and Canada, massive customers of European products, are progressively raising the tone of complains about Eurozone ‘stealing’ their growth potential, through exports. The idea is that Eurozone’s huge and increasing foreign trade surpluses constitute a threat to its trading partners, because its internal restrictive economic policies are targeted against imports. For example, Germany’s trading partners are not expecting anything positive from this country, because all its economic policies are shaped to support exports and restrain imports. Germany even avoids supporting investments and holds back the liberalization of its internal markets, in order to restrict the activities of foreign players on its soil.

All that means Eurozone cannot continue counting on exports to support its anemic growth. Without a strong push to consumption Eurozone will continue to constitute the ‘black hole’ of the developed world. The US seems increasingly worried about all that and the free trade agreement, currently under negotiations between the EU and the US, is already behind schedule. This strong push to internal consumption and consequently to imports can only be realized if Germany changes course and starts favoring wage increases, less restrictive fiscal rules and a more relaxed monetary policy by the ECB.

As long as those measures remain in the drawer away from table’s top, Eurozone growth will continue to oscillate above and below the zero line. However, the problems in the developing world and the dissent with the US will make it increasingly difficult for Germany and the Eurozone to export its recession to the trading partners.

 

the sting Milestones

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

EU finally to extend sanctions on Russia despite arguments; Greece again in Europe’s spotlight

What is the Internet of Things?

Scale of displacement across Myanmar ‘very difficult to gauge’, says UN refugee agency

EU migrant crisis: Germany, France and UK to show the way. Will the rest of the EU follow?

Global Recovery: The EU disburses SDR 141 Million to the IMF’s Catastrophe Containment and Relief Trust

Joint  EU-US Statement on  the Global Methane Pledge 

“Joining forces to #BeatPollution”, a Sting Exclusive by the Head of UNEP in Brussels

This is what CEOs around the world see as the biggest risks to business

How scientists are turning living cells into the tiny factories of the future

COVID-19 is threatening the lives of migrant children held in US custody

The COVID-19 recovery can be the vaccine for climate change

At G20 Summit OECD’s Gurría says collective action vital to tackle global challenges

UN rights chief ‘appalled’ by US border detention conditions, says holding migrant children may violate international law

Why trade wars have no winners

GSMA Announces Final Event Lineup for Highly Anticipated 2019 “MWC Los Angeles, in Partnership with CTIA”

EU leading in global agri-food trade

Member States’ compliance with EU law in 2018: efforts are paying off, but improvements still needed

The widely advertised hazards of the EU not that ominous; the sting is financial woes

South Korea once recycled 2% of its food waste. Now it recycles 95%

MEPs adopt Technical Support Instrument to speed up post-COVID-19 recovery

MEPs demand end to EU arms exports to Saudi Arabia

The ECB ‘accidentally’ followed IMF‘s policy advice for growth and job creation by printing more money

Brexit: European Commission publishes Communication on preparing for the UK’s withdrawal from the EU

The gender gap of medicine in 2018

Why our future relies on more inclusive and transparent innovation

What’s behind South Korea’s elderly crime wave?

European Commissioner for Youth wants young people to be at heart of policy making

EU: All economic indicators in free fall

Stop wars disguised as peace missions

Young translators at EU schools – Commission opens registration for 2020 translation contest

Social, cultural diversity ‘an enormous richness, not a threat’ Guterres declares calling on investment for a harmonious future

ECB money bonanza not enough to revive euro area, Germany longs to rule with stagnation

Five avoidable deaths per minute shows urgent need for action on patient safety

Towards a seamless internal EU market for industrial goods

Digital Green Certificate is the right move but speeding up vaccination is key

Myanmar doing too little to ensure displaced Rohingya return: UN refugee agency chief

Brexit: UK business fear of a no-deal scenario preparing for the worst

How man and machine can work together in the age of AI

MWC 2016 LIVE: Orange targets VoLTE and Voice over Wi-Fi; strikes Google partnership

75 years after Auschwitz liberation, antisemitism still threatens ‘foundations of democratic societies’

UNESCO food and culture forum dishes up fresh serving of SDGs

European markets itchy with short-term disturbances

Bioethics: how to recover trust in the doctor-patient relationship

This Kenyan company makes fuel from human poo

“Healthcare system and socioeconomic inequities”-through the lens of developing nations

China repels EU allegations of export subsidies

Germany’s fiscal and financial self-destructive policies

Cameron readies to support ‘yes’ for Britain in the EU

How Bangladesh’s leaders should respond to the economic threats of COVID-19

Civil protection: Parliament strengthens EU disaster response capability

Where are fleeing Afghans finding refuge?

Why the 33,000 staff European Commission did not have a real contingency plan for the refugee crisis?

MEPs approve the EU’s new culture programme

Human Rights breaches in Russia, Afghanistan and Burkina Faso

From raised fists at the 1968 Olympics to taking the knee: A history of racial justice protests in sport

Trump’s Russian affair spills over and upsets Europe

Why is Merkel’s Germany so liberal with the refugees? Did the last elections change that?

MEPs vote for upgrade to rail passenger rights

Mobile technology saving lives: changing healthcare with simple technology solutions

European Defence Fund on track with €525 million for Eurodrone and other joint research and industrial projects

More Stings?

Comments

  1. Gede Prama says:

    amazing and well presented, greetings peace be with you 🙂

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

%d bloggers like this: