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.

 

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Charlie’s tragedy energized deeper feelings amongst Europeans; back to basics?

Changing for the change: Medicine in Industry 4.0

The unique role of business in building social good

UN forum spotlights cities, where struggle for sustainability ‘will be won or lost’

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

Apparently the EU Digital Single Market passes necessarily from China’s Digital Silk Road

Further reforms will promote a more inclusive and resilient Indonesian economy

More bank bailouts at taxpayers’ expenses

Paris is building the world’s greenest business district. What can other cities learn from it?

Financial Transaction Tax: More money for future bank bailouts?

FROM THE FIELD: Finding refuge in the ‘beautiful game’

India is a latecomer to AI. Here’s how it plans to catch up

An FTA between EU-US to hurt South Korea

A European Discovers China: 3 First Impressions

Sudzha gas metering station at Russian-Ukrainian border (Copyright: Gazprom, 2015 / Gazprom’s website, Media)

Gazprom starts suspending gas contracts with Ukraine as Brussels fears limited transit to Europe

EU Leaders’ meeting in Sofia: Completing a trusted Digital Single Market for the benefit of all

The banks first to benefit from the new euro trillion ECB plans to print

EU Youth Conference in Riga concludes with recommendations for ministers

Deal on faster exchange of non-EU nationals’ criminal records

Poverty data never tells the whole story

UN expert ‘shocked’ by Egyptian reprisals against human rights defenders she met

Open, inclusive and diverse cities are better for business and economic growth

ILO warns of widespread insecurity in the global labour market

Conflicts and extreme climate change threatens access to food in 39 countries – UN agriculture report

At last a good price for the Greek debt!

New skills agenda for Europe needs real investment

COP21 Breaking News_03 December: Transport Industry Drive for Improved Energy Efficiency and Electro-Mobility to Stem High Growth of Emissions

Amending Guatemala ‘reconciliation law’ would lead to unjust amnesty, warns Bachelet

Climate change and its adverse impacts on health

Ercom, cutting-edge Telco solutions from Europe

European Confederation of Junior Enterprises hosts in Geneva the Junior Enterprise World Conference

African cities will double in population by 2050. Here are 4 ways to make sure they thrive

Consumers suffer three defeats

The Junior Enterprise concept: Business & Education

Trump rejects Europe’s offer for zero car tariffs; he had personally tabled that idea in July

The time is up but the game is still not over for Greece: negotiations continue in anticipation of a new deal

UN chief condemns killing of ‘blue helmets’ in DR Congo, as violence erupts prior to elections

Guatemala Dos Erres massacre conviction welcomed by UN human rights office

Four major resources for new European young entrepreneurs

Capital Markets Union: Making it easier for smaller businesses to get financing through capital markets

Financiers can turn the world into a dirty and dangerous place

Parliament approves €500 million for schooling of refugee children in Turkey

Businesses can lead a revolution in disability inclusion

Stricter rules and tougher sanctions for market manipulation and financial fraud

EU readies for eventual annulment of the Turkish agreement on immigrants-refugees

YouTube stars get creative at UN, to promote tolerance

International World Summit Award calls for outstanding digital applications with impact on society from 178 UN member states

The Future of Balkans: Embracing Education

European Business Summit 2014: The role of youth entrepreneurship education in EU’s Strategy for Competitiveness

UN chief condemns student abductions in north-west Cameroon

Autonomous vehicles could clog city centres: a lesson from Boston

EU responds to terror fallout by eroding borderless Europe and molesting the refugees

Germany and Europe prepare for Trump’s America

In Washington D.C., Guterres signs pact with World Bank, meets US President Trump

A new proposal breaks the stalemate over the Banking Union

‘Favour dialogue’ over violence, UN chief urges all parties following clashes in Mali’s capital

India’s economy is growing fast, but its poorest areas lag behind. Here’s why this could be about to change

These countries have the highest minimum wages

EU summit: Are the London Tories planning an exit from the EU?

UN rights chief calls for international inquiry into Kashmir violations

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