Data show EU Economy in a stubbornly subdued state

European Commission President José Manuel Barroso, presenting the “Europe is on its way to meeting its 2020 targets” report. The stubbornly subdued state of the EU economy though is in direct contrast with the optimism of the outgoing EC President. (EC Audiovisual Services, 21/03/2014).

At the end of the first quarter of the year (end March 2014) the Eurozone economy doesn’t show any signs of change from its subdued state of the last twelve months. The bearish and widely diverging resumption of activities still prevails, after the four-year recession period which theoretically ended at the second quarter of 2013, when a marginal increase of 0.3% in GDP was recorded. Yesterday, the European Commission released its estimate for the March 2014 Business Climate Indicator (BCI) for the euro area which remained broadly unchanged (at +0.39).

Structural dualism

On top of that, the structural dualism between the EU member state economies seems to continuously take increasing dimensions. According to a Eurostat Press release issued last Thursday, income differences between member states based on hourly labour cost (wages and salaries) have increased greatly. Between 2008 and 2013 “Within the euro area, the largest increases (of hourly labour costs) were recorded in Austria (+18.9%), Slovakia (+17.0%) and Finland (+15.9%). Decreases were observed in Greece (-18.6%) and Portugal (-5.1%)”.

The same source reveals that there exist appalling differences between member states in hourly labour costs. This statistic refers to wages and salaries in the business sector excluding agriculture and the public sector plus non-wage related costs such as employers’ social contributions. In 2013, average hourly labour costs in the whole economy (excluding agriculture and public administration) were estimated to be €23.7 in the EU28 and €28.4 in the euro area (EA17). “However, this average masks significant differences between EU Member States, with the lowest hourly labour costs recorded in Bulgaria (€3.7), Romania (€4.6), Lithuania (€6.2) and Latvia (€6.3),and the highest in Sweden (€40.1), Denmark (€38.4), Belgium (€38.0), Luxembourg (€35.7) and France (€34.3)”.

Growing inequality

Understandably, the huge gap between the €3.7 and the €40.1 that a Bulgarian and the Swedish worker cost to their employer can be attributed to productivity differences. It’s not only that though. A large part of that discrepancy must be attributed to differences in the organization of the economy, the government and the state and the huge differentiation in business practices. Unfortunately, in this respect, the European Union has not helped in reducing the income differences between member states. All along the 2008 – 2013 period the income inequality has been growing, not diminishing within the EU.

As expected, industry proves to be the most productive sector of the economy turning out the largest added value and paying the highest remuneration to workers. According to Eurostat “Within the business economy, labour costs per hour were highest in industry (€24.6) in the EU28 and €31.0 in the euro area, followed by services (€23.9) and €28 respectively) and construction (€21.0 and €24.5)”.

Stagnating business climate

Now let’s turn to the stagnating business climate in the Eurozone. According to the EU Commission during this month, the Business Climate Indicator (BCI) for the euro area remained broadly unchanged (at +0.39). The relevant Press release states that, “Managers‘ production expectations and their appraisal of past production improved, while the level of overall and export order books, as well as the stocks of finished products, were viewed more negatively”.

This statement contains a contradiction. How is it possible and the managers’ production expectations have improved, while “overall and export order books, as well as the stocks of finished products, were viewed more negatively”? If the latter is true, managers are clearly predicting a worsening of the business climate soon.

Summing up, the past performance of the European Union in the front of economic convergence between member states has turned negative during the crisis years, while its immediate prospects are clearly subdued.