It’s a bit awkward to consider a drop of the unemployment rate by one decimal point of a percentage unit as economic growth, and call it a reversal to the positive region, as some Brussels dignitaries and bureaucrats do. Incidentally, the euro area unemployment rate fell to 11.3% in February, down from 11.4% in January 2015. At the same time though retail trade sales and inflation are in the negative region, despite the €60 billion the European Central Bank pumped into Eurozone during March, through purchases of government bonds and asset backed securities.
In early May the Commission is expected to publish its Spring European Economic Forecast 2015. “It will cover 2014, 2015 and 2016 and will include data on Gross Domestic Product (GDP), inflation, employment, budget deficits and public debt, amongst others”. As usually it will be overoptimistic and predictably it will assert that the EU economy has entered a virtuous cycle. But is there enough evidence to support such a sanguine view? Let’s take one thing a time.
At the end of March, Eurostat, the EU statistical service, announced its estimate for the February unemployment rate. The relevant Press release says that “The euro area (EA19) seasonally-adjusted unemployment rate was 11.3% in February 2015, down from 11.4% in January 2015, and from 11.8% in February 2014. This is the lowest rate recorded in the euro area since May 2012”. Nevertheless, in reality this change falls well into the area of statistical error.
It is also obvious from the above quote of Eurostat’s Press release that the unemployment rate of February 2015 compared with this same month of the previous year marks a rather noticeable drop. Half a percentage unit is not a small thing but it’s not a cause for celebration either. The problem is that according to the same source still in February this year “23.887 million men and women in the EU28, of whom 18.204 million in the euro area, were unemployed in February 2015. Compared with January 2015, the number of persons unemployed decreased by 91 000 in the EU28 and by 49 000 in the euro area”.
A large country producing nothing?
This is the equivalent of an entire large European country being completely unemployed producing nothing at all. Back to reality, the actual picture is quite discouraging if one focuses on the south of the EU. In today’s Greece more than a quarter of working age population is jobless. The same hopeless condition prevails in Spain with 23.2% of the workers not having work, Croatia with 18.5% unemployed, Cyprus with 16.3% and Portugal 14.1%. If you think that this are small peripheral member states, what about Italy suffering from unemployment of 12.7% and France of 10.6%? In short, the second the third and the fourth economies of Eurozone are in the red labor market wise.
As for the youths (under 25) their condition appears quite appalling. In Greece and Spain more than 50% of them don’t have a job and 42.6% of their Italian counterparts are suffering of the same chronic disease. At the same time some core EU member states like Germany and Austria seem rather immune to this virus, with only single digit youth unemployment rates. Then the ugly reality comes into view proving that the EU labor market is not only in a dreadful state, but it shows a deep fragmentation in national segments.
What about the future?
Unfortunately, the future looks equally gloomy because the crucial indicator of the retail sales points downwards. According to Eurostat, “In February 2015 compared with January 2015, the seasonally adjusted volume of retail trade fell by 0.2% in the euro area (EA19) and remained stable in the EU28”. Retail sales are an infallible gauge of consumption. This last crucial variable is in its turn the main component of gross national product and revenue. Therefore retail sales can be considered as an early pointer of the future trends in overall economic activity. Consequently, a drop in retail sales can invariably lead to a drop in aggregate product and income.
Last but not least developments in the prices front are also hardly encouraging. Headline inflation (consumer prices) remains in the negative part of the chart. According to a Eurostat flash estimate for March inflation in the euro area was -0.1%, that is two decimal points up from -0.3% in February. Producer price inflation developments were also negative. In February they rose by 0.5% in the euro area but only after they had retreated by -1.1% in January. Unfortunately, in this crisis conjuncture we are in for more than five years negative or close to zero inflation rates which are considered risks of existential proportions.
Summing up all that, it becomes apparent that unemployment and economic activity in the euro area will continue to pose grave problems in the foreseeable future. The trouble is that if the long-term economic stagnation that Eurozone suffers continues, the damages caused may be irreversible, although some already are like the lost generation in the South. The pockets of shockingly high unemployment in certain southern countries and age groups may lead to political reversals of unpredictable consequences.