The euro zone
remains mired in recession despite greatly improved financial conditions over
the past nine months due to the European Central Bank’s efforts to save the currency.
Output declined by 0.2% in the first three months of 2013 from its level late
last year, the sixth consecutive quarter of a recession that started in late
2011. GDP rose by just 0.1% in Germany, the biggest economy in the euro zone
and declined by 0.2% in France, the second biggest. Falls in southern Europe
were much bigger, with GDP declining by 0.5% in Italy and Spain and 1.3% in
Cyprus.
Forecasts from the European Commission in early May showed
annual euro-zone GDP shrinking by 0.4% in 2013, following a contraction of 0.6%
in 2012. The economic reverse will be much deeper on the periphery of the euro
zone than in its core. Cyprus is the worst performer this year as its GDP
shrinks by 8.7%. Conversely, Estonia’s GDP will rise by 3% in 2013. Within the
27-nation European Union (EU), Latvia’s GDP will increase by 3.8%, and is
expected to join the euro zone next January.
The
disparity between core and periphery is particularly stark in labor markets.
Unemployment in Germany was just 5.4% of the workforce in March 2013, whereas
in Greece and Spain it was around 27%. The gap is even bigger for young people.
In Germany the youth jobless rate was 7.6% in March whereas it was 56% in Spain
and reached 64% in Greece in February. These figures overstate the
blight of youth unemployment because many young people are in full-time education
and do not count as part of the labor force.
Even so
there has been more rebalancing in the periphery than is sometimes appreciated.
Current-account deficits which had ballooned in the first decade of the euro
have narrowed. Portugal’s deficit has shrunk from 12.6% of GDP in 2008 to 1.5%
in 2012; over the same period Greece’s has fallen from 15% to 3%. Primary
budget balances are also on the mend. Greece’s is expected to reach zero in
2013 from its deficit of 10.5% of GDP in 2009. The highest primary deficit in
the EU this year will be run by Britain, 3.9% of GDP.
Despite
these improvements, government debt levels are worryingly high in the
periphery. Despite a bond buyback late last year and the write-down of over
half of privately held debt in March 2012, Greek debt will reach 175% of GDP by
the end of this year. Although Greece is being helped by interest deferral and
maturity extension along with very low interest rates, it needs a further
restructuring, this time of official debt. Italy’s debt burden continues to
rise, to 131% of GDP this year, and debt in Ireland and Portugal is forecast to
reach 123%.
http://www.economist.com/blogs/graphicdetail/2013/04/european-economy-guide
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