Slow, soft and weak recovery for job creation

  • The Commission expects weak growth in 2014: +1.4% in the 28 European countries and +1.1% in the Eurozone.
  • The Belgian economy should grow by 1.1% in 2014 but employment will remain its Achilles heel.

According to the European Commission’s fall economic forecast as presented by Olli Rehn on Tuesday morning, the recovery will be weak in 2014 and more solid in 2015. “We are seeing clear signs of economic turnaround, but growth will be gradual and jobs will only follow later.” And it warns: “We cannot become complacent.”

The presentation of the European executive report – an exercise begun 50 years ago – has a specific role. It acts as a prelude to the Commission’s opinions regarding the Eurozone states’ budgets, to be rendered on November 15th. Within the framework of the new “two pack” procedure, the Commission, which must from now on approve national budgets, has its power very much reinforced. The economic forecast will serve as a framework for the Commission’s “opinions,” which will incorporate its basic ideas.

Commissioner Rehn’s economic and monetary affairs department thinks that the European economy is back on the path to growth in 2013. Although the EU balance sheet for the year shows neutral growth, it has begun to creep back into the black as of the second quarter of this year. The second quarter showed the first signs of growth following six trimesters of relentless contraction in the Eurozone. How did we climb out of the red? Business confidence returned and the financial markets calmed down. This was brought about by the stabilization of sovereign debt leading to renewed confidence. The results of this good news: during the second half of 2013, EU GDP grew by 0.5% compared to the same period in the previous year.

The Commission notes that the trend will continue next year with 1.4% growth across Europe. However, growth will be uneven. In Eurozone countries where the effects of adjustment plans (the politically correct term for austerity) were the most noticeable and will continue to be a drag on domestic demand, growth will be limited to 1.1%. Examining the growth forecast by country, the Baltic countries are poised to be the winners. They expect growth to exceed 3% and even 4% in Latvia. Aside from the three Baltic countries, and outside of the Eurozone, the United Kingdom, Sweden, Poland, Hungary and Slovakia should show solid progress of greater than 2% while within the Eurozone, Germany and Austria will see less than 2% growth.

Employment will remain the major stumbling block. According to the Commission’s predictions, it dropped by 0.4% in 2012, and it will only rise by 0.3% in the EU. This level is too low to reduce unemployment. That probably won’t happen until 2015 at the earliest.

Belgian growth falls well within the “honorable” level. Its GDP growth is anticipated at 1.1% next year. This is far above the countries that form the Eurozone “core” (the “star pupils”) such as the Netherlands (-0.5 %) or Finland (zero growth). Belgium’s performance is a result of renewed exports and domestic consumption, which are expected to continue and allow Belgium to reach a modest +1.5% growth in 2015. “However, no acceleration toward past levels can be projected,”the Commission predicts. “Greater momentum would be needed,” such as reforms that would promote demand to achieve the more ambitious rates of days gone by. In other words, reforms are needed that would lower tax rates on products and services (supply-side reforms).

Rehn’s department concludes that, “The return of employment predicted for 2015 will remain modest, raising the specter of a jobless recovery.” A specter for now, but one that could become very real.

JUREK KUCZKIEWICZ

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