EU Downgrades Growth Forecast

In recent months desperate Eurocrats have tried to talk up the European economy. They have predicted that austerity is over, that growth is returning and that hard-hit middle class families have seen the worst of it.

All along, I have pointed to the facts, which speak quite a different language. And lo and behold:

The EU economy will remain flat in 2013, EU economic affairs commissioner Olli Rehn said on Tuesday (5 November), as he downgraded the bloc’s growth forecasts for 2014 and 2015. Although the EU economy grew by 0.3 percent in the second quarter of 2013, offsetting an identical decline between January and March, the commission is not expecting any further growth in the remaining six months of the year.

That 0.3-percent growth number is incorrect, unless it is quarter-to-quarter. Eurostat’s latest quarterly GDP data tells us that measured year to year in the second quarter, the EU-27 economy did not grow at all, but contracted instead by 0.2 percent.

The euro area fared worse, contracting by 0.5 percent. Furthermore:

GDP Growth in the EU, 2013Q2
Latvia 4.3% Belgium 0.1%
Lithuania 3.8% Bulgaria -0.2%
Malta 3.6% EU-27 -0.2%
Luxembourg 2.4% Euro-17 -0.5%
Romania 1.5% Finland -0.7%
Poland 1.2% Croatia -0.7%
Estonia 1.0% Ireland -1.2%
Slovakia 0.9% Czech Republic -1.3%
United Kingdom 0.9% Spain -1.7%
Germany 0.9% Netherlands -1.7%
Sweden 0.6% Slovenia -1.7%
Denmark 0.6% Portugal -2.5%
Hungary 0.5% Italy -2.6%
France 0.4% Greece -3.8%
Austria 0.2% Cyprus -5.9%

There are several important pieces of information in this table. To begin with, the only countries that exhibit any recovery-strength growth are small outlying states like Latvia, Lithuania and Malta, or a tiny, mono-industrial economy like Luxembourg. The engines of the European economy, namely Germany, the United Kingdom and France, are not even at one percent growth.

Seven EU states have a GDP growth rate above one percent, while nine states have a GDP that is shrinking by more than one percent. In the latter category we find the austerity-devastated states on the southern rim: Spain, Portugal, Italy, Greece and Cyprus.

The Greek GDP loss is currently at a rate of 3.8 percent per year, on top of the 25 percent they have lost since the crisis began. That country is nothing short of a macroeconomic horror story.

With these observations, let us get back to the EU Observer story:

Rehn said all 28 of the EU’s member states would achieve economic growth by 2015.  He said the European economy had “reached a turning point” although he cautioned that “it is too early to declare victory: unemployment remains at unacceptably high levels.”

That is an understatement, especially when it comes to youth unemployment which is at or above 20 percent in 20 EU member states. Over the past year youth unemployment has grown in 14 EU states and remained constant or fallen in 14 others (including rookie member Croatia). The average change in the first group is an increase of 2.75 percent while the average reduction rate in the second group is 1.95 percent.

These numbers will not get better until the European economy is back in growth mode. Consider this figure and its clear message on the correlation between growth and youth unemployment:

YU GDP

The fact that the EU Commission is now downgrading its growth forecast for 2014 and 2015 is a big reason to worry what is coming ahead. If there will be no substantial trend change for the better in terms of youth unemployment, Europe is going to lose its young. Period. By 2015 this crisis will be seven years old, going on its eighth year. With just a little bit of bad luck it might outdo the 1930s as the economically most devastating period in modern history.