European Commission expects no growth, and no hope

8:50 am - November 11th 2011

by Carl Packman    

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Reading through the European Commission’s Autumn Forecast for 2011-2013 doesn’t inspire too much by way of optimism.

The recovery of the EU economy, as it points out in the first line of the press release, has stopped.

Growth for 2012 is forecast as half a per cent, rising by 1 per cent in 2013. Investment will either be postponed or cancelled, banks will restrict lending, confidence will only return once these problems are rectified and we are facing a mutually afflictive “viscious cirlce”.

In the UK things are not better, but worse than European peers. Though better than in January 2009, consumer confidence is worse now since May 2011 than how it averaged in 2008 and 2009.

Corporate investment and net exports are growth’s only help, prospects of the former described as “mixed” while the latter is likely to be confronted by weakness in the euro area.

Modest export growth is forecast to exceed weak import growth, but clashing with that is an above EU average in household debt (despite a fall since 2009) implying increased household caution – affecting consumer confidence and reliance on house price rises as a means to increase net worth.

Even bleaker news, job cuts in the public sector – which fell by 228,000, or 3.8%, in the year to June 2011 – represents only half of that which the Office for Budget Responsibilty said would be necessary to deliver government’s spending cuts.

The glass half full analyst would suggest this is positive because it will take the pressure off job losses in the future. Though the glass half empty analyst would point out that even frontloading today would be bad as spending cuts could be hitting jobs hardest rather than other forms of spending.

Put on top of this private sector intentions and the outlook is very unpleasant.

Despite all this the UK government is sticking to its guns and committing to “fiscal consolidation”. Financial services are described as “remain[ing] subdued” as is domestic consumption. Exports are affected by too modest output and corporate investment has been restricted by risk aversity in lending.

The economy today will be defined by a “wait and see” culture in capital spending.

George Osborne cannot be blamed for what happens in the EU, but a change in tack needs to occur at home.

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About the author
Carl is a regular contributor. He is a policy and research analyst and he blogs at Though Cowards Flinch.
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Story Filed Under: Blog ,Economy ,Europe ,Foreign affairs

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Reader comments

I reckon that Merkel’s government calculated some time back that the German economy is best placed to weather an EU recession and that floundering companies in other EU countries will become cheap for German companies to buy.

In short, Nicholas Ridley was right in that interview with the Spectator in 1990. All the recent foot-dragging over the ECB acting as a lender of last resort to prevent the crisis from spiralling and so embroiling more countries is just a smoke screen intended to conceal a hard-headed pursuit of national business interests. Very likely the employees in floundering companies will welcome take-overs by German companie in the circumstances.

I have to admit, I am not particularly worried by European forecasts. These are the same bunch who believed at various stages their gestures (I can’t really call them measures) would save the Eurozone from its present economic state for example: the forecasts and predictions are coming from the same offices and attitudes.

I actually think the faster the Euro explodes, the banks take their losses and the world can stop sitting round watching, the faster things recover. After all, if large chunks of debt are removed from the economy, and a number of countries become more competitive (hopefully) then there is more money to spend. As Sunny occasionally points out, this is a demand problem as much as anything (albeit he seems to think increasing government spending to up demand will help – having not noticed that debt seems to lower demand!), so increasing demand and relative productivity will be helpful. What is holding things back is governments set on a particular policy at all costs. So if the markets overwhelm the will of the politicians (probably read the will of the Germans to pay for the debts of others) then the recovery is likely to come faster.

@2 – Of course, right, “gestures”.

Never mind that they’re on track. No, nothing can sate that kind of attitude. Gotta has the profits NOW.

And then you ignore temporary government spending to restore consumer spending. Right. Nope, inconsistent as always from the Corporatists. I expect we’ll start seeing major moves towards corporate housing soon…

Tony Blair has been keeping an amazingly low profile during this Eurozone hiatus. Seeing as how he was so keen for Britain to join, I thought he would have popped up to contribute some penetrating words of advice just like he used to, such as: You can’t stop modernisation, or the Third Way is the way to go. But then perhaps he is too preoccupied with advising on the affairs of state in Kazakhstan.

Blair has spoken on the perils facing the Euro:

Tony Blair says eurozone breakup would be ‘catastrophic’

Former prime minister calls for ‘whole weight of Europe’ to stand behind single currency and resolve eurozone debt crisis

The Guardian has one of the best reports on Andrew Marr’s interview with Blair. As I understand it, the German government, with Angela Merkel at the helm, is blocking any change in the ECB’s rules of engagement to allow the ECB to act as lender of last resort. Without that and a fiscal union to support chronic deficit countries there isn’t much hope of saving the Euro. More and more austerity measures will just depress the EU economy. A few commentators are reminding us that Italy’s competitiveness and national debt issues long preceded Berlusconi’s premiership – it’s just that he didn’t do anything about resolving the problems.

Reactions: Twitter, blogs
  1. Liberal Conspiracy

    European Commission expects no growth, and no hope

  2. Shamik Das

    Economic news just gets worse; @CarlRaincoat & @wdjstraw report on the latest EU growth forecasts

  3. Molly

    Yay o.O RT @libcon European Commission expects no growth, and no hope

  4. Alex Braithwaite

    European Commission expects no growth, and no hope | Liberal Conspiracy via @libcon

  5. raincoat optimism

    Economic news just gets worse; @CarlRaincoat & @wdjstraw report on the latest EU growth forecasts

  6. Look Left – UK growth forecast to be worse than eurozone | Left Foot Forward

    […] Carl Packman, writing on Liberal Conspiracy, adds: “Despite all this the UK government is sticking to its guns […]

  7. Red Maria

    Excellent post by bright young Labourite @CarlPackman over @LibCon on awful EU GDP growth figures

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