What economic prospects for 2013?

23 January 2013

Although more optimistic views of the crisis are gaining traction amid a general feeling that the worst is over, and that Europe has already hit rock bottom and is slowly on the way up again, such pronouncements must be treated with extreme caution, said Fabian Zuleeg, Chief Economist at the European Policy Centre.

Zuleeg said last year’s intervention by the European Central Bank (ECB) and the firm commitment of member states had relieved the immediate danger of the euro’s collapse, which was a very positive development. But he warned against forgetting Europe’s other problems, such as the weak overall economic performance of the crisis countries.

He said unemployment – and particularly youth unemployment – was very high and worsening, which had political as well as social implications. He said another worrying sign was that Germany’s economy had started to weaken at the end of 2012. Despite still recording positive growth, figures there were very low, the EPC economist warned.

Pier Carlo Padoan, Deputy Secretary-General and Chief Economist at the Organisation for Economic Cooperation and Development (OECD), said the OECD expected that 2013 would be a year of weak growth in the US, with Europe emerging from recession sometime during the year.

Padoan said the OECD expected unemployment in Europe to rise this year and possibly next year too. He described the unemployment challenge facing Europe as major. Nevertheless, he expressed hope that 2013 would be the year that Europe finally emerged from the crisis, began to overcome its confidence problems, and brought to an end uncertainty regarding political decision-making.

Marco Buti, Director-General for Economic and Financial Affairs at the European Commission, said the balance of risk in Europe had changed since last year, but that Europe was currently experiencing a balance-sheet recession, rooted in the excessive accumulation of debt – both private and public. He warned that the need to deleverage implied a snail’s pace recovery.

Buti argued that fiscal consolidation in Europe must continue, and stressed the need to overcome financial fragmentation: capital must flow from the core to the periphery again.

He called for the continuation of structural reform to boost Europe’s growth potential, and stressed the need to make more progress towards a Genuine Economic and Monetary Union – starting with the banking union.

The depth of the crisis has been so severe that it is in fact surprising that it did not completely wipe out employers’ hiring intentions. Indeed, hiring intentions have remained rather robust, said Göran Hultin, Labour and Government Affairs Advisor at Manpower.

He said China had been the saving grace for the German economy, rather than the USA or the rest of Europe. But he predicted that even Germany’s employment outlook would soften over the next 1-2 quarters, because the global economic outlook was not great and even China may slow down.

He said the UK was set to create 50,000 new jobs in the first quarter of 2013, but described the situation as fragile and sector-specific, for example in manufacturing. He said that full-time employment had also decreased in the UK, with a corresponding increase in part-time employment.

He said that French unemployment had been increasing, and described the outlooks in Spain and Italy as very upsetting.