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2013 EEAG Report on the European Economy
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World GDP to recover slightly to 3.3 percent in 2013
US GDP to weaken to 1.6 percent due to fiscal uncertainty
European Union and euro area GDP to stagnate this year
Recommendations on how to correct imbalances and improve labour markets
Munich, 25 February 2013 – The European Economic Advisory Group at CESifo
(EEAG)* has released its twelfth Report on the European Economy today in
Brussels. The international group of scholars expects world GDP to grow by 3.3
percent this year, up from 3.0 percent in 2012, but down from 3.8 percent in 2011,
using purchasing-power parities. At market prices, world economic growth will climb
to 2.5 percent this year, from 2.3 percent in 2012, remaining below potential. The
experts foresee some improvement in the economic situation in all major regions
during the course of 2013. Once again, the emerging economies are expected to
deliver the strongest contribution.
[For all figures, see tables below or in the pdf attachment.]
World trade will perk up noticeably, from a weak 2.4 percent in 2012 to 3.6 in 2013,
but still far lower than the 5.8 percent of 2011.
With sequestration still threatening to trigger across-the-board spending cuts, the
United States’ unresolved budget issues have heightened policy uncertainty
regarding the eventual tax and spending landscape. The country’s economy is
consequently expected to do little more than stagnate in early 2013, before picking
up later on. For the year as a whole, GDP growth should slow down to 1.6 percent,
compared to 2.1 percent in 2012. Unemployment will continue to fall, however, from
8.1 percent in 2012 to 7.8 percent in 2013. Inflation should remain moderate at
around 2.1 percent.
The decline in economic growth in China has bottomed out and the economy should
regain momentum to reach 9 percent growth this year, versus 7.8 percent last year.
In Japan, only a weak recovery in the economy can be expected in 2013, with growth
edging up to just 0.8 percent. The on-going confrontation with China over the
Senkaku/Diaoyu islands will continue to hamper Japan's foreign trade with its
neighbour. Exports of Japanese cars to China, for instance, plunged by a stunning 75
2
percent between July and October 2012. Japan’s trade balance against China dipped
into the red in September for the first time since data have been recorded.
India’s economyis forecast to pick up slowly this year, rising from 3.7 percent in 2012
to 4.6 percent. Inflation, however, will still remain high at 8.2 percent, albeit better
than last year’s 9.4 percent. Russia’s GDP growth is expected to slow down from 3.0
percent in 2012 to 2.5 percent this year. Latin America, in contrast, will accelerate
from 2.4 percent in 2012 to 3.6 percent in 2013. The Latin America figure is a
weighted average for Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela.
The European Union’s economy, in turn, will stagnate at 0.1 percent growth in 2013,
after decreasing by 0.3 percent last year. Inflation will drop from 2.6 percent in 2012
to 1.9 percent this year, but unemployment will increase from 10.5 percent to 10.9
percent. The economic gap between individual member states will continue to grow,
with aggregate production shrinking further in the crisis countries (with the exception
of Ireland), and with their financing conditions, while already on the mend, likely to
remain unfavourable compared to the core countries’. The German economy looks
set to grow by 0.7 percent in 2013, after a very weak start. Domestic demand, the
demand for German exports from outside the European Union, and imports will all
continue to rise, while construction activity should remain an engine for growth.
Employment will basically stay at current levels, with 35,000 new jobs created and
the unemployment rate dropping from 5.5 percent in 2012 to 5.4 percent this year.
Inflation is expected to fall from 2.2 percent in 2012 to 1.7 percent in 2013.
France will grow by 0.3 percent, its exports languishing due to the country’s gradual
loss of competitiveness. It is not likely to meet its goal of reducing government deficit
to below 3 percent this year. Unemployment is expected to rise to 11.1 percent, and
inflation to drop to 1.8 percent.
The United Kingdom’s economy should experience a moderate expansion, reaching
0.8 percent, while unemployment is expected to drop to 7.6 percent and inflation to
2.4 percent.
Italy’s GDP will contract by 0.9 percent, as a result of continuing political uncertainty.
Exports will rise only slightly, but imports will drop, improving the trade balance.
Average unemployment will hit 11.7 percent, with inflation at 2.3 percent.
The Spanish economy will remain in a structural crisis, contracting by 1.2 percent
this year. Private consumption looks set to remain subdued, unemployment will rise
3
to 26.8 percent, and inflation will stay low, at 1.8 percent. Portugal and Greece will
remain in recession (-1.6 percent and -5.0 percent, respectively), but Ireland is likely
to see a moderate expansion (1.0 percent). Unemployment will rise in all three
countries. Most economies in Central and Eastern Europe will experience positive
GDP growth, with the exception of Hungary (-0.3 percent). Recessionary trends will
nevertheless continue in most of the countries in this region. Hungary, the Czech
Republic, Romania and Bulgaria are threatening to slip into recession, while Poland
is struggling to compensate for weak demand for itsexports. The best performers in
the European Union will be Lithuania (3.9 percent), Estonia (3.5 percent), Latvia (3.2
percent) and Sweden (2.3 percent).
Like last year, the economies of all European countries outside the euro area (with
the exception of Hungary) will grow, while only 10 out of the 17 in the euro area look
set to expand, or at least stagnate. This should translate into 0.1 percent growth for
the European Union and a 0.1 contraction for the euro area.
In other chapters of the report, the authors present a thorough analysis of the
imbalances plaguing the euro area, from trade through competitiveness to current
accounts, and outline strategies for correcting them. They also address the labour
market woes affecting many European countries both inside and outside the euro
area, and examine the root causes of the malaise before proposing remedies to it.
Finally, they take a close look at what we can learn from US history and its current
institutions in terms of setting up a fiscal union.
Some of the report’s policy recommendations regarding these issues:
European imbalances
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Deflation in the Eurozone’s southern countries and/or inflation in the core are
indispensable for the southern countries to regain their competitiveness.
Increasing VAT while cutting direct taxes may contribute to the required
change in relative goods prices.
Deflation in southern Europe calls for fiscal consolidation. To achieve this, it is
more advisable to cut expenditures rather than to raise taxes.
Overindebted countries should be helped by haircuts on their debt at the
expense of their creditors.
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Labour Markets
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-
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Two-tier labour markets, characterised by a marked distinction between
temporary and permanent jobs, should be eliminated, since they increase
youth unemployment.
Make dismissal costs for firms modest and predictable, in order to enhance
labour market flexibility.
Wage bargains should not be imposed on firms where unions do not represent
a large enough fraction of the labour force. In cases where industry-wide
agreements exist, firms and their workers should be able to deviate from them.
Introduce and improve vocational education, training and apprenticeships.
The US as a model for the euro area
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A fiscal union requires first establishing a European federal state. Without
such a unitary state, deeply divisive developments could occur, such as those
that tested the USA in its initial years.
The Eurosystem lacks a system to settle its Target balances. The equivalent
system in the US, known as Interdistrict Settlement Account, could offer an
example for Europe. Such a system would provide an incentive to settle
outstanding balances, helping to contain these at a low level.
Please scroll down to display the tables.
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Tables
Table 1.A.1
GDP growth, inflation and unemployment in various countries
GDP growth
Unemployment rated)
Share of
total
GDP
in %
CPI inflation
2011
2012
2013
2011
2012
2013
2011
2012
2013
Industrialised countries:
European Union
28.8
1.5
– 0.3
0.1
3.0
2.6
1.9
9.7
10.5
10.9
Euro area
in %
in %
21.5
1.4
– 0.5
– 0.1
2.7
2.5
1.8
10.2
11.4
12.1
Switzerland
1.0
1.9
1.0
1.2
0.1
– 0.7
0.2
4.0
4.3
4.5
Norway
0.8
1.4
3.1
2.3
1.2
1.0
1.4
3.3
3.2
3.2
Western and Central
Europe
30.7
1.6
– 0.1
0.2
2.9
2.4
1.9
9.5
10.3
10.7
United States
24.8
1.8
2.2
1.6
3.1
2.2
2.1
9.0
8.1
7.8
Japan
9.6
– 0.6
2.1
0.8
– 0.3
– 0.1
– 0.2
4.6
4.4
4.3
Canada
2.8
2.6
2.0
1.9
2.9
1.7
1.8
7.5
7.3
7.2
67.9
1.4
1.1
0.9
2.5
1.9
1.6
8.6
8.6
8.7
Industrialised countries
(total)
Newlyindustrialised
countries:
Russia
3.0
4.3
3.0
2.5
6.6
6.5
6.0
–
–
–
China
12.4
9.6
7.8
9.0
5.4
2.7
2.8
–
–
–
India
2.7
7.0
3.7
4.6
8.9
9.4
8.2
–
–
–
East Asiaa)
LatinAmericab)
5.8
8.2
4.3
4.0
3.6
2.4
4.5
3.6
4.6
7.2
3.5
6.0
3.8
6.4
–
–
–
–
–
–
32.1
6.5
4.9
5.8
6.1
4.6
4.7
–
–
–
100.0
3.0
2.3
2.5
3.7
2.8
2.6
–
–
–
Newlyindustrialised
countries (total)
Totalc)
World tradegrowth in %
5.8
2.4
3.6
a)
Weighted average of Indonesia, South Korea, Malaysia, Taiwan, Thailand, Philippines, Singapore and Hong
Kong. Weighted with the 2011 levels of GDP in US dollars. – b) Weighted average of Argentina, Brasil, Chile,
Columbia, Mexico, Peru, Venezuela. Weighted with the 2011 level of GDP in US dollars. – c) Weighted average
of the listed groups of countries. – d) Standardised unemployment rate.
Source: Eurostat, OECD, IMF, ILO, National Statistical Offices, 2012 and 2013: forecasts by the EEAG.
Keep scrolling down.
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Table 1.A.2
GDP growth, inflation and unemployment in the European countries
Share of
total GDP
in %
Inflationa)
GDP growth
Unemploymentrateb)
in %
in %
2011
2012
2013
2011
2012
2013
2011
2012
2013
Germany
France
Italy
Spain
Netherlands
Belgium
Austria
Greece
Finland
Portugal
Ireland
Slovakia
Slovenia
Luxembourg
Cyprus
Estonia
Malta
Euro areac)
20.3
15.8
12.5
8.5
4.8
2.9
2.4
1.7
1.5
1.4
1.2
0.5
0.3
0.3
0.1
0.1
0.1
74.6
3.0
1.7
0.6
0.4
1.1
1.8
2.7
– 7.1
2.7
– 1.6
1.4
3.2
1.0
1.7
0.5
8.3
1.6
1.4
0.7
0.0
– 2.0
– 1.3
– 0.9
– 0.2
0.6
– 6.2
– 0.1
– 2.9
0.6
2.5
– 2.2
0.4
– 2.2
3.4
1.2
– 0.5
0.7
0.3
– 0.9
– 1.2
– 0.1
0.1
0.8
– 5.0
0.6
– 1.6
1.0
2.0
– 1.5
0.5
– 1.1
3.5
1.4
– 0.1
2.5
2.3
2.9
3.1
2.5
3.5
3.6
3.1
3.3
3.6
1.2
4.1
2.1
3.7
3.5
5.1
2.5
2.7
2.2
2.3
3.0
2.1
2.8
2.6
2.6
1.1
3.1
2.8
1.9
3.7
2.8
2.9
3.1
4.2
3.3
2.5
1.7
1.8
2.3
1.8
2.2
1.6
1.7
– 1.0
2.1
0.7
1.0
2.1
2.0
1.7
1.4
3.7
2.5
1.8
5.9
9.6
8.4
21.7
4.4
7.2
4.2
17.7
7.8
12.9
14.7
13.6
8.2
4.8
7.9
12.5
6.5
10.2
5.5
10.4
10.6
25.1
5.3
7.4
4.3
24.3
7.7
15.7
14.9
13.9
8.4
5.1
11.7
10.1
6.4
11.4
5.4
11.1
11.7
26.8
6.0
7.8
4.5
26.4
8.1
16.6
15.1
14.1
9.2
5.4
13.5
9.9
6.7
12.1
United Kingdom
Sweden
Denmark
EU-20c)
13.8
3.1
1.9
93.3
0.9
3.8
1.1
1.4
0.0
1.4
– 0.3
– 0.3
0.8
2.3
1.1
0.1
4.5
1.4
2.7
3.0
2.9
0.9
2.4
2.5
2.4
1.5
1.6
1.8
8.0
7.5
7.6
9.7
7.9
7.7
7.7
10.7
7.6
7.8
8.1
11.2
Poland
Czech Republic
Romania
Hungary
Bulgaria
Lithuania
Latvia
2.9
1.2
1.1
0.8
0.3
0.2
0.2
4.3
1.9
2.1
1.6
1.8
5.9
5.2
2.3
– 1.0
0.2
– 1.4
0.5
3.3
4.9
1.0
0.0
1.0
– 0.3
0.5
3.9
3.2
3.9
2.1
5.8
3.9
3.5
4.1
4.2
3.7
3.5
3.4
5.7
2.4
3.2
2.3
2.9
1.4
3.5
5.4
2.5
3.0
2.0
9.6
6.7
7.4
10.9
11.3
15.3
16.3
10.1
6.9
7.1
10.9
12.3
12.9
14.9
10.1
7.1
7.5
11.1
12.0
12.3
14.0
6.7
3.2
0.9
0.8
3.9
3.7
3.0
9.4
9.5
9.6
New membersd)
c)
European Union
100.0
1.5
– 0.3
0.1
3.0
2.6
1.9
9.7
10.5
10.9
a)
Harmonised consumer price index (HICP). – b) Standardised unemployment rate. – c) Weighted average of the
listed countries. – d) Weighted average of Poland, Czech Republic, Romania, Hungary, Bulgaria, Lithuania,
Latvia.
Source: Eurostat, OECD, IMF, 2012 and 2013: forecasts by the EEAG.
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Table 1.A.3
Key forecast figures for the European Union
2010
2011
2012
2013
Percentage change over previous year
Real gross domestic product
2.1
1.5
– 0.3
Private consumption
1.1
0.1
– 0.7
Government consumption
0.7
– 0.1
0.0
Gross fixed capital formation
0.2
1.4
– 2.4
Net exportsa)
0.5
1.0
1.2
Consumer prices
b)
Government fiscal balancec)
2.1
3.0
2.6
Percentage of nominal gross domestic product
– 6.5
– 4.4
– 3.6
Unemployment rated)
Percentage of labour force
9.7
9.7
10.5
0.1
– 0.1
– 0.7
– 0.5
0.8
1.9
– 2.9
10.9
a)
Contributions to changes in real GDP (percentage of real GDP in previous year). – b) Harmonised consumer
price index (HCPI). – c) 2012: forecasts of the European Commission. – d) Standardised unemployment rate.
Source: Eurostat, 2012 and 2013: forecasts by the EEAG.
Table 1.A.4
Key forecast figures for the euro area
2010
2011
2012
2013
Percentage change over previous year
1.4
– 0.5
– 0.1
0.9
0.1
– 1.1
– 0.5
0.7
– 0.1
– 0.2
– 0.9
– 0.1
1.5
– 3.6
– 1.1
0.7
0.9
1.7
1.0
1.6
2.7
2.5
1.8
Real gross domestic product
2.0
Private consumption
Government consumption
Gross fixed capital formation
Net exportsa)
Consumer prices
b)
Government fiscal balancec)
Percentage of nominal gross domestic product
– 6.2
– 4.1
– 3.3
– 2.6
Percentage of labour force
Unemployment rated)
10.1
10.2
11.4
12.1
a)
Contributions to changes in real GDP (percentage of real GDP in previous year). – b) Harmonised consumer
price index (HCPI). – c) 2012: forecasts of the European Commission. – d) Standardised unemployment rate.
Source: Eurostat, 2012 and 2013: forecasts by the EEAG.
To access and download the complete report, which contains a wealth of detailed
charts and tables, please follow this link:
http://www.cesifo-group.de/eeag
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About the EEAG
The European Economic Advisory Group (EEAG) was founded in 2001. Supported by Ifo's research staff, it
provides an annual report on the European Economy which includes a growth forecast as well as other topical
European themes.
The Group consists of six internationally known economists from five countries, chaired by Jan-Egbert Sturm
(ETH Zurich). It includes Giuseppe Bertola (EDHEC Business School), John Driffill (Birkbeck College), Harold
James (Princeton University), Hans-Werner Sinn (Ifo Institute and University of Munich) and Ákos Valentinyi
(Cardiff Business School).
The European Economic Advisory Group is supported by the EEAG-Team of the CESifo Group Munich.
Press Contact:
Julio Saavedra,
Phone: +49-89-9224-1425
Mobile phone : +49151- 12519471
[email protected]
www.cesifo-group.org