There is an air of optimism in Europe. For the first time in four years, the economic and business and consumer confidence indicators and growth projections, pointing steadily upward. During the first quarter, the eurozone grew 0.4%, surpassing the United States (0.2%) and the UK (0.3%).
The International Monetary Fund (IMF) investment banks expect the Eurozone economy finally achieved this year leaving behind the crisis to grow 1.5% annually through 2020. After six years of economic crisis, although low, the projections are viewed with optimism.
One thing is that the Eurozone has successfully quit contract, other than that I’m healthy enough to talk about a new period of growth. But the recovery is fragile. Basically, because the factors that have driven are temporary: the exceptional low oil prices and the depreciation of the euro, which in turn has boosted exports, especially from the southern countries of the region (Spain, France and Italy). But as they had already warned leading German think tanks, the impact of these factors has begun to wane. Not only oil began to rebound, the euro has returned to settle at 1.14, its highest value against the dollar in three months.
“Unless oil prices continue to fall and euro to depreciate the dollar low, the reactivation impact of these factors on the eurozone economy will begin to disappear, “says the chief European economist at Capital Economics, Jonathan Loynes.
About the price oil, the eurozone does not have much influence. Not so on the future of the single currency. Between January and March, the euro fell 15% against the dollar, to 1.05 and touching parity with the US currency. But a series of weak US data and optimism over the eurozone have led to the currency rebound 8.5% in the last two months, diluting the effect caused by the implementation (in March) quantitative easing program (quantitative easing, QE) of the European Central Bank. The bond purchase plan involves an injection of 60 billion euros a month, at least until September next year
“The program is working well;. So well, that Mario Draghi (ECB President) seems more sure of his forecast that growth will begin to assert themselves and escape the eurozone deflation, “says Holger Schmieding, chief economist at Berenberg.
Greece refuses to make fiscal adjustments
The liquidity seems to be fulfilling its intention to revive lending to companies. The ECB reported that commercial bank loans grew 0.1% yoy in March. Although the figure may seem insignificant, it is the first expansion of the index since March 2012.
But there are still obstacles ahead. Analysts agree that Greece is now the main threat. “The recovery is not strong enough to withstand a Greek exit from the Eurozone. If Greece fails to reach agreement with creditors and leaves the block, the non-eurozone economy would contract, as would have happened three years ago, but the recovery could slow “explains Jonathan Loynes, chief European economist at Capital Economics, who believes that the main effect would be through a stroke of confidence to investors.
Schmieding notes that it is difficult to predict economic impact of a possible Greek exit from the block, but also believes that these would be more manageable than it might have happened in 2012, when not only Greece, also Ireland, Portugal and Spain were in trouble. Today, these three countries have achieved the recovery of their economies, in part due to the implementation of reforms and fiscal adjustments that Greece refuses to follow.
But Greece is not the only one with pending reforms. In its Economic Outlook for Europe, the International Monetary Fund warns that “risks of a long period of low growth and inflation are very high.”
The answer, he says the Fund is not only boost demand through stimulus programs, but also much discussed implementing structural reforms to increase labor market flexibility and boost productivity. Even in Germany, considered the healthiest economy in the region, productivity and potential growth have deteriorated in recent years.
Other in trouble
France and Italy represent, in Overall, 38% of the Eurozone. Stagnant economies are one of the biggest drags on the region. Both countries have been unable to implement the reforms needed to boost growth, especially concentrated in their labor markets more flexible, to adjust their social security systems and to open several of its industries to new investments.
With the pending reforms, the eurozone economy will not grow enough to absorb the 18 million unemployed, so it is expected that unemployment in the region is maintained at around 10%, at least until 2018 and about 9% by 2020. Persistent levels of unemployment, hitting in particular young people, have proved an effective food for the emergence of political parties of the left (we in Spain) and right (National Front in France), more radical, flying speeches and proposals for reduce interference from Brussels in fiscal and monetary policies of member countries.
“If you had asked me six months ago, would have said yes. But today I’m not sure that the most dangerous period crisis has passed. Recovery is still very weak, “insists Loynes.
When the eurozone crisis, which began in 2009 as a result of the global financial crisis last year, reached its peak in 2012, many analysts warned risk that the bloc faces a “lost decade” Japan-style. If the risks, as a Greek default, do not materialize, the Eurozone GDP would return this year at the same level registered at the end of 2008, according to projections IMF. They would have been only seven years “lost” to start growing very slowly (1.6% per year) from 2016.
pending reforms, the eurozone will not grow enough to absorb the 18 million unemployed, so it is expected that unemployment will remain at about 10%, at least until 2018.
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