FEATURE. Eurozone. Consumption and employment drive growth. Alexander Börsch

Transcription

1 FEATURE Eurozone Consumption and employment drive growth Alexander Börsch

2 Positive trends in consumption and the labor market have sustained the economic recovery in the eurozone in the second quarter. Global trade conflicts and regional political uncertainties may be an overhand in the medium term. GROWTH IN THE eurozone is lower than in 2017, but the recovery is robust, driven mainly by strong consumption and employment growth. These internal drivers have made the recovery fairly resilient against external risks. Economic situation Growth in the eurozone stabilized in the second quarter of 2018, following a weak first quarter. The eurozone as a whole grew 0.4 percent. Among the larger eurozone economies, Spain again showed the highest growth dynamics (0.6 percent), Germany grew slightly above the eurozone average (0.5 percent), while France and Italy grew below it (0.2 percent). 1 The recovery remains intact and solid, albeit not spectacular. Compared to last year when the eurozone grew at a record pace of 2.5 percent, this year s growth dynamics are weaker. This is mainly due to industrial production and exports. Both developed very strongly in 2017, but have been significantly weaker this year. Industrial production decreased slightly in the second quarter, while the net balance of foreign trade contributed negatively to the growth performance imports grew more strongly than exports. 2 Growth, therefore, continues to be driven mainly by private consumption. The external political risks like the trade conflict between the United States and China, and the corresponding higher uncertainty likely affect primarily the externally oriented manufacturing sector. Looking forward, early indicators, such as the purchasing managers index (54.5 in September), continue to signal fairly robust growth, even if they have fallen since the beginning of the year. 3 In addition, corporate investments are on an upward trend and are developing solidly. 4 European consumers still upbeat Private consumption has been the key pillar of the eurozone s recovery for quite a while now. This is welcome news as it supports a continued and self-sustaining recovery and has made the exportoriented eurozone less vulnerable to external turbulence. In absolute terms, the eurozone s private consumption has grown significantly, by around EUR 400 billion, in the last five years (figure 1). This translates into an increase of 8 percent. 2

3 FIGURE 1 Private consumption in the eurozone has grown 8 percent since 2013 EUR (billion) 8% 5,800 5,606 5,684 5,700 5,513 5,600 5,410 5,500 5,400 5,366 5,363 5,299 5,270 5,316 5,300 5,200 5,100 5, Source: Oxford Economics, Deloitte analysis. At the same time, many consumers remain pretty upbeat. Much has been made of the fact that consumer confidence fell to the lowest level since mid However, if we look at longer time frames, the current level of consumer confidence is, in fact, one of the highest not only since 2010, but also in decades (figure 2). We have to go back to 2000 to find similar positive values as in One potential risk for consumer spending in the near future stems from inflation. While core infla- FIGURE 2 Consumer confidence in the eurozone is at a very high level Consumer confidence index (difference from the long-term average) Long term average Note: The long-term average was shifted to zero for better readability. Source: European Commission, Consumer sentiment index, accessed September 24,

4 tion (excluding energy prices) rose to 1.1 percent, overall inflation reached 2.1 percent, the highest in six years. Given that wage increases have not been substantial so far and lag the labor market performance, real income might fall and depress consumer spending. For the moment, however, the positive consumer sentiment indicates that consumers will very likely continue to drive the recovery. One crucial precondition is the development on the labor markets as the positive trend has driven much of the consumption increase so far. Labor market trends The eurozone s labor markets have demonstrated a very positive trend in 2018 (figure 3). The unemployment rate of 8.4 percent marks a nine-year low. The pace of job creation too remains strong. Over the last five years, the eurozone economy created around 9 million jobs, raising the number of employees from 149 million to 158 million. A deeper analysis of employment growth reveals that the biggest job growth took place in sectors related to professional, technical, and scientific services; information and communication; and public services, including health care (figure 4). The employment growth in the first two sectors indicates a further shift toward knowledge-intensive and high value-added technology sectors. CONCLUSION Overall, current growth in the eurozone is mainly driven by a good performance of the labor market, translating to consumption growth. Even so, risks to the economic outlook and the recovery are not hard to find. Global trade conflicts, political cleavages within the European Union, and the uncertainty surrounding the Brexit negotiations all have the potential to increase uncertainty and derail the recovery in the medium term. Nevertheless, as long as the positive trends in labor markets and consumption continue, the eurozone s recovery looks fairly resilient. FIGURE 3 Labor markets in the eurozone remain strong, boosted by low unemployment and solid job creation Employment Unemployment Employment (million) Unemployment rate (percentage) % 10.2% 11.4% 12.0% 11.6% 10.9% 10.0% 9.1% 8.3% Source: Eurostat. 4

5 FIGURE 4 Professional, technical, and scientific services as well as information and communication have seen the highest employment growth Professional, scientific, and technical activities; administrative and support service activities Information and communication Public administration, defense, education, human health, and social work activities Real estate activities Wholesale and retail trade, transport, accommodation, and food service activities Index (2010=100) 120 Arts, entertainment and recreation; other service activities; activities of household and extraterritorial organizations and bodies Manufacturing Financial and insurance activities Agriculture, forestry, and fishing Construction Source: Eurostat; Deloitte analysis. 5

6 Endnotes 1. Eurostat, GDP up by 0.4% in both euro area and EU28, September 7, KfW Research, Gute wirtschaftslage, aber erhöhte risiken, September 7, IHS Markit, Output growth broadly steady in August but expectations weaken, accessed September 27, Corporate investments grew 1.2 percent in the second quarter. See Eurostat, GDP up by 0.4% in both euro area and EU28. About the author ALEXANDER BÖRSCH is the chief economist and head of research at Deloitte Germany. Before joining Deloitte, he worked as senior economist in the investment management and management consulting industries. He is the author of numerous publications on topics such as the European economy, economic trends, digital economy, Brexit, and competitiveness of companies, cities, and nations. He holds a PhD from the European University Institute and was a visiting researcher at the London School of Economics, Warwick University, and INSEAD. Contacts Alexander Börsch Deloitte & Touche GmbH Germany +49 (0) aboersch@deloitte.de Global industry leaders Consumer Vicky Eng Deloitte Services LP United States veng@deloitte.com Energy, Resources & Industrials Rajeev Chopra Deloitte Touche Tohmatsu Limited United Kingdom rchopra@deloitte.co.uk Financial Services Bob Contri Deloitte Services LP United States bcontri@deloitte.com 6

7 Life Sciences & Health Care Greg Reh Deloitte Consulting LLP United States Government & Public Services Mike Turley Deloitte Touche Tohmatsu Limited United Kingdom US industry leaders Financial Services Kenny Smith Deloitte Consulting LLP Consumer Seema Pajula Deloitte & Touche LLP Telecommunications, Media & Technology Paul Sallomi Deloitte Tax LLP United States Life Sciences & Health Care Bill Copeland Deloitte Consulting LLP

8 Sign up for Deloitte Insights updates at Deloitte Insights contributors Editorial: Kavita Saini, Abrar Khan, and Preetha Devan Creative: Anoop K R Promotion: Shraddha Sachdev Cover artwork: Tushar Barman About Deloitte Insights Deloitte Insights publishes original articles, reports and periodicals that provide insights for businesses, the public sector and NGOs. Our goal is to draw upon research and experience from throughout our professional services organization, and that of coauthors in academia and business, to advance the conversation on a broad spectrum of topics of interest to executives and government leaders. Deloitte Insights is an imprint of Deloitte Development LLC. About this publication This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or its and their affiliates are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright 2018 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited