Economic recovery and employment in the EU Raymond Torres, Director, ILO Research Department
Outline of presentation I. Situation in the EU versus Japan and the US II. Role of macroeconomic policies and structural reforms in the present situation III. Two scenarios
Unemployment rates before crisis and latest 30 25 20 15 10 5 0 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2014 (Q2) Source: Eurostat, OECD.
GDP growth and employment growth (per cent), Eurozone 6.0 4.0 2.0 0.0-2.0-4.0-6.0 Q2-2014 Q1-2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009 Q4-2009 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 GDP (Y-o-Y growth) Employment (Y-o-Y growth) Source: OECD.
GDP growth and employment growth (per cent), United States 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0-5.0 Q1-2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009 Q4-2009 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Q2-2014 GDP (Y-o-Y growth) Employment (Y-o-Y growth) Source: OECD.
GDP growth and employment growth (per cent), Japan 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0-8.0-10.0 Q1-2014 Q2-2014 Q1-2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009 Q4-2009 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013 GDP (Y-o-Y growth) Employment (Y-o-Y growth) Source: OECD.
Incidence of long-term unemployment (percentage of unemployed looking for work for over one year) 80 70 60 50 40 30 20 10 0 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2013 Source: Eurostat, OECD.
Unemployment rate among youth (aged 15-24) 60 50 40 30 20 10 0 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2014 (Q2) Source: Eurostat, OECD.
Percentage of population at risk of poverty and social exclusion 40 35 30 25 20 15 10 5 0 Euro-area Germany Ireland Greece Spain France Italy Portugal 2007 2012 2013 Source: Eurostat.
Investment as a per cent of GDP 35 30 25 20 15 10 5 0 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2013 Source: IMF World Economic Outlook, April 2014.
Labour force participation rates (per cent) 75 70 65 60 55 50 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2013 Source: Eurostat, OECD.
Labour force participation rates among workers aged 55-64 (per cent) 75 70 65 60 55 50 45 40 35 30 Euro-area Germany Ireland Greece Spain France Italy Portugal United States Japan 2007 2013 Source: Eurostat, OECD.
Factors behind EU weakening: 1) Aggregate demand Growth in domestic demand (average annual growth rate in per cent) 6 4 2 0-2 -4-6 -8-10 Euro area Germany Ireland Greece Spain France Italy Portugal United States Japan 2000-07 2011-13 Source: ILO Research Department based on Eurostat. Note: Data for the United States and Japan are available only up to 2012.
Primary fiscal balance (in per cent of GDP) 4.0 2.0 0.0-2.0 % of GDP -4.0-6.0-8.0-10.0-12.0-14.0 2007 2008 2009 2010 2011 2012 2013 Japan United States Euro area Source: IMF World Economic Outlook, April 2014.
Primary fiscal balance (in per cent of GDP) 4.0 3.0 2.0 1.0 % of GDP 0.0-1.0-2.0-3.0-4.0-5.0-6.0 2007 2008 2009 2010 2011 2012 2013 France Germany Italy Source: IMF World Economic Outlook, April 2014.
Government and private sector net lending positions (in per cent of GDP) Country/Region 2007 2009 2013 Japan United States Euro area Private 7.0 13.3 9.1 Government -2.1-10.4-8.4 Private -0.9 12.1 5.1 Government -4.0-14.7-7.3 Private 1.0 6.6 5.9 Government -0.7-6.4-3.0 Source: ILO Research Department based on IMF World Economic Outlook, April 2014.
Tight credit conditions for SMEs Share of SMEs reporting Access to finance as their most pressing problem 35 30 25 20 15 10 5 0 Euro-area Germany Ireland Greece Spain France Italy Portugal 2009 2013 Source: ILO Research Department based on EU Commission 2013 Access to Finance Survey.
Composite cost-of-borrowing indicator, Euro area (average interest rate, percentage) 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Source: European Central Bank.
Composite cost-of-borrowing indicator, selected Euro area countries (average interest rate, percentage) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 France Germany Greece (GR) Italy Portugal Spain Source: European Central Bank.
Factors behind EU slowdown: 2) Unbalanced reforms Much of the reform in EU has focused on labour markets, less on product & financial markets or tax reform The type of labour market reform has tended to aggravate demand shortage and widen inequalities Lower employment protection without compensating activation measures or skill development Significant reduction in collective bargaining coverage in some countries
Link between PES staff servicing clients directly and the unemployment rate, 2011 24 Spain 18 Greece Unemployment rate 12 6 Ireland Portugal Estonia Hungary Poland Denmark Finland Slovenia Czech Republic Sweden United Kingdom Belgium Germany Netherlands Austria 0 0 10 20 30 40 50 PES staff servicing clients directly per unemployed ('000) Source: European Job Mobility Laboratory and OECD.Stat.
Policy options Tackling the credit squeeze problem (QE measures) Coordinated EU-wide measures that support demand while improving supply conditions e.g. energy, SME-driven public investment programme Front-loading ESFs? Example of youth guarantee
Contracts signed by EIB (in billion EUR), 2009-13 120 100 80 60 40 20 0 Spain Italy Germany France Portugal Austria Greece Netherlands Ireland Other EU countries Non-EU countries Source: European Investment Bank (EIB).
Policy options -- balanced reforms More on services sectors, notably high-income protected professions, finance, education & training Inclusive labour markets Reform without intensifying duality (Austria, Neth.) Fight against undeclared work (Ireland, Poland, Turkey) Social protection while strengthening activation (Germany, Nordics), prevent disability, tackle new issues like dependent own-account work (Spain) Make wages grow, as productivity permits
Policy coordination scenario Coherent responses: i) faster demand growth in north ; ii) balanced reforms; iii) banking union and fiscal coordination Impacts: inclusive growth and lower unemployment in the area as a whole. => Genuine monetary union, more inter-country fiscal transfers and policy competencies at Euroarea level. But issue of democratic control and governance of Euro area.
Rebalancing Europe Change in the employment rate (percentage points) 0,5 0,4 0,3 0,2 0,1 0 Periphery Core 1 2 3 4 5 6 7 8 9 10 11 12 Quarters Scenario: More demand in core, bank reform (more credit and lower interest rates in periphery) Source: ILO Research Department simulations based on the GEL model.
Further internal devaluation scenario Asymmetric policy responses: i) less demand in south; ii) tough social reforms; iii) limited action at Eurozone level. Likely impact: Prolonged unemployment in south, leading to hysteresis, emigration, low-tech specialisation Intensified competition within Euro area, threatening other countries like France and Italy => Limited inter-country fiscal transfers. But pressures on the stability of Euro area.
Projected growth and unemployment rate, Euro area 14.0 12.0 10.0 12.0 10.5 8.0 6.0 7.5 in % 4.0 2.0 0.0-2.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-4.0-6.0 GDP growth Unemployment rate Source: ILO, Trends EconometricModels, July 2014 and IMF, World EconomicOutlook, April 2014.
Projected growth and unemployment rate, US and Japan 12.0 10.0 9.7 8.0 6.0 4.0 4.7 3.9 5.0 5.5 3.6 in % 2.0 0.0-2.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-4.0-6.0-8.0 GDP growth Japan GDP growth US Unemployment rate Japan Unemployment rate US Source: ILO, Trends EconometricModels, July 2014 and IMF, World EconomicOutlook, April 2014.