european economic outlook: is sustainable recovery possible?

European Economic Outlook:Is Sustainable Recovery Possible?Dr. PETR ZEMCIK, DIRECTORTOMAS HOLINKA, ECONOMIST

WebinarPrague, September 24,2013

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Outline

• Business cycle status• Expenditures shift across Europe• Governments are not overly protective• Labour markets evolve• Long-term outlook

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Business Cycle Status 1

6

Spain Italy Euro zone

Hungary Poland Czech Rep.

Ger-many

0.0

0.5

1.0

1.5

2.0

0

5

10

15

20

25

30CPI, % change yr ago (L)Unemployment rate, % (R)

51.451.3 51.7

52.6

53.9

51.8

Inflation Falling on Record Job Losses

Sources: Eurostat, Markit, Moody’s Analytics

CPI, unemployment and PMI for manufacturing, Aug 2013

51.1 PMI

7

Expenditures Shift Across Europe 2

8

Recession Triggers Reform Efforts

Sources: Eurostat, Moody’s Analytics

Real GDP, % change yr ago

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

11Q1

11Q3

12Q1

12Q3

13Q1

-8

-6

-4

-2

0

2

4

6

8

Germany Czech Rep.Poland HungarySpain U.K.

9

Hungary

Czech Rep.

Germany

Greece

Poland

Spain

Italy

U.K.

-10 0 10 20 30

Investments

Government

Households

Imports

Exports

Europe’s Rebalancing


Ppt of GDP, difference between 2009 and 2013

10

U.S. China

Russia Switzerland

Norway Japan

Turkey Others

Europe’s Exports to China Are Growing


EU-27 exports, % of total, 2012

11

07 08 09 10 11 121

3

5

7

9

11

13

15

17

19

21U.K. Spain Italy Germany Hungary

Household Savings Fall After Rising in 2009Household savings rate, %


12

France Germany Greece Ireland Italy Portugal Spain U.K. Hungary Poland RussiaWage freeze X X X X X X X X X

Public sector job losses X X X X X X X X X X

Pension spending cuts X X X X X X X X XHealth care cuts X X X X X X X XWelfare spending cuts X X X X X X X X XPublic investment cuts X X X X X X XOther cuts X X X X X X X XIncome tax increase X X X X X X X X

Corporate tax increase X X X X X

Capital gains tax hike X X X X X X

Social security tax hike X X X X X X X X

VAT increase X X X X X X X X X

Excise tax increase X X X X X X X X X X

Property tax increase X X X X X

Tax evasion measures X X X X X X X X

Fiscal Austerity Measures since 2009

Sources: IMF, Moody's Analytics

13

GreecePoland

SlovakiaItaly

HungarySpain

PortugalNetherlandsCzech Rep.

U.K.IrelandFrance

GermanyDenmarkSwedenFinland

0.0 0.5 1.0 1.5 2.0 2.5 3.0

R&D Expenditures Boost Growth

Sources: OECD, Moody’s Analytics

% of GDP, 2010

14

Governments Are Not Overly Protective3

15

U.K.

Ire-land

Spain

Hungary

Germany

Italy

Czech Rep.

Poland

Greece

0 1 2 3

2008

2003

Recession Eases Product Market Regulation


Index scale of 0-6 from least to most restrictive

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U.K.

Germany

Spain

Hungary

Italy

Czech Rep.

France

Greece

Poland

Ire-land

0 1 2 3 4

2008

2003

Electricity Sector Liberalized In Europe



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Germany

Spain

Ire-land

Italy

Greece

Hungary

Czech Rep.

U.K.

Poland

0.0 0.1 0.2 0.3 0.4 0.5

2012

2006

Barriers to Foreign Direct Investments Ease



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Sources: Coface, Banque de France, Moody’s Analytics

Creative Destruction in Progress

France Italy Spain Germany-10

-5

0

5

10

15

20

25

30

35

2011 2012

Change in number of liquidations, % change yr ago

19

Hungary Poland Czech Republic0

5

10

15

20

25

30

Insolvencies in CEE Rising

Sources: Coface, Moody’s Analytics

Change in number of insolvencies, % change yr ago, 2012

20

Labour Markets Evolve4

21

Q Q Q Q Q Q Q Q Q Q Q95

100

105

110

115

120

125Hungary Germany

Labor Costs Rising in CEE CountriesUnit labor costs, 2005=100

Sources: EU Commission, Moody’s Analytics

22

0 5 10 15 20 25 300

5

10

15

20

25

30

f(x) = 0.40793954298847 x + 8.67545555439288R² = 0.144667005533073

Unemployment rate in 2013Q2, %

Shar

e of

em

-pl

oyee

s on

fi

xed-

term

co

n-

trac

t in

tota

l em

-pl

oy-

men

t, 20

11

GreeceGer-many

Poland

Portugal

Spain

HungaryCzech

Slovak Republic

Unemployment Creates Labor Market Dualism…


Austria

23

Germany

Czech Rep.

Poland

Hungary*

France

Italy

Portugal

Spain

0 10 20 30 40 50 60

Youth unemployment

Jobless rate

… Which Needs to Be Reduced


Unemployment rate in July, %

* as of June 2013

24

-5 0 5 10 15 20

-4

-2

0

2

4

f(x) = 0.147058177928297 x − 0.534806061105136R² = 0.183650568776464

Percentage difference between unem-ployment rate in 07Q4 and 12Q2

Per-

cent

age

diff

er-

ence

in

labo

ur

prod

uc-

tivity

be

-tw

een

pre-

cri-

sis

and

cris

is

peri

odGer-many

PolandIreland

Spain

Hungary

Czech Slovakia

Slovenia

Lower Employment Raises Productivity


Portugal

25

Spain

Ireland

Portugal

Hungary

U.K.

Italy

Czech Rep.

Poland

Germany

-1 0 1 2 3 4

Average pre-crisis productivity growth

Structural unem-ployment rate

Productivity Reduces Structural Unemployment


Change in ppt between 07Q4 and 12Q2

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Long-Term Outlook6

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Lower-Debt Countries Will Grow First

Sources: IMF, Moody’s Analytics

Total debt/GDP2011, % 2012 2013 2014

Spain 273 -1.4 -1.3 0.3Italy 251 -2.4 -1.7 0.6France 225 0 0.3 1.3Germany 192 0.9 0.6 1.8Hungary 144 -1.6 0.2 1.2Poland 95 1.9 1.3 2.6Czech Rep. 85 -1.2 -0.9 1.7

Annual growth, %

28

08

08Q2

08Q3

08Q4

09

09Q2

09Q3

09Q4

10

10Q2

10Q3

10Q4

11

11Q2

11Q3

11Q4

12

12Q2

12Q3

12Q4

13E

13Q2

13Q3

13Q4

14F

2014Q2

2014Q3

2014Q4

15F

2015Q2

2015Q3

2015Q4

16F

2016Q2

2016Q3

2016Q4

95

100

105

110

115

120

125

130

135Eastern EuropeU.S.WorldEuro zone

Euro Zone Will Grow ModestlyReal GDP, 2008Q1=100

Sources: National statistical offices, Moody’s Analytics

www.economy.com

Petr ZemcikDirector, European Chief EconomistMoody’s Analytics, Inc.E: [email protected]: +44 (0) 20 7772 1942

Tomas HolinkaEconomistMoody’s Analytics, Inc.E: [email protected]: +420 221 666 384

mailto:[email protected]



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european economic outlook: is sustainable recovery possible?

Economy & Finance