EU & Euro Area economies recover as UK/ US growth remain weak

In 2016 European Union economic growth exceeded that of the United States and this year the recovery continues while  UK and US growth remain weak. In a dramatic signal of rising public confidence ,  a majority of Europeans say they are optimistic about the future of the EU and more than two-thirds identify themselves as EU citizens, according to a Eurobarometer survey of more than 33,000 people across the union and in candidate countries.

The Euro Area (EA) grew 0.6% in the second quarter of the year Eurostat reported this week. Annual growth in the 19-member country single currency area was at 2.1% compared with June 2016 while the data for the EU28 was 0.6% and 2.2%.  First-quarter growth for the EA was revised down slightly from 0.6% to 0.5%.

UK growth in the second quarter was 0.3% while annualised US growth was at 2.6%.

In 2016 the US grew by 1.6% compared with the EA's 1.8% and the annualised US growth for the first  half of 2017 was 2% -  the Trump administration has said the US economy has the potential to grow  by  3% or 4% following approval of an infrastructure package and tax cuts, and the White House on Monday reiterated that the administration is optimistic about its ability to achieve its 3% growth target.

Also on Monday Eurostat reported that unemployment in the EA was at its lowest since 2009 across the area.

The Euro Area seasonally-adjusted jobless rate was 9.1 % in June 2017, down from 9.2 % in May 2017 and down from 10.1 % in June 2016. The EU28 jobless rate was 7.7 % in June 2017, stable compared to May 2017 and down from 8.6 % in June 2016. Among the member states, the lowest unemployment rates in June 2017 were in the Czech Republic (2.9 %), Germany (3.8 %) and Malta (4.1 %). The highest unemployment rates were in Greece (21.7 % in April 2017) and Spain (17.1 %).

On Friday Spain reported that the economy grew by 0.9% in the second quarter, suggesting the size of the country's economy was back to the level before the start of the recession in 2008.

IMF

Last week the International Monetary Fund downgraded its forecast of US economic growth in 2017 to 2.1% from 2.3% while it revised up growth in Germany, France, Italy and Spain - Germany has been revised up by 0.2 points to 1.8%, France by 0.1 points to 1.5%, while Italy and Spain have both been revised up by 0.5 points to 1.3% and 3.1% respectively.

The EA is forecast to grow by 1.9% while the UK was downgraded by 0.3 points to 1.7%.

Besides high debt, the Fund said that the EA suffers from a deep-rooted challenge: "a lack of convergence between countries in income levels per person. In the 12 original euro area members, the catch-up in income levels across countries has stalled since the adoption of the euro. Contrary to expectations, the lower-income countries have not grown faster than the higher-income countries in the group. It calls into question the promise of higher incomes through deeper economic integration, which was one of the original motivations for the monetary union. This lack of convergence is closely linked to slower productivity growth in countries with lower initial income levels."

EU vs. US

While the EU and US had a similar level of GDP (gross domestic product) at around €18.9 trillion for the EU and €18.3 trillion for the US at the end of 2015, the EU had a larger population, 507 million citizens versus 319 million, meaning this calculation comes out in the US’s favour.

According to  Kalin Anev Janse, the secretary general of the European Stability Mechanism (ESM), the EA bailout fund,  average annual GDP growth per capita was at 1.6% in both the EA and US in 1999-2008.

Janse says “Europe managed to make a much broader base of society wealthier. Was this easy? No, but it was the result of intentional policy decisions.”

He cites a study conducted by the Boston Consulting Group on economic wellbeing around the world assesses how wealth is translated across three elements and 10 dimensions: economics (income, economic stability, employment); investments (health, education, infrastructure); and sustainability (income equality, civil society, governance and environment).

Janse says: "Take the bottom 90% of earners in a country. If we look at growth in real average income for this group over the period 1950-2013, its real wage income grew some 70% in the U.S., dwarfed by gains of 150% in Italy and the United Kingdom and of a whopping 250% in France and Germany. This means that belonging to the “bottom 90%” in Europe is much better than in the US."

On the 1% of top earners income earners, "France, Germany, the United Kingdom, and the U.S. all had some 7%-9% of their population in this bracket in 1975. Over the last 40 years, this percentage doubled to 18% in the U.S., but it expanded more modestly in Europe. The United Kingdom’s share grew the most, to 13%, followed by Germany at 12%, while in France and Italy it also expanded but remained below 10%. Europe managed to make a much broader base of society wealthier. Was this easy? No, but it was the result of intentional policy decisions and it happened in a very challenging context: while navigating at high-speed the delicate and complex task of growing the union."

Eurobarometer

Close to a majority of Europeans are now also optimistic about the state of their national economy. Trust in the European Union is growing – it is at its highest level since 2010, and support for the euro is greater than it has been since 2004. Moreover, a majority of respondents, from eleven non-EU countries polled for the first time, say they have a positive view of the EU. These are some of the key results from the latest Standard Eurobarometer survey published today with the Flash Eurobarometer survey “Future of Europe – Views from outside the EU”.

A majority of Europeans (56%) are optimistic about the future of the EU – an increase of six percentage points compared to autumn 2016. The most significant increases can be observed in France (55%, +14 points since last Autumn), Denmark (70%, +13 points) and Portugal (64%, +10 points).

Trust in the EU continues to be on the rise and stands at 42% (up from 36% in autumn 2016 and 32% in autumn 2015). It has increased most strongly in France (41%, +15 points), in Denmark (56%, +11 points) and in Estonia (55%, +11 points). It has also increased by 10 points in Germany, reaching 47%.

As in the two previous surveys of spring and autumn 2016, the levels of trust in national parliaments and governments have also increased to 36% and 37% respectively, but remain below the levels of trust in the EU.

40% of Europeans have a positive image of the EU (+5 points since autumn 2016) with the number of respondents with a positive image increasing in 24 Member States, in particular in France (40%, +11 points), Denmark (42%, +10 points) and Luxembourg (57%, +10 points).

Finally, 68% of Europeans feel they are citizens of the EU, which is the highest level ever shown by this indicator.

The economy: more positive feelings and strong support for the euro

Close to half of Europeans think that the current situation of their national economy is ‘good' (46%, +5 percentage points since autumn 2016). This proportion has increased significantly in recent years (+20 points since spring 2013; +26 points since spring 2009).

Although large differences remain between Member States, positive assessments of the situation of national economies are gaining ground in 22 Member States, in particular in Finland (59%, +19 points), Portugal (33%, +18 points), Belgium (60%, +11 points) and Hungary (41%, +11 points).

In the Euro Area, close to three-quarters of respondents support the euro (73%, +3 points), which is the highest score reached since autumn 2004. 80% of respondents or more support the euro in six countries: Slovakia, Germany, Estonia, Ireland, Slovenia and Luxembourg.