viernes, 1 de septiembre de 2017

viernes, septiembre 01, 2017

How Fast Can Europe Really Grow?

The eurozone is consistently growing faster than estimates of its potential

By Richard Barley


PICKING UP PACE
Change in eurozone domestic product from a year earlier



In the global growth stakes, the eurozone is a plodder, not a sprinter. But importantly, relative to potential it is putting in an impressive turn of speed. The key question is whether the currency bloc can do what it takes to keep up the pace.

Eurozone growth in the second quarter was 0.6% from a quarter earlier, or 2.5% annualized, data released Wednesday showed. The Netherlands led the region with a blistering 1.5% quarter-on-quarter expansion, but growth is also broad-based. Even Italy’s year-over-year growth rate hit 1.5%, the fastest rate of expansion since early 2011.

A 2.5% overall annual clip might not sound that impressive. What is important, however, is that the eurozone is growing well above its potential rate, which can be envisaged as a kind of natural speed limit on the economy, albeit not directly observable. The European Commission pegs potential at 1.2% in 2017, down from precrisis levels. Over the five years leading up to 2007, the estimated rate was 1.8%.

It is natural for an economy to grow above trend following a downturn. If above-trend growth persists, inflation will be the natural result. But it is also possible for potential growth to rise. If it doesn’t, and potential growth is really only around 1%, then that carries risks. Low potential growth harms consumers’ and businesses’ appetite to spend and invest, further embedding low growth: a vicious circle. Low growth also makes it harder to grow out of debt, which for the eurozone is a clear and present danger.

The task of raising potential growth mainly falls to governments. Monetary policy can help—for instance, by creating favorable conditions for growth in investment, which can improve productivity, and allow the economy to grow faster without generating inflation. Lack of investment has been a constraint on the recovery.

Still, the European Central Bank has been consistent in calling on governments to do more. The place to watch right now is France under its new president, Emmanuel Macron. France has the benefit of better demographics than some of its big peers, a good starting point for efforts to get more people into work and boost productivity in the eurozone’s second-biggest economy.

There may be reason for hope. The crisis did spur some reforms in those countries hardest-hit, like Spain and Italy. Calculations by UBS based on purchasing managers index data suggest eurozone potential growth may be around 1.5% now—a welcome pickup. The eurozone is never likely to be the most dynamic spot in the global economy. But it needn’t be a permanent laggard either.

0 comments:

Publicar un comentario