Archive for the ‘European Union’ Category
Monday, September 6th, 2010
Britain’s manufacturers are continuing to report buoyant trading conditions on the back of rising demand in overseas markets, pointing to good prospects for growth in 2010 according to a major survey published today by EEF, the manufacturers’ organisation and BDO LLP.
The third quarter EEF/BDO ‘Manufacturing Outlook’ report reveals that recovery, which began at the end of last year, has been sustained with output and orders balances reaching record levels for the second quarter in succession. This performance continues to be driven by the strength of overseas markets, with new analysis published by EEF showing a close relationship between exposure to export markets and company performance.
Greater confidence across the sector is also continuing to translate into some recruitment, albeit anecdotally this is being driven by temporary or agency working which will give employers flexibility should demand begin to slow.
Uncertainty about future demand had been dampening investment plans, but a number of sectors are now planning to increase in investment. The positive investment intentions posted this quarter breaks the pattern of previous recessions by recovering at an earlier stage in the cycle.
However, the short-term optimism highlighted by EEF’s survey is shaded with a degree of caution about the risks to growth in 2011. As fiscal consolidation really gets underway in the UK and others follow suit, together with the weaker outlook for the US and risks to the sustainability of Asia’s growth path, the recovery could yet falter.
Commenting, EEF Chief Economist, Ms Lee Hopley, said:
“Manufacturers have continued to reap the rewards of growth in overseas markets with the upswing being felt across all sectors and regions. Not only has this continued to translate into better employment prospects but the recovery in investment has begun much earlier in the cycle than after previous recessions.
“However, we have to maintain perspective that the recovery is coming from a very low base and the risks to the economy in the medium term haven’t gone away. The rebound in exports and modest improvement in investment will need to become much more firmly entrenched if we are to see a much-needed rebalancing of the economy.”
 Manufacturing buoyancy has been fuelled by a strong rise in exports. Tom Lawton, Head of Manufacturing, BDO LLP, comments,
“The sector has seen a significant upturn since the dark days of the recession and this quarter’s results show continued growth in output and orders and more expected for the next quarter, mostly driven by the restocking across most sectors of industry and exports.
“This quarter results show more optimism around two key indicators which have been lagging behind the general good news of the sector in recent surveys, being employment and investment. This is excellent news but much more will be needed to enable manufacturing to compete in the space where we have a competitive advantage – innovation, research and development, excellent customer service and fast response to emerging trends.”
Over the last three months, output and new order balances were +33% and +35% respectively, both record levels since the survey began in 1995 which suggests growth in manufacturing output should at least continue into the next quarter.
This growth has been driven largely by export markets (+30%), where Europe in particular turned out to be stronger than expected. Whilst the domestic order balance weakened slightly, the balance of +20% is still above its long term average. Furthermore, growth continued to be broad based across all regions and sectors.
The survey was also notable for two other factors. Firstly, the balance of companies recruiting almost doubled in the last three months to +17%, the strongest in the survey’s history.
Secondly, the investment balance turned positive to +7% for the first time since 2008q2. Compared with previous recessions, where investment balances have tended to lag behind increases in output by over a year, this is a somewhat faster recovery in capital expenditure intentions and signals that companies are becoming more confident to begin investing in plant and machinery.
Looking forward, expectations about future prospects remain positive, with a balance of 27% of companies expecting output to increase in the next three months, and 22% expecting orders to expand. Both of these balances are higher than the previous quarter’s figures suggesting there is confidence that the recovery will continue into the next quarter at least.
EEF also published its latest forecasts for the UK economy and manufacturing. These show the economy growing by 1.5% and 2.1% in 2010 and 2011 respectively whilst manufacturing will grow by 3.7% in 2010 before easing back slightly to 3.2% in 2011.
Tags: Employment, exports, Investment, Manufacturing
Posted in European Union, International Trade, Manufacturing | No Comments »
Tuesday, June 22nd, 2010
Gross Domestic Product (GDP) per inhabitant of the EU27, and expressed in Purchasing Power Standards, varied from 41% to 268% of the average in 2009, based on first preliminary estimates, and just published by eurostat.
In Finland, France, Spain, Italy, Cyprus and Greece, GDP per inhabitant was within 10% of the EU average. Ireland, the Netherlands, Austria, Sweden, Denmark, the UK, Germany and Belgium were all between 15% and 35% above average, with Luxembourg completely outstripping the rest of the EU. With an average of 100 Luxembourg recorded a figure of 268 for GDP per inhabitant.
Slovenia, the Czech Republic, Malta, Portugal and Slovakia were between 10% and 30% lower than average. Whilst, Hungary, Estonia, Poland and Lithuania were between 30% and 50% lower. At the bottom end, Latvia, Romania and Bulgaria were between 50% and 60% below the EU 27 average.
These figures bring out the stark diversity of the situation of member countries and reflect the difficulties in holding such a disparate body together.
Tags: EU27, European Union, GDP per inhabitant, Purchasing Power Standards
Posted in European Union, GDP per head | No Comments »
Thursday, May 20th, 2010
Between 2000 and 2009, employment in the agricultural sector in the EU27 fell by 25%, which was the equivalent of 3.7 million full-time jobs. It fell by 17% in the EU15 (those countries in membership before 2004) and by 31% in the 12 member states (NMS12) that joined the EU in 2004 and 2007.
In 2009, total employment in the EU27 agricultural sector was equivalent to 11.2 million full-time jobs, of which 5.4 million were in the EU15 and 5.8 million in the NMS12.
 Agricultural employment is falling rapidly in the EU. Between 2000 and 2009, real agricultural income per worker increased by 5% on average in the EU27 according to figures just released by Eurostat. But this average is rather misleading. The new member states gained immensely with incomes in the NMS12 rising by 61% whereas incomes in the EU15 actually fell by 10%.
The Common Agricultural Policy has always been something of a problem to UK governments as such a large percentage of total EU expenditure has gone into agriculture in the past. Since the UK has a small but highly efficient agricultural sector, this has not usually been to our benefit.
What is particularly interesting according to the latest figures, is that five EU countries account for nearly two-thirds of all agricultural employment in the EU27. Poland accounts for 20%, Romania 19%, Italy 10% and Spain and France both 9%.
However, the EU did resolve in 2008 to make changes to agricultural policy and the plan is to continue to reduce direct payments to farmers and to transfer the money saved into a fund for the development of rural regions.
The proportion of the EU budget devoted to the CAP has fallen from a peak of nearly 70% in the 1970s to 34% over the 2007-13 period. This is partly due to the expansion of the EU in other directions, cost savings from reforms plus the new focus on rural development which will be allocated 11% of the CAP budget over the 2007-13 period.
Tags: Agriculture, Common Agricultural Policy, Employment, European Union
Posted in Agriculture, Employment, European Union | No Comments »
Friday, May 14th, 2010
Is this more bad news? Let’s look at yesterday’s stark figures from the ONS. The UK’s trade deficit in goods and services widened from £2.2bn in February to £3.7bn in March. Although the trade in services remained in surplus to the tune of £3.8bn in March, this was down from the £4.1bn recorded in February. When it comes to the deficit on trade in goods this was up from £6.3bn in February to £7.5bn in March.
Whilst it is true that the UK has not had a surplus on visible trade since 1982 these figures are still poor. In fact exports rose by £0.2bn between February and March but imports rose by £1.4bn. The recent trend in the balance of trade can be seen below.
 Balance of Trade Source: ONS So, how can we make sense of these figures? We all thought that with sterling depreciating as it has we were looking forward to an export-led recovery. What has gone wrong?
There are several answers to this question which either explain or mitigate the extent of the poor trade figures for March. First of all, we had atrocious weather in January. This resulted in a delay in the export of some goods into February which boosted February’s figures more than we would have expected. Therefore, the increase in the deficit in March compared to February is not quite so bad.
Also, although the weakness in sterling should improve our export competitiveness, it does require that these gains are passed on in lower prices by exporters. If exporters raise prices to widen their margins this is not going to help sales. In fact, in March export prices rose by 2.9% whilst import prices rose by 2.7% compared to February.
On top of this, lower prices are not going to help export sales if our main customers are not recovering fast enough to buy our products. The wave of austerity running across Europe at the moment is not going to help us sell more products.
Finally, I mentioned in my blog on Wednesday that UK manufacturing output had risen by 2.3% between February and March which in terms of recent performances was nothing short of staggering. This revival in UK industry is obviously good news. However, the drawback is that this increase in manufacturing has required the import of increased amounts of intermediate and semi-manufactured goods as well as raw materials. This helps to put the increasing trade deficit in a more positive light.
Tags: Balance of Trade, EU, exports, goods, imports, Manufacturing, services, sterling
Posted in Balance of Trade, European Union, Exchange Rates, Manufacturing, sterling | No Comments »
Monday, May 10th, 2010
These are the words of Ollie Rehn, the EU Economic Affairs Commissioner over the weekend after EU finance ministers were involved in eleven hours of talks. The result of the emergency meeting which was brought together to deal with the fiasco in Greece, will have far-reaching implications throughout the eurozone.
The agreement means that the 16 countries in the euro bloc, will be able to draw upon 500 billion euros which is about £430bn. This is made up of 440bn euros in loan guarantees and 60bn euros of additional funding from the European Commission. Added to this the IMF has agreed to make 250bn euros available.
Also, the European Central Bank says that it will make purchases of both government and private debt in the eurozone. This is not the same as the quantitative easing taken up by the Bank of England because the ECB is not allowed by law to buy government bonds direct. They will, therefore have to buy second-hand bonds from banks. The ECB also says that that will try to “ensure depth and liquidity in those market segments which are dysfunctional”, whilst at the same time taking other measures to absorb liquidity elsewhere, so that their basic stance on monetary policy is not changed.
After the previous global credit crisis we are again faced with the issue of moral hazard. Previously it seemed that many banks were regarded as being too big to be allowed to fail with governments moving in to bail them out. Now it would appear that any country in the eurozone will not be allowed to fail, irrespective of the irresponsible way they may have been governed.
Initially, this morning the euro has rallied against the dollar and stock markets have also moved upwards, although this is all a question of confidence, and confidence is a very fragile thing.
Tags: EU, European Union, eurozone, moral hazard
Posted in European Union, eurozone | No Comments »
Wednesday, May 5th, 2010
“It is absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole.” So said Ollie Rehn, the EU economic and monetary affairs commissioner at a news conference in Brussels.
From forest fire to deadly disease: Dominique Strauss-Kahn, head of the International Monetary Fund, said in an interview with the newspaper La Parisien: “We have to succeed in avoiding contagion … we should remain vigilant.”
However, the EU has just published its Spring Forecast and there is no sign of fresh life in the Greek economy. In fact, the EU expects a 3% fall in Greek GDP this year, and predicts negative growth for 2011 as well. “What’s a Grecian urn?” asked Eric Morecambe. “About 3 drachmas a week” was the answer. Well, it looks as though our Eric was something of a prophet.
 Will Greece slide off the map? On the broader front, the Commission expects the eurozone countries as a whole to grow by 0.9% this year. Overall they expect Germany and France to grow by about 1.25%, with the UK expected to grow from 1.25% during 2010 to 2.0% in 2011. GDP is expected to contract this year in Cyprus, Ireland, Latvia and Lithuania, as well as Greece, but the other economies are expected to return to growth in 2011. Only Poland within the EU has succeeded in avoiding a recession altogether, and is expected to grow by 2.75% this year and 3.25% next year. No wonder so many temporary Polish immigrants to the UK decided to turn around and go home.
According to the Commission the factors explaining the divergences between EU economies include trade openness, exposure to the financial-sector disturbances and the existence of sizeable internal and external imbalances. They say that member states will grow at different rates, reflecting the individual challenges that each faces. Interestingly enough they note that: “Mounting concerns about fiscal sustainability, especially in some euro-area Member States, which cause increased turbulence in government-bond markets, and differences in competitiveness positions are among the most important challenges in this regard.”
Will Greece be forced out of the euro? Will the eurozone collapse trying to save Greece? The answer is probably ‘no’ on both counts. But it is much more fun being on the outside looking in than being on the inside looking out.
Tags: EU, European Union, eurozone, GDP, Greece
Posted in European Union, GDP, eurozone | No Comments »
Thursday, March 18th, 2010
At the end of last week, Francesco Paolo Mongelli, Professor at the University of Frankfurt, published a brief article entitled “Some benefits and costs from participating in a monetary union.”
In his conclusion he says that: “There is a broad range of benefits and costs in sharing a currency. Contrary to conventional wisdom, the macroeconomic costs of losing influence over macroeconomic stabilisation by relinquishing direct control over monetary policy and the exchange rate are more contained than previously feared. Moreover, the euro has spurred macroeconomic stability and financial integration. The latter will increasingly foster financial-based risk sharing. There is also evidence of a wide range of microeconomic gains in terms of improved microeconomic efficiency, and of broadly positive external effects.
 What are the costs and benefits of monetary union? “An underlying temporary asymmetry is not receiving enough attention. Some costs are incurred at the start of monetary unification, such as the changeover cost and the investment to set up a sound institutional framework. Instead, some benefits accrue gradually as the new currency gains acceptance, its circulation widens, as economic and financial integration deepen, and as economic governance consolidates. In other words, time plays an important role.
“Despite evidence of further integration over the last decades, Eurozone countries are still quite heterogeneous and are likely to remain so for the foreseeable future. It is unlikely that differences in legal systems, financial structures, and various other domestic characteristics, institutions, and preferences will rapidly fade out. Is that a problem? Various commentators have argued that heterogeneity should not be overstated. Moreover, financial based risk sharing will increasingly contribute to smoothing asymmetric shocks.
“We have also learned that the costs of slow dynamic adjustment are far above all other costs. It is also still poorly researched and poorly explained to the general public. In essence, this is a cost from not undertaking structural reforms and liberalisations. For many countries, reforms were postponed for too long and would have been even more complex to undertake without the euro: i.e., assuming that peer-pressure and market discipline help. In other words, opportunities should be seized.
“Recent events are showing that what has been achieved by the EMU cannot be taken for granted, but needs instead to be nurtured. The EMU needs new economic governance with broad ownership and an assessment of how systemic risks have now changed and are still changing. In particular, fiscal governance must be revisited in various ways. Hence, perseverance also plays an important role for the success of the EMU.
To reach the full article click here.
Tags: asymmetric shocks, European Monetary Union, macroeconomic costs, microeconomic gains, structural reforms
Posted in European Union, Microeconomics, Monetary Union, eurozone, macroeconomic policy | No Comments »
Tuesday, March 16th, 2010
Aid to developing countries in 2010 will reach record levels in dollar terms after increasing by 35 per cent since 2004. But it will still be less than the world’s major aid donors promised five years ago at the Gleneagles and Millennium and five additional summits. Though a majority of countries will meet their commitments, the underperformance of several large donors means there will be a significant shortfall, according to a new OECD review.
Africa, in particular, is likely to get only about $12 billion of the $25 billion increase envisaged at Gleneagles, due in large part to the underperformance of some European donors who give large shares of official development assistance (ODA) to Africa.
 Africa is only likely to get half the aid promised at Gleneagles. In 2005, the 15 countries that are members both of the European Union and of the OECD Development Assistance Committee (DAC) committed to reach a minimum ODA country target in 2010 of 0.51% of their Gross National Income. Some will surpass that goal: Sweden, with the world’s highest ODA as a percentage of its GNI at 1.03%, is followed by Luxembourg (1%), Denmark (0.83%), the Netherlands (0.8%), Belgium (0.7%), the United Kingdom (0.56%), Finland (0.55%), Ireland (0.52%) and Spain (0.51%).
But others will fall short: France (0.46%), Germany (0.40%), Austria (0.37%), Portugal (0.34%), Greece (0.21%), and Italy (0.20%).
Other DAC countries made varying ODA commitments for 2010, and most, but not all, will fulfil them. Overall, these figures result in additional aid of $27 billion from 2004 to 2010, but a $21 billion shortfall between what donors promised in 2005 and the OECD estimates for the 2010 outcome. Of this shortfall, $17 billion is the result of lower-than-promised giving by the donors and $4 billion is the result of lower-than-expected GNI because of the economic crisis.
All these figures are estimates based on countries’ national 2010 aid budget plans where available and on early GNI estimates.
Eckhard Deutscher, Chair of the DAC, noted that: “Aid has increased strongly as 16 donors have honoured their commitments. But underperformance by the others, notably Austria, France, Germany, Greece, Italy, Japan, and Portugal, means overall aid will still fall considerably short of what was promised. These commitments were made and confirmed repeatedly by heads of governments and it is essential that they be met to the full extent.”
Commenting on the figures, OECD Secretary-General Angel Gurría said: “It is reassuring that most donors are recognising their international responsibilities. As we head into new rounds of discussions about funding climate change and food security concerns, I encourage all donors to carry through on their development promises.”
Tags: Africa, EU, Gross National Income, OECD, Overseas Aid
Posted in Africa, European Union, Gross National Income, International, OECD, aid | No Comments »
Monday, March 15th, 2010
Georges Lemaitre, an OECD migration expert, claims that there has been a drop of about 25% in the UK from 2007 to 2008 in free movement labour migration, and that it appears that there will be a further 40% drop recorded for 2009. In a recent interview he also discusses the extent to which governments can control migration flows and the likelihood that labour migration between EU countries will fall in the long-term. Below are his answers to a few of the questions that he was asked.
What impact has the crisis had on migration so far?
With the downturn it is the free-movement migration which has gone down the most: these are workers who can come and go as they please, as they have the right to live and work in other EU countries, and it may be advantageous for those who lose their jobs to take their savings and return home, where the cost of living is lower. And these workers had often been going into jobs that were in shortage because of a booming economy. These are the jobs that have been hit the hardest by the economic crisis.
Workers from the rest of the world tend to be hired into jobs that are “structurally” in shortage, that is, for which the domestic educational system and population are not turning out enough candidates. They also tend to stay in the country if they lose their jobs, because it is more difficult for them to get back in (they have to have a job offer, etc.). Indeed, government incentives to encourage returns to the home country have not met with much success. For example, out of the 137 000 unemployed immigrants eligible for the Spanish return programme in June of 2009, only 10 000 persons (and 3 600 family members) had applied by the end of January 2010.
 The sharpest fall in migration has been among EU citizens who have the right to live and work in other EU countries. What numbers are we talking about in Europe?
France has seen only a drop of 5% in regulated labour migration in the first three quarters of 2009 compared to the same period in 2008. Spain already saw a drop in immigration of about 25% from 2007 to 2008, almost all of which was concentrated among immigrants from Europe. The drop in regulated migration from the rest of the world was a little over 6%.
The United Kingdom has seen a drop of about 25% from 2007 to 2008 in free movement labour migration and it appears that there will be a further drop of 40% in 2009. Again the same story with respect to regulated labour migration, a drop of about 5% from 2007 to 2008 and of about 17% from 2008 to 2009, smaller than for free movement migration.
Ireland has seen a drop of about one third in allocations of personal public service numbers from 2007 to 2008. You can pretty much use this as a proxy for the drop in movements of workers, because you need to have such a number in order to work and/or collect benefits. Most of the drop is showing up in workers from the new member states of the European Union.
Will we continue to see the same level of movement between European member states?
The free movement within the European Union is likely going to taper off eventually, because employment conditions will improve in the new member states and because those countries are ageing too, so they will need workers as well.
At that point, countries will be faced with the decision of whether or not to recruit more broadly from the rest of the world for lesser skilled jobs. They have not wanted to do this, except temporarily and on a small scale, because the track record on integration for low-educated immigrants from developing countries has not always been good, for reasons which have as much to do, and perhaps more, with inadequate policies as with the low education of the immigrants.
To read the full interview, click here.
Tags: EU, labour markets, migration, OECD
Posted in European Union, Immigration, OECD, labour markets, migration | No Comments »
Friday, February 12th, 2010
The euro zone is in crisis. It seems that not only does Greece have the largest budget deficit in the EU in proportion to the size of its economy, but previous Greek governments have been ‘economical with the truth’ when presenting official statistics. The Greek budget deficit is around 13% of GDP, and the country has agreed to reduce this by four percentage points next year and bring it down to 3% by 2012.
In fact, the original Maastricht rules require member government’s budget deficits to be limited to 3% of GDP and national debt to be no more than 60% of GDP. However, all this was agreed before the biggest worldwide recession since the 1930s. The current problem is that Greece has to borrow large amounts of money to finance its debts at the same time as it is putting an austerity programme into place. Given that the reliability of Greek debt has been severely downgraded in the market, this means that they can only borrow at very high interest rates.
On top of this, if the EU does not come to their aid and the country defaults on its debts, the contagion will spread to the rest of the ‘PIGS’, as they have been dubbed. That is Portugal, Ireland and Spain as well as Greece.
How did the PIGS get into the mess they are currently in? Basically these countries went full throttle in recent years sustaining a boom based on credit, itself based on the low interest rates set by the European Central Bank. This fuelled large increases in wages in these countries at a time when there were low levels of inflation recorded in France and Germany. These high wages are also now damaging these countries’ export potential. There has been, therefore, a lack of balance in the economies of eurozone members. The subsequent ‘crash’ has now brought the chickens home to roost.
Why should the other EU members help out Greece? Well, actually Greece hasn’t asked for any help. Technically it would be illegal under EU rules for Germany or France to dip their hand into their pockets to bail out another country. This is why yesterday the EU’s Heads of Government promised that states within the eurozone will take “coordinated action, if needed, to safeguard financial stability in the euro area as a whole.” At the same time pointing out that: “The Greek government has not requested any financial support.”
So, far all they have given is a promise but when the Finance Ministers meet next week, more substance may be added to it. Already, there has been strong reaction in Germany. The Bild newspaper carried the headline yesterday: “No money for the bankrupt Greeks.” Other commentators were calling for the Mark to be brought back to replace the euro. The Germans are particularly concerned given that the latest figures show that the German economy showed zero growth in the last quarter of 2009, following a growth of 0.7% in the previous quarter.
Given their current economic situation the Germans will not be happy contributing to a bailout. On the other hand, could this crisis result in the break up of the eurozone. Experience tends to suggest that the two things the EU is good at are talking and compromising. Something will doubtless be worked out. One good thing is that with the UK being outside the eurozone, we will probably not be involved in any bailout.
Tags: ECB, European Union, eurozone
Posted in European Union, eurozone | No Comments »
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