Doha: The eurozone economic recovery is slowly under way, but it remains fragile, says a weekly report by Qatar National Bank (QNB) yesterday.
The report said GDP data released last week showed that growth in Germany and Spain was on an upward curve while France and Italy continue to lag behind. This two-speed growth performance is mainly driven by the extent to which each eurozone country has managed to gain competitiveness in the last few years by reducing its unit labour costs relative to Germany. Unless this internal adjustment process continues, the growth performance in the single currency area will diverge further, with important implications for the stability of the eurozone, the report said.
While Germany grew faster than expected (0.8 percent quarter-on-quarter), other countries lagged behind. Spain’s growth (0.4 percent) continued to accelerate on a positive trend for the third consecutive quarter. Growth in Ireland has not yet been released, but the consensus estimate is for a similar growth rate (0.5 percent). On the other hand, France (0.0 percent) and Italy (-0.1 percent) continue to lag behind, while growth in Greece (-1.1 percent) and Portugal (-0.7 percent) remains depressed by the fiscal austerity measures contained in the ongoing IMF-supported adjustment programmes. Overall, this two-speed economic recovery has resulted in a worse-than-expected eurozone expansion in the first quarter of 2014 of only 0.2 percent, the report said.
The reforms have also helped keep labour costs below the eurozone average for 12 years, it also led to one of the lowest unemployment rates in Europe. Other countries like Greece, Portugal and Spain did not follow through with the German model. The rising gap in unit labor costs between Germany and the eurozone periphery became so large that it eventually forced an abrupt outflow of capital as the economy could no longer generate the required returns, “thus unleashing the Eurozone crisis.”
Since the crisis, Greece and Spain have been working on lowering labour costs through reducing government spending and thus repressing domestic demand in order to regain competitiveness.
The Peninsula
