The eurozone is stil missing job growth, says Aviva Investors’ Robertson
Despite good news of growth, unemployment is still on the rise in Europe, according to Stewart Robertson, senior economist at Aviva Investors.
European growth figures
At 0.3%, growth figures are better news for the eurozone, with the recession now ended in France and with Germany seeing strong growth of 0.7%. What the eurozone is still missing however, is the jobs growth that is evident in other recovering economies such as the US and UK. We are actually still seeing a rise in unemployment in Europe, now close to 14% if Germany is excluded.
There are reasons to believe that the GDP figure is not sustainable and might not be repeated in coming quarters. This is true for both France and Germany, where the uptick in growth can be attributed to a number of one-off factors, including a cold winter where energy consumption was high and construction activity distorted, as well as by spending being brought forward in anticipation of tax rises. Some leading indicators, including jobless figures, are still worrying.
The ECB should not feel that the pressure is off on the back of these figures, as the peripheral markets still need to be a focus, as well as unemployment levels more broadly. In order for unemployment levels to fall there must be more flexibility in labour markets and sustained GDP growth of 1.5% – a pace we have not quite reached yet even with today’s encouraging numbers.
The Bank of England’s Monetary Policy Committee voted 8-1 in favour of the total forward guidance package. The marginal dissent was from Martin Weale and was related to an issue of timing rather than substance. We have seen the Bank of England differ before, and don’t see this as a big issue.
The UK is seeing reasonably robust and well-balanced growth alongside modest employment gains. But if companies hoarded labour during the recession, it is plausible that ongoing GDP growth may not lead to strong employment gains (and unemployment falls). We do not expect unemployment to reach the 7% threshold until the end of 2015.