Hooray! Euro zone economy is almost stagnant

July 25, 2013

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The pace of economic decline in the euro zone has slowed to a crawl. Or perhaps a statistical microscope would show that GDP is increasing. Then it’s time for some muted celebration.

Some killjoy might say the latest numbers do not even merit a glass of cheap wine. While the Markit Purchasing Managers’ Index was at its highest level in 18 months in July, the 50.4 reading was only a whisper above the line which separates GDP increase from decline. It suggests an annual growth rate of around 0.5 percent.

Or take the less-than-bad news from Spain. The Bank of Spain now thinks GDP declined only 0.1 percent in the second quarter. That’s better than the 0.8 percent drop two quarters earlier, but not high enough to cut into the country’s 27 percent unemployment rate.

The killjoy might also say that decline is yielding to nothing better than stagnation. Outside of Germany, economic momentum is too weak to create jobs – the count of French unemployed crept up by 0.5 percent in June; or to shrink government debts – up from 90.6 to 92.2 percent of GDP in the euro zone over the most recent quarter.

But even if the glass is three-quarters empty, there is still something to drink. Stagnation is just a nasty word for stability. Stability is better than decline. Shrinking GDP eventually leads to social and political crises. Stability is lasting – as the word suggests.

Besides, in the euro zone, stability may be just about as good as it gets. With a shrinking working-age population, flat GDP translates into a steady increase in average lifestyles. The euro zone is rich, so the potential for catch-up growth is limited. And the surplus of debt and deficit of government dynamism restrains job creation.

Even if the euro zone economy continues to strengthen, the numbers are not likely to rise above mournful, at least by the standards of 2004-2007, when average annual GDP growth was 2.5 percent. But those golden days won’t come round again anytime soon.

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When will the politicians and economist realize that the world has changed? Recovery tends to mean “back to the usual”. That will never happen. Globalization and automation are here to stay and their influence is getting stronger and stronger.

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