Euro-wide recovery is setting in for 2014
Joe Wright, 26 March 2014
President Hollande can finally breathe a sigh of relief this week after receiving some long-awaited good news. Markit yesterday posted its survey results for France’s first quarter showing a broad based private sector recovery across both services and manufacturing – bon. Their ‘Flash France Composite Output Index’, based on roughly 85 per cent of normal monthly survey replies, posted 51.6, up from 47.9 in February. ‘That was the first reading above the 50.0 no-change threshold since last October’, and marked a 26-month high overall and a 34-month high for the manufacturing sector – something the Left across Europe will be happy to note in the coming elections.
In recent months, President Hollande has come under increasing pressure to turn the French economy around (and for other matters well documented elsewhere). Over the past decade France has seen its share of global exports decline considerably while its taxes have become the highest in the euro area. It was only earlier this month that the European Commission placed France on a watch list along with Ireland and Spain (two countries which needed bailouts) over concerns for France’s ‘lack of competitiveness’.
So it bodes well for the wider Eurozone that its second largest economy is showing signs of improvement – and for the UK, given that France is one of our larger trading partners. The six year-long wait to return to real recovery, as we have been repeatedly reminded by the Chancellor, remains tied to the performance across the wider European economy.
It also comes with news from Markit that this is the Euro area’s strongest period of growth since the first half of 2011. It is also a more healthy recovery, with manufacturing output increasing for the ninth consecutive month accompanied by a boost in factory employment. There is a new level of confidence in the outlook for Europe with forecasts of 1.5 per cent growth this year for the 28 members and 2 per cent in 2015, and a 1.2 per cent bump in GDP for the Eurozone.
According to the Eurozone survey, this improvement is not necessarily all the hard graft of Europe’s powerhouses. Excluding Germany and France, the Eurozone posted moderate rises in output and orders for the eighth month running. But, as can be seen above, southern Europe still lags behind, posting smaller GDP contractions, but contractions none-the-less, while continually battling with colossal youth unemployment. Youth unemployment rates in Greece and Spain remain well above a staggering 50 per cent. Recovery across the Eurozone itself is still very much driven by Germany, which makes up 30 per cent of its output and is forecast to grow by 1.8 per cent this year.