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Winter light or illusion

Tensions can be felt across continental Europe at the moment, and the eurozone is beset by doubts, uncertainties and enigmas. The unbridled optimism that reigned at the beginning of the year has worn very thin. 

The situation is in stark contrast to what is happening in major powers such as Japan. As the Wednesday edition of the Le Figaro Economie reports, “Japan’s job offers-to-applicants ratio is 1.64, a level unseen for 40 years. It’s as if jobseekers are becoming an endangered species. Meanwhile, the unemployment rate has slipped from 2.4% to 2.3%”. And that’s not all: “the leading indicator [of joblessness] is set to fall below 2% in the near future. A full 77.3% of the active population is currently in work. And 84% of Japanese men of working age are employed.

“The Japanese miracle is in full swing. Which is not the case in France, where, according to the business daily Les Echos, “economic activity increased by 0.4% in the third quarter, but the government’s full-year target of 1.7% might not be reached”.

The French economy has experienced an uptick this year, according to initial estimates published Tuesday by the official forecasting institute INSEE. Between July and September economic activity “picked up slightly” by 0.4%, after languishing at a quarterly rate of just 0.2% since the beginning of the year. So what’s the outlook for the coming months? What are the real prospects for France’s economy? Does the government have a credible roadmap? As yet, there are very few answers to all these questions. Observers are not overjoyed by the upturn, which falls short of expectations. The economists questioned by Reuters, including those at the French central bank, say they are looking for a 0.5% increase in GDP in the third quarter. “It’s currently an uphill slog, whereas activity could have picked up faster,” says Alexandre Mirlicourtois, head of forecasting at Xerfi, a research firm. “We’ve gone from a stroll to a jog, but certainly not a sprint”. Le Figaro offers an explanation for the uptick: “All the growth engines of the French economy have revved up but produced only a sluggish start. Most of the gains are due to household consumption. So yet again, a relatively satisfactory growth rate is attributable to consumption during the summer months”.

This is not the case for Italy, which has just unveiled a controversial budget. Italian economists were expecting a quarterly growth rate of 0.2%, but on Tuesday the government announced that the economy had flatlined. Although Italy’s stagnant GDP is part of a broader slowdown across the entire eurozone, it nonetheless complicates matters for the populist government headed by Giuseppe Conte. According to the Italian statistical agency ISTAT, this summer’s stagnation is due to “persistent weakness in industrial activity, which first emerged last year after a robust expansion and has hardly been offset by slight growth in other sectors, notably agriculture and services”.

Then there’s the thorny issue of the UK, which is facing the prospect of a hard Brexit. If the government fails to reach an agreement with Brussels, economists reckon that Britain will tip into recession. What’s more, multiple studies are painting an alarming picture of what could happen to the country’s economy if no deal is reached. Last week, Britain’s oldest independent research institute said the economy would hit a soft patch in 2019 . Economists at the rating agency
Standard & Poor’s are even bleaker in their outlook, saying that GDP could contract by between 1.2% and 2.5% in 2020. “Growth would return in 2021, with GDP expanding by around 1.2%. A recession in the UK would have a devastating impact on ordinary citizens. Unemployment, currently at an all-time low of 4%, would spike to 7.4% by 2020. Inflation would also pick up sharply, peaking at 4.7% by mid-2019. And consumption would drop by around 1.8% in 2019 and 2.7% the following year”.

All in all, winter is spreading across Europe and the light seems a long way off.

Christian Moguérou

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