News ID: 215159
Published: 0646 GMT May 16, 2018

Eurozone economic slowdown might not be a blip, ECB chief economist fears

Eurozone economic slowdown might not be a blip, ECB chief economist fears

Europe’s economic slowdown has come more quickly than expected and may turn out to be a long-term problem, the chief economist of the European Central Bank warned.

Peter Praet said cold weather and the timing of Easter this year could have put the brakes on economic growth in the first three months of the year, according to The Telegraph.

But it could also be that the eurozone has less productive capacity than previously hoped, meaning its growth spurt last year was a one-off.

“A deceleration from the exceptionally high growth rates observed in the second half of 2017 had been expected. However, the slowdown has come sooner than anticipated,” Praet said.

“Transitory factors are likely to have played a role in the overall slowdown in recent economic indicators. These exceptional factors include the cold weather conditions, influenza, the timing of Easter and school holidays, and industrial strikes in some countries.”

Those factors may have hit the construction and retail industries particularly hard, while “concerns about trade protectionism may also have dampened business sentiment and expectations”.

GDP growth slowed to 0.4 percent in the first quarter, down from 0.7 percent in each of the preceding three quarters.

But there could be structural problems too, indicating this slowdown might not have been a blip.

“The recent slowdown could also be a sign that supply-side constraints are becoming increasingly binding, albeit only in some sectors and in some countries,” Praet said.

“For instance, in the capital goods sector, capacity utilization and backlogs/supply delivery times stand at all-time highs, whereas in the construction sector, an increasing number of firms are indicating that a shortage of labor is limiting their production.”

The spurt in growth ran alongside a sharp fall in unemployment — joblessness is down by 7.8 million compared with its 2013 peak.

“This implies that all of the job losses recorded during the crisis have been recovered,” he said.

Meanwhile the International Monetary Fund told Germany, the eurozone’s largest economy, to spend more money on investments such as infrastructure which will boost growth in the long-term.

“In an environment of unfavorable demographics, boosting productivity growth and investment would raise the long-term growth potential and reduce the persistently large current account surplus,” the IMF said.

This should be positive for the eurozone as a whole, and also prepare Germany for the effects of its aging population.

Lifting the retirement age would also help alleviate long-term pressures by keeping more people in work and cutting growth in the pensions bill.

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