European Economic Outlook:
Is Sustainable Recovery Possible?
Dr. PETR ZEMCIK, DIRECTOR
TOMAS HOLINKA, ECONOMIST
Webinar
Pr...
2
Independent provider of credit rating
opinions and related information for
nearly 100 years
Research, data, software, an...
3
Access essential expertise on the economic and consumer
credit trends that impact your business and investments
Economic...
4
Outline
• Business cycle status
• Expenditures shift across Europe
• Governments are not overly protective
• Labour mark...
5
Business Cycle Status
1
6
0
5
10
15
20
25
30
0.0
0.5
1.0
1.5
2.0
Spain Italy Euro
zone
Hungary Poland Czech
Rep.
Germany
CPI, % change yr ago (L)
...
7
Expenditures Shift Across Europe
2
8
Recession Triggers Reform Efforts
Sources: Eurostat, Moody’s Analytics
Real GDP, % change yr ago
-8
-6
-4
-2
0
2
4
6
8
0...
9
-10 0 10 20 30
Hungary
Czech Rep.
Germany
Greece
Poland
Spain
Italy
U.K. Investments
Government
Households
Imports
Expor...
10
U.S.
China
Russia
Switzerland
Norway
Japan
Turkey
Others
Europe’s Exports to China Are Growing
Sources: Eurostat, Moody...
11
1
3
5
7
9
11
13
15
17
19
21
07 08 09 10 11 12
U.K. Spain Italy Germany
Hungary Czech Rep. Poland
Household Savings Fall...
12
France Germany Greece Ireland Italy Portugal Spain U.K. Hungary Poland Russia
Wage freeze X X X X X X X X X
Public sect...
13
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Greece
Poland
Slovakia
Italy
Hungary
Spain
Portugal
Netherlands
Czech Rep.
U.K.
Ireland
Fra...
14
Governments Are Not Overly Protective
3
15
0 1 2 3
U.K.
Ireland
Spain
Hungary
Germany
Italy
Czech Rep.
Poland
Greece
2008
2003
Recession Eases Product Market Regu...
16
0 1 2 3 4
U.K.
Germany
Spain
Hungary
Italy
Czech Rep.
France
Greece
Poland
Ireland
2008
2003
Electricity Sector Liberal...
17
0.0 0.1 0.2 0.3 0.4 0.5
Germany
Spain
Ireland
Italy
Greece
Hungary
Czech Rep.
U.K.
Poland
2012
2006
Barriers to Foreign...
18
Sources: Coface, Banque de France, Moody’s Analytics
Creative Destruction in Progress
-10
-5
0
5
10
15
20
25
30
35
Fran...
19
0
5
10
15
20
25
30
Hungary Poland Czech Republic
Insolvencies in CEE Rising
Sources: Coface, Moody’s Analytics
Change i...
20
Labour Markets Evolve
4
21
95
100
105
110
115
120
125
05Q1 06Q3 08Q1 09Q3 11Q1 12Q3
Hungary Germany France
Spain U.K.
Labor Costs Rising in CEE Co...
22
y = 0.407x + 8.675
R² = 0.144
0
5
10
15
20
25
30
0 5 10 15 20 25 30
Unemployment rate in 2013Q2, %
Shareofemployeeson
f...
23
0 10 20 30 40 50 60
Germany
Czech…
Poland
Hungary*
France
Italy
Portugal
Spain
Jobless rate
Youth unemployment
… Which ...
24
y = 0.1471x - 0.5348
R² = 0.1837
-4
-2
0
2
4
-5 0 5 10 15 20
Percentage difference between
unemployment rate in 07Q4 an...
25
-1 0 1 2 3 4
Spain
Ireland
Portugal
Hungary
U.K.
Italy
Czech Rep.
Poland
Germany
Average pre-crisis
productivity growth...
26
Long-Term Outlook
6
27
Lower-Debt Countries Will Grow First
Sources: IMF, Moody’s Analytics
Total
debt/GDP
2011, % 2012 2013 2014
Spain 273 -1...
28
95
100
105
110
115
120
125
130
135
08 09 10 11 12 13E 14F 15F 16F
Eastern Europe
U.S.
World
Euro zone
Euro Zone Will Gr...
www.economy.com
Petr Zemcik
Director,
European Chief Economist
Moody’s Analytics, Inc.
E: petr.zemcik@moodys.com
T: +44 (0...
30
© 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL ...
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European Economic Outlook: Is Sustainable Recovery Possible?

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Although Europe’s short-term outlook has improved, with euro zone GDP growth beating expectations in the second quarter and countries benefiting from a rebound in Germany, euro zone output will not return to prerecession levels until 2015.

This presentation covers the outlook for Europe by reviewing the structural changes European countries are implementing to improve their economic health, the aim of policymakers, and the main source of Europe’s future growth.

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  • Nominal unit labour costs: total economy (Ratio of compensation per employee to real GDP per person employed.) (PLCD)http://ec.europa.eu/economy_finance/ameco/user/serie/ResultSerie.cfmSelect item 7, then item 7.7Not declining in Italy and France (high social security charges and minimal wages and unemployment benefits)
  • European Economic Outlook: Is Sustainable Recovery Possible?

    1. 1. European Economic Outlook: Is Sustainable Recovery Possible? Dr. PETR ZEMCIK, DIRECTOR TOMAS HOLINKA, ECONOMIST Webinar Prague, September 24,2013
    2. 2. 2 Independent provider of credit rating opinions and related information for nearly 100 years Research, data, software, and related professional services for financial risk management 2 MA extends Moody’s brand beyond credit ratings Moody's Analytics operates independently of the credit ratings activities of Moody's Investors Service. We do not comment on credit ratings or potential rating changes, and no opinion or analysis you hear during this presentation can be assumed to reflect those of the ratings agency. Leading global provider of credit rating opinions, insight, and tools for credit risk measurement and management
    3. 3. 3 Access essential expertise on the economic and consumer credit trends that impact your business and investments Economic & Consumer Credit Analytics Economic, Consumer Credit, and Financial Data Forecasts with Alternative Scenarios Economic Research Consumer Credit Analytics Risk Management, Strategic Planning, Business and Investment Decisions
    4. 4. 4 Outline • Business cycle status • Expenditures shift across Europe • Governments are not overly protective • Labour markets evolve • Long-term outlook
    5. 5. 5 Business Cycle Status 1
    6. 6. 6 0 5 10 15 20 25 30 0.0 0.5 1.0 1.5 2.0 Spain Italy Euro zone Hungary Poland Czech Rep. Germany CPI, % change yr ago (L) Unemployment rate, % (R) 51.4 51.3 51.7 52.6 53.9 51.8 Inflation Falling on Record Job Losses Sources: Eurostat, Markit, Moody’s Analytics CPI, unemployment and PMI for manufacturing, Aug 2013 51.1 PMI
    7. 7. 7 Expenditures Shift Across Europe 2
    8. 8. 8 Recession Triggers Reform Efforts Sources: Eurostat, Moody’s Analytics Real GDP, % change yr ago -8 -6 -4 -2 0 2 4 6 8 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 Germany Czech Rep. Poland Hungary Spain U.K.
    9. 9. 9 -10 0 10 20 30 Hungary Czech Rep. Germany Greece Poland Spain Italy U.K. Investments Government Households Imports Exports Europe’s Rebalancing Sources: Eurostat, Moody’s Analytics Ppt of GDP, difference between 2009 and 2013
    10. 10. 10 U.S. China Russia Switzerland Norway Japan Turkey Others Europe’s Exports to China Are Growing Sources: Eurostat, Moody’s Analytics EU-27 exports, % of total, 2012
    11. 11. 11 1 3 5 7 9 11 13 15 17 19 21 07 08 09 10 11 12 U.K. Spain Italy Germany Hungary Czech Rep. Poland Household Savings Fall After Rising in 2009 Household savings rate, % Sources: Eurostat, Moody’s Analytics
    12. 12. 12 France Germany Greece Ireland Italy Portugal Spain U.K. Hungary Poland Russia Wage freeze X X X X X X X X X Public sector job losses X X X X X X X X X X Pension spending cuts X X X X X X X X X Health care cuts X X X X X X X X Welfare spending cuts X X X X X X X X X Public investment cuts X X X X X X X Other cuts X X X X X X X X Income tax increase X X X X X X X X Corporate tax increase X X X X X Capital gains tax hike X X X X X X Social security tax hike X X X X X X X X VAT increase X X X X X X X X X Excise tax increase X X X X X X X X X X Property tax increase X X X X X Tax evasion measures X X X X X X X X Fiscal Austerity Measures since 2009 Sources: IMF, Moody's Analytics
    13. 13. 13 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Greece Poland Slovakia Italy Hungary Spain Portugal Netherlands Czech Rep. U.K. Ireland France Germany Denmark Sweden Finland R&D Expenditures Boost Growth Sources: OECD, Moody’s Analytics % of GDP, 2010
    14. 14. 14 Governments Are Not Overly Protective 3
    15. 15. 15 0 1 2 3 U.K. Ireland Spain Hungary Germany Italy Czech Rep. Poland Greece 2008 2003 Recession Eases Product Market Regulation Sources: OECD, Moody’s Analytics Index scale of 0-6 from least to most restrictive
    16. 16. 16 0 1 2 3 4 U.K. Germany Spain Hungary Italy Czech Rep. France Greece Poland Ireland 2008 2003 Electricity Sector Liberalized In Europe Sources: OECD, Moody’s Analytics Index scale of 0-6 from least to most restrictive
    17. 17. 17 0.0 0.1 0.2 0.3 0.4 0.5 Germany Spain Ireland Italy Greece Hungary Czech Rep. U.K. Poland 2012 2006 Barriers to Foreign Direct Investments Ease Sources: OECD, Moody’s Analytics Index scale of 0-6 from least to most restrictive
    18. 18. 18 Sources: Coface, Banque de France, Moody’s Analytics Creative Destruction in Progress -10 -5 0 5 10 15 20 25 30 35 France Italy Spain Germany 2011 2012 Change in number of liquidations, % change yr ago
    19. 19. 19 0 5 10 15 20 25 30 Hungary Poland Czech Republic Insolvencies in CEE Rising Sources: Coface, Moody’s Analytics Change in number of insolvencies, % change yr ago, 2012
    20. 20. 20 Labour Markets Evolve 4
    21. 21. 21 95 100 105 110 115 120 125 05Q1 06Q3 08Q1 09Q3 11Q1 12Q3 Hungary Germany France Spain U.K. Labor Costs Rising in CEE Countries Unit labor costs, 2005=100 Sources: EU Commission, Moody’s Analytics
    22. 22. 22 y = 0.407x + 8.675 R² = 0.144 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Unemployment rate in 2013Q2, % Shareofemployeeson fixed-termcontractintotal employment,2011 Greece Germany Poland Portugal Spain Hungary Czech Slovak Republic Unemployment Creates Labor Market Dualism… Sources: Eurostat, Moody’s Analytics Austria
    23. 23. 23 0 10 20 30 40 50 60 Germany Czech… Poland Hungary* France Italy Portugal Spain Jobless rate Youth unemployment … Which Needs to Be Reduced Sources: Eurostat, Moody’s Analytics Unemployment rate in July, % * as of June 2013
    24. 24. 24 y = 0.1471x - 0.5348 R² = 0.1837 -4 -2 0 2 4 -5 0 5 10 15 20 Percentage difference between unemployment rate in 07Q4 and 12Q2 Percentagedifferencein labourproductivitybetween pre-crisisandcrisisperiod Germany Poland Ireland Spain Hungary Czech Slovakia Slovenia Lower Employment Raises Productivity Sources: OECD, Moody’s Analytics Portugal
    25. 25. 25 -1 0 1 2 3 4 Spain Ireland Portugal Hungary U.K. Italy Czech Rep. Poland Germany Average pre-crisis productivity growth Structural unemployment rate Productivity Reduces Structural Unemployment Sources: OECD, Moody’s Analytics Change in ppt between 07Q4 and 12Q2
    26. 26. 26 Long-Term Outlook 6
    27. 27. 27 Lower-Debt Countries Will Grow First Sources: IMF, Moody’s Analytics Total debt/GDP 2011, % 2012 2013 2014 Spain 273 -1.4 -1.3 0.3 Italy 251 -2.4 -1.7 0.6 France 225 0 0.3 1.3 Germany 192 0.9 0.6 1.8 Hungary 144 -1.6 0.2 1.2 Poland 95 1.9 1.3 2.6 Czech Rep. 85 -1.2 -0.9 1.7 Annual growth, %
    28. 28. 28 95 100 105 110 115 120 125 130 135 08 09 10 11 12 13E 14F 15F 16F Eastern Europe U.S. World Euro zone Euro Zone Will Grow Modestly Real GDP, 2008Q1=100 Sources: National statistical offices, Moody’s Analytics
    29. 29. www.economy.com Petr Zemcik Director, European Chief Economist Moody’s Analytics, Inc. E: petr.zemcik@moodys.com T: +44 (0) 20 7772 1942 Tomas Holinka Economist Moody’s Analytics, Inc. E: tomas.holinka@moodys.com T: +420 221 666 384
    30. 30. 30 © 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling. 30
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