Thursday, April 12, 2007

European economic growth rates

Here's why economic growth in Europe will most likely continue: The EU has 12 out of the top 25 most competitive economies per the World Economic Forum's Global Competitiveness Rankings, 2006-2007:

1. Switzerland --> Replaced the USA this year!
2. Finland

3. Sweden

4. Denmark

5. Singapore
6. USA
7. Japan
8. Germany
9. Netherlands

10. UK

11. Hong Kong
12. Norway
13. Taiwan,China
14. Iceland
15. Israel
16. Canada
17. Austria
18. France

19. Australia
20. Belgium
21. Ireland
22. Luxembourg

23. New Zealand
24. Korea
25. Estonia

These rankings are based on the Global Competitiveness Index (GCI) , which measures 9 factors, which do take into account the "rigidity" of a country's labor market and social welfare commitments:

Institutions
Infrastructure
Macroeconomy
Health and Primary Education
Higher Education and Training
Market Efficiency
Technological Readiness
Business sophistication
Innovation


Note also that the Scandinavian countries -- routinely vilified by America's right, and media outlets like FOX and the WSJ, as economically moribund welfare states -- are actually the most competitive economies in the world, even with their high government spending as a percent of GNP. The Nordic countries are all running budget surpluses.

According the WEF Report Executive Summary, the US slipped from 1st to 6th place because "...growing imbalances have dented a number of macroeconomic indicators, and the levels of efficiency and transparency underpinning its public institutions do not match those of the most developed industrial countries."

Isn't it time to re-consider America's stereotypical notion of bloated, inefficient, "socialist" European democracies?


European Growth Will Outpace U.S. This Year, IMF Says

By Simon Kennedy


April 11 (Bloomberg) -- The International Monetary Fund raised its forecast for European economic growth and predicted this year will be the first since 2001 in which it outpaces U.S. expansion.


The economy of the 13 nations using the euro will expand 2.3 percent in 2007, beating the 2.2 percent predicted for the U.S.
, the IMF said in its semi-annual World Economic Outlook released today in Washington. The lender increased its forecast for Europe from 2 percent and cut its U.S. projection from 2.9 percent.

Euro-region growth is showing few signs of slowing from the fastest pace in six years after companies increased spending and hiring to meet booming export orders, pushing unemployment to a record low. The European Central Bank may need to raise interest rates more than once more this year if growth remains above its ``trend,'' or non-inflationary level, the IMF said.


``Activity in early 2007 is being well sustained'' and a further interest-rate increase ``would seem warranted,'' the fund said. ``Beyond this, additional policy action could still be required if growth momentum remains above trend and risks to wages and prices intensify.''


The ECB raised its key lending rate to 3.75 percent last month, the seventh increase since late 2005, and left the door open for further moves as faster growth pushes up wages.


While all 43 economists in a Bloomberg News survey predict the bank will hold rates steady at its policy meeting in Frankfurt tomorrow, Morgan Stanley, Commerzbank AG and Fortis Bank have revised up their forecasts to show the key rate moving beyond 4 percent this year. June is viewed as the most likely month for the bank to raise rates again.


Sept. 11


If the IMF projections bear out, it will be only the second time since the euro began trading in 1999 that the region's economy grows faster than the U.S. The last time was in 2001, when the Sept. 11 terrorist attacks further undermined a U.S. economy already in recession.


On that occasion, slowing U.S. demand meant European growth almost stalled a few months later, something the IMF said is unlikely to happen this time amid signs domestic demand in Europe has become more robust.


Such ``good internal dynamics'' mean the euro's recent gains are not a ``concern for now,'' IMF Chief Economist Simon Johnson told reporters in Washington. The euro rose to a two-year high against the dollar yesterday and traded at $1.3425 today, up 10 percent on a year ago. It reached a record high against the yen of 160.43.


Deceleration

Still, economic growth is forecast to decelerate from last year's 2.6 percent due to higher borrowing costs and a sales-tax increase in Germany, the region's ``principal locomotive'' in 2006 with growth of 2.7 percent.

Germany
's pace of expansion will slow to 1.8 percent this year, the IMF said, still better than the 1.2 percent it projected in September. It also raised its forecast for Italy to 1.8 percent from 1.3 percent, while cutting its outlook for France to 2 percent from 2.2 percent. The French economy grew 2.1 percent last year and Italy's expanded 1.9 percent.

The IMF said it's ``too early'' to conclude that Europe's improved economic performance will be sustained, noting the continent's aging population may make it harder to hold labor- market and productivity gains. Unemployment fell to 7.3 percent in February, the lowest since the data were first collated in 1993.


``While progress has been made in improving labor utilization in Europe, further policy reforms are still needed to close the performance gap with the United States,'' the IMF said.


While U.S. economic growth has ``slowed noticeably'' over the past year amid a housing slump, ``a growth pause still seems more likely at this stage than a recession,'' the fund said. The labor market remains ``robust'' with the unemployment rate stable at around 4.5 percent.


U.S.
growth will accelerate to 2.8 percent in 2008, regaining its supremacy over Europe's pace of expansion, which will remain at 2.3 percent, the IMF said.

To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net .

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