By Parush Arora
2017 is turning out to be a remarkable year for the Eurozone with economists expecting the repercussions of the sovereign subprime crisis to fade away completely. It has been experiencing continuous success in the form of achieving the target of two percent inflation last month as well as reducing unemployment considerably, with 1,40,000 citizens having been pulled out of the jobless trap since February.
Increased production leading to job creation
The exceptional performance by the manufacturing sectors of major EU countries has led to the creation of around four million jobs in the last three years. Countries like Austria, Germany and Netherlands are majorly responsible for pulling up these aggregates. Italy and France are stable, whereas Spain, Ireland and Greece show slowed output growth rates. EU also achieved a?growth rate of 56.2% in exports in March, the highest in six years in the manufacturing sector.
Thinking out of the box
Post the Eurozone crisis triggered by Greece?s inability to pay back its heavy debts, causing a chain reaction of defaulting all across Europe, the EU opted for an unconventional monetary policy. Loose money supply, lowest levels of interest rates and structural reforms were used as tools to counter the recession. A continuous attempt to push the potential output back to the pre-crisis level now seems to be showing results. The constant effort to increase spending and help wages and prices to adjust is finally yielding positive results.
Predictions for the future
The unemployment rate is being anticipated to be between 8.4% and 8.9% in the ensuing years. There is a fear of inflation eating into the disposable income of the citizens as the annual growth rate of wage dropped to 1.6% – half the pre-crisis rate. If the wages are not able to keep up with prices, the output will deviate from the equilibrium level. This is because lower real wages will provide less incentive for labor class to participate, leading to lesser employment and hence decreased output. Countries like Greece, whose government is still unable to stabilise the economic shock through its monetary and fiscal tools, need special care. The Eurozone cannot adapt to a change in monetary policy unless a signal of complete economic stability is received. Will the current trends persist or are there new threats to look out for?
Featured image source: greekresidency.com
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