8/13/2019 Factsheet Current Economic Situation November 2012

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Euro Challenge 2012

The Current Economic Situation

Key conceptsGross Domestic Product

(GDP)is the value of all goods

and services produced in a

geographical region over a

period of time (years, quarters,

months).GDP growth tells you by how

much GDP increased in a

given year or quarter. It isusually expressed as a

percentage. In normal times,

GDP growth is positive. In a

recession, it turns negative.Some part of the increase in GDP

over a given period may be due

to increases in the prices of

goods and services (inflation).

Real GDPgrowth tells you how

much of theincrease in GDP is

due to increased production of

goods and services, i.e. after

stripping out inflation.The unemployment rateis a

measure of how much of the

labor force is not employed. An

unemployed worker is someone

who is without a job, but has

been actively seeking one.Inflation is the rise in the general

level of prices of goods and

services in an economy over a

period of time.

The Euro Area Economic Situation November 2012The euro area economy as a whole started to contract (i.e.,

growth became negative) at the end of 2011. In 2012, the euro

area will likely undergo a mild recession (negative growth) but is

expected to stage a gradual recovery in the course of 2013.

Already, there are signs of stabilization in the financial markets,

and recent measures taken by European leaders and by the ECB

are helping to overcome the so-called "euro crisis".

That crisis, which originated as a debt crisis in a few "peripheral"

euro area countries (Greece, Ireland and Portugal) widened in

2011 as investors feared that the troubles would spread to larger

countries (so-called "contagion", in particular to Spain and Italy)

and that European leaders would not be able to manage the crisis.

The depth and persistence of the crisis have affected the euro

area economy as a whole via several channels: 1) banks are

lending less money to businesses and consumers; 2) worried

businesses in turn lay off workers and worried consumers spend

less to purchase goods and services; and 3) governments cut

spending in an effort to bring down deficit and debt levels (whateconomists call "fiscal consolidation" or "austerity"), which helps

address the debt crisis but weighs on growth. Exports of euro area

countries have also been hurt by the slowdown in their European

and global trading partners.

The European Commission's economic forecast from Autumn

2012 predicts GDP growth will be slightly negative in 2012 (-0.4%

decline compared to 2011). Unemployment is again rising and

stood at a very high level of over 11.6% in September 2012 in the

euro area. After increasing sharply in 2011, inflation is forecast to

come down slowly toward the ECBs preferred range (close tobut below 2%).

Euro Area Economic Indicators 11/ 2012Forecast2010 2011 2012 2013 2014

GDP growth (real) 1.9% 1.4% -0.4% 0.1% 1.4%Unemployment rate 10.1% 10.1% 11.3% 11.8% 11.7%Inflation 1.6% 2.7% 2.5% 1.8% 1.6%

Sources: Eurostat, European Commission.delicious.com/eurochallenge facebook.com/eurochallengecompetition vimeo.com/channels/eurochallenge

8/13/2019 Factsheet Current Economic Situation November 2012

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Euro Challenge 2012

GDP GrowthAfter staging a moderate recovery following the deep recession of

2009, the euro area economy slowed sharply toward the end of

2011 and did not rebound as much as expected in 2012. The

latest forecast from the European Commission anticipates mildly

negative growth (recession) for the euro area in 2012 and GDP is

expected to recover gradually in the course of 2013 as the crisis

gradually abates, in part thanks to the measures taken. The

recession will likely be deeper in countries most affected by the

debt crisis while the recovery is expected to occur sooner in

countries less directly affected.

Unemployment RateThe euro area unemployment rate has risen due to worsening

economic conditions and drastic spending cuts in several euro

area member countries. In September 2012, the average

unemployment rate for the euro area rose to 11.6%. This means

that more than one out of ten workers is out of a job. In some

countries, young people are particularly affected (e.g., Spain,Greece). Behind the 11.6% average figure is a huge disparity in

unemployment rates between euro area countries. The

unemployment rate in Austria is 4.4%, while in Spain it is over

25.8%. The unemployment rate is expected to stabilize and

gradually decline as growth recovers. But it is bound to stay

painfully high in countries that must cut spending sharply to get

debt levels down.

InflationInflation rose steeply in the beginning of 2011 as a result of higherenergy and commodity prices and more moderately since then.

Inflation is expected to fall further in response to slower economic

growth. The ECB's preferred measure of inflation (the Harmonized

Index of Consumer Prices) for the euro area was 2.5% in October

2012. That is still quite a bit above the ECBs target of an inflation

rate of "close to, but below 2%. Still elevated oil and energy prices

are preventing the inflation rate from declining more rapidly.

However, when energy prices are removed, the inflation rate in the

euro area is relatively low.

Euro Area & US GDP with Forecasts

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2

006

2

007

2

008

2

009

2

010

2

011

2

012

2

013

2

014

Euro area United States

Source: European Economic Forecast - Autumn 2012

Euro Area & US Unemployment with Forecasts

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2006

2007

2008

2009

2010

2011

2012

2013

2014

Eur o ar ea U nited States

Source: European Economic Forecast - Autumn 2012

Euro Area & US Inflation with Forecasts

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2006

2007

2008

2009

2010

2011

2012

2013

2014

Euro area Un ited States

Source: European Economic Forecast - Autumn 2012

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