Global Markets

New year, new EU?

New year, new EU?

It isn’t hard to conjure up a list of media headlines, all negative, and associated with Europe. We will not repeat them all and offer just a sample – Germany’s slowdown in export growth, France’s ‘gilets jaunes’ or yellow jacket riots, Italy’s budgeting quarrel and the ever-present uncertainty surrounding Brexit.

Despite this seemingly fractious and gloomy backdrop, new employment data released earlier this week from Eurostat paints a different picture based on a positive factual trend. High Eurozone unemployment which many say is one of the main reasons for the rise in so called populism, has fallen below 8% for the first time in over a decade. The revised figure is 7.9% and beats many economists’ expectations. It is now back at levels seen in 2007 just before the global financial crisis struck a near fatal blow.

Eurozone member composition is different from the European union. It is comprised of those EU members who adopt the Euro as their legal tender, currently 19 of the 28 countries. This is a large slice of the total union with a combined population of 341.5 million people of the European Union’s 511.5 million total. The countries contributing most, both economically and demographically are Spain, France, Germany and Italy boasting 74.7% of the Euro-zones population and 75.6% of its nominal GDP collectively.

Eurozone historic unemployment rate

Source: Bloomberg, January 2019

Much attention has been focused on political and global trade concerns, but the Eurozone economy is clearly in better health than many would have us believe. Germany and the Netherlands have achieved very low unemployment rates, of 3.2% and 3.5% respectively, and now the weaker economies are seeing improvements across their labour markets. Italy, Greece and Spain have all had a noteworthy year on year reductions in their jobless rates as is seen below.

Unemployment rate by Country

Source: Bloomberg, 2019

Europe is very sensitive to global economic trade based around a large export component driving its economy; for Germany in particular, but arguably for the whole of the EU. The current cooling of fast US-led global growth is leading economists to reflect on the trade outlook for the Eurozone. In addition, businesses have been rattled by the fallout from the 2018 US-China trade wars, but recent discussions between President Trump and President Xi of China may yet lead to a positive outcome, which will come as a relief for everyone watching the drama unfold around trade. In this context it may be possible for Europe to continue to create jobs and deliver a positive outcome for 2019.

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