European capitalism remains deep in the mire. In the first quarter of this year, Eurozone GDP fell 0.2%, according to figures out today – and that was worse than expected. The Eurozone economy has contracted by 1% in the first quarter from the year before, marking the longest recession since the introduction of the single currency in 1999. Italian GDP fell by 0.5%, the seventh straight quarter of decline. This makes the current Italian recession the longest on record. Portugal fell 0.3%, producing a decline of nearly 4% from last year, and making ten consecutive quarterly declines.
Most worrying, French GDP shrank by 0.2%. Investment fell a further 0.9%, after 0.8% in the fourth quarter. Exports fell and construction output fell. Revisions to previous quarterly data meant the country avoided a ‘triple dip’ recession, but the economy has shrunk in three of the past four quarters. Germany managed to grow, but only barely (graph below). First-quarter GDP grew 0.1%, up from a downwardly revised contraction of 0.7% in the fourth quarter of last year. Investment continued to fall. Dutch GDP shrank by 0.1% and Spain has already reported a 0.5% contraction.
Outside the Eurozone, the UK grew slightly in the first quarter. And the Bank of England has now revised up its growth forecast for the current second quarter to 0.5% (graph below). But this forecast assumes that there is zero to positive quarterly growth in the Eurozone in the current quarter. Fat chance!
For some time, the UK government has been crowing that employment is much better then in the rest of Europe despite ‘austerity’. Well, the latest UK jobs figures are starting to rain on that sunny idea. The UK unemployment rate rose 0.1% pt to 7.8% in the first quarter from the quarter previous and the employment rate simultaneously dropped by 0.2% to 71.4% of the working age population compared with the last quarter of 2012. And even worse, British households took another hit to real incomes as total pay growth was just 0.4%, while annual inflation is currently at 2.8%, so eating further into real wages. Indeed, since 2005 Britain has fallen from 5th to 12th in the OECD’s ranking of countries by household disposable income. That’s bigger fall than anyone else in the top 10.
Europe’s depression is increasing the centrifugal forces that threaten to break the Eurozone up. We all know that about the British scepticism towards the euro and the European Union, with talk of referendum to leave the EU. But that disillusionment is now even worse in some Eurozone countries. According to a Pew center survey, just 26% of Brits believe that economic integration has strengthened the economy, but only 22% of French, 11% of Italians, 11% of Greeks and 37% of Spanish voters do. Of the large countries, only the Germans still think EU integration has been good for their economy – and even then, only just over half do (54%). The findings also reveal disaffection with the EU among all groups, including the young. That’s especially so in France, where there now less French support for the EU than among Brits!
The depression in Europe is destroying people’s livelihoods, reducing their confidence that governments can do anything about it and increasing their opposition to the existing institutions of ‘European’ capitalism built up over the last 6o years. Europe’s political elite is in real trouble.