Global Economy Watch

Each month PwC's Macroeconomics team presents the Global Economy Watch, a short publication that looks at the trends and issues that are affecting the global economy and details our latest economic projections for the leading economies of the world.

The Eurozone's Unbalanced Recovery

Starting with the UK, we expect economic growth to moderate in Q2, but to rebound in the second half of the year, assuming that the UK votes to remain a member of the EU. On this basis, we are projecting UK growth of just under 2% in 2016 and just over 2% in 2017, but it could be markedly lower if the UK votes to leave the EU.

Across the Atlantic, the US Federal Reserve is pondering when to take the next step on the path to monetary policy normalisation. Inflation is trending upwards towards the target and the labour market continues to tighten, although the latest jobs market report in early June was disappointing. Q1 GDP growth was revised up slightly and growth is expected to be stronger in Q2. Therefore we still expect the Fed to increase the policy rate later this year, although this could now be delayed until after the presidential election.

The Eurozone economy grew faster than the US in the first quarter of 2016 – only the seventh time this has happened in the 29 quarters since the beginning of 2009. This was the latest step in the Eurozone recovery, after annual growth in 2015 picked up to 1.6%.

But our analysis shows that the economic, and to a greater extent the labour market recovery has been uneven. For example, the range of unemployment rates in the Eurozone at this stage of the recovery is the highest it has ever been compared to past recoveries.

We think the key driver of this variation in economic fortunes is structural in nature and related to differences that exist across labour, capital and product markets in the individual Eurozone economies. But the recovery currently underway in the Eurozone has given policymakers an opportunity to implement reforms and reduce some of these differences.

Sticking with the Eurozone, we have focused on labour productivity this month. Our analysis shows that, since 2012, labour productivity in the manufacturing sector has fared better than in the services sector. But services make up around three quarters of the Eurozone’s economic output, so if productivity growth is really going to take-off across the bloc, services will have to drive it. 

PwC's Conor Lambe discusses what has been driving the variation observed in real GDP growth and unemployment across the Eurozone.

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Contact Us

Richard Boxshall
Senior Economist
Tel: +44 (0)20 7213 2079

Barret Kupelian
Tel: +44 (0)20 7213 1579

Conor Lambe
Tel: +44 (0)20 7212 8783

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