The global economic recovery is still struggling to take hold. In July, the IMF downgraded its projections of global economic growth to 3.1% for 2013, bringing it in line with our projections. This is now the fifth consecutive downgrade of global growth. While still outpacing advanced economies, slowing growth in large emerging economies like China, is driving this deteriorating outlook.
This month, we have taken a closer look at the good, the bad and the ugly in the peripheral Eurozone countries.
On the bright side, Portugal, Ireland, Italy, Greece and Spain have all made significant progress in regaining some of the competitiveness lost in the years before the crisis. Industries like tourism have benefited from falling costs; in Spain for example, foreign tourist arrivals have increased by 23% since the financial crisis began. But most of the progress has come from one-off factors, such as nominal wage and job cuts, rather than structural reforms to inflexible labour markets.
The state of public finances across the peripheral economies remains bad. Progress has been made in reducing government spending- in Portugal spending has decreased by around 20% since 2011. However, the lack of economic growth has meant that government’s stock of debt relative to the economy continues to increase.
Finally, the status of the labour market in peripheral Europe remains ugly. Unemployment is roughly double the Eurozone average of 12%, while high and rising youth unemployment poses a risk to future productivity and medium term growth.