Recent GDP figures paint an increasingly positive picture for the Eurozone with solid growth recorded across most economies in the fourth quarter of 2013. Northern European economies picked up pace, with Germany expanding by 0.4% in Q4, whilst Southern European economies also grew. Italian output, for example, expanded for the first time after nine consecutive quarters of negative or no growth.
Despite the recent broad based pick-up, the Eurozone recovery remains a tale of two halves. Northern European economies like Germany (4%) are clearly bigger than their pre-crisis peak at the end of 2007, but Southern European economies like Italy (-8%) are still significantly smaller (figure 2). Southern economies are also facing weak levels of domestic demand as they continue to struggle with high unemployment. Businesses are also struggling with higher funding costs than in the “core” economies, which put them at a competitive disadvantage.
Overall, the Eurozone economy remains around 1% smaller than its pre-crisis peak at the end of 2007, which is similar to the UK. By comparison, the US economy, is now around 6.5% bigger than at the end of 2007.
Fig 2: The recovery in the Eurozone has reached most economies, but stark differences in performance remain