Global Economy Watch

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.

Highlights

Ten years after the Global Financial Crisis, the recovery is underway and output levels have surpassed pre-crisis levels in most advanced economies. But how are labour markets performing?

At a high level, they have (almost) never been better. Figure 1 shows that the Organisation for Economic Co-operation and Development ("OECD") harmonised unemployment rate is at its lowest ever recorded rate of 5.4%. But despite tightening labour markets, wages have not yet picked up as economic theory would predict. This has been a key feature in large economies like the US and the UK—we looked at the latter in more detail in our UK Economic Outlook report last July.

In this edition, we look closely at the relationship between unemployment and wage growth— traditionally described as the ‘Phillips Curve’ — for the Eurozone. Looking at the high-level statistics, the Eurozone unemployment rate currently stands at the 8.5% mark– but this doesn’t reveal the wide variation across member states from around 3.5% in Germany to over 20% in Greece.

Our analysis highlights some of the potential reasons for the decoupling of wage inflation from unemployment rates, including:

  • Structural factors such as the digitalisation of work and erosion of the bargaining power of workers (in part due to reduced trade union membership);
  • The creation of a single monetary authority in the Eurozone since 1999, which has lowered inflation expectations in some markets; and

The accession of the lower income Eastern European economies which effectively increased the supply of labour available to Eurozone (and European Union) economies.

On a broader note, we continue to monitor economic developments in the Eurozone, which continues to grow at robust rates– the latest flash estimate shows the bloc grew by 0.4% quarter-on- quarter in the first three months of the year.

However, our analysis of the latest set of detailed national accounts data shows that the Eurozone is increasingly reliant on external demand as a key source of GDP growth. This could make the bloc more susceptible to uncertainties in the international trade arena and could explain some of the softening of the survey data which came out last month.

By comparison, the US economy grew by 0.6% quarter-on-quarter for the first three months of the year, whereas the UK just by 0.1% quarter-on-quarter. We will be monitoring these for any revisions in the coming weeks.  

Editions

Is the rise of Pan-African banking the next big thing in Sub-Saharan Africa?

Is the rise of Pan-African banking the next big thing in Sub-Saharan Africa?

Is the rise of Pan-African banking the next big thing in Sub-Saharan Africa? This month’s Global Economy Watch looks at the expansion of pan-African banking and the potential benefits to the region. It also takes a look at how the Fed plans to unwind their unconventional monetary policy, and the growth possibilities for European tourism.

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Videos

How does uncertainty impact economic activity

How does uncertainty impact economic activity

This month’s GEW explains the ramifications of uncertainty on economic growth, and how consumers, businesses and financial markets are affected. It also takes a look at why US wage growth is still below pre-crisis levels, and the driving factors behind labour’s shrinking share of income.

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Contact us

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

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