ForeCastle

In the Euro Zone, Recession Is Not Quite Over, Economists Say



Many people probably thought the euro zone recession ended about a year ago when output began growing again. Not so, a group of leading economists argued this week.

Growth is still too weak and unemployment too high to declare the recession over, economists at the Center for European Policy Research said. At best, they said, the recession that began in 2011 is merely in hibernation.

Recessions are often considered to be over when there have been two quarters in a row of positive growth. The euro zone hit that mark when it squeezed out annualized growth of 0.4 percent in the third quarter after a 1.2 percent increase in the second quarter.

But the European policy research group, a nonprofit organization based in London, does not accept that definition. It says that economists and policy makers should look more broadly at other indicators, like the sustainability of growth and unemployment. Joblessness in the euro zone is 11.7 percent, just below a record.

“Since early 2013 the euro area has witnessed a prolonged episode of extremely weak growth in economic activity,” the group’s euro area business cycle dating committee said in a statement. “Labor markets have shown little change over that period.”

The recession that began in mid-2011 is the longest since the group began keeping track in 1970.

The business cycle committee models itself on a similar panel at the National Bureau of Economic Research in the United States, a nonprofit organization that is the generally accepted arbiter of when recessions begin and end.

The European group has no official status but includes many leading economists. The chairman of the business cycle committee is Philippe Weil, president of the French Economic Observatory, a research group in Paris.

The conclusions of the panel, which meets periodically to consider the state of euro zone growth, are likely to add to growing unease about whether the bloc is on the mend or whether it is tipping into a new crisis.

Annual inflation is 0.5 percent, well below the European Central Bank’s target of just below 2 percent, and many economists have expressed alarm about the risk of deflation, a downward spiral of prices that causes consumers to stop spending and companies to stop hiring.

And while investors have flocked back to the region’s government debt and European stocks have rebounded from crisis lows, output in the 18 countries of the euro zone has still not recovered to the level of 2008, when the financial crisis began.

The euro zone economy grew at an annual rate of 0.8 percent in the first quarter of 2014, while economic output shrank in eight euro zone countries, including the Netherlands and Finland. Growth was zero in France, which has the second-largest economy in the euro zone after Germany.

Even the powerhouse German economy has been showing signs of trouble. Confidence has slumped markedly among companies that do business with Russia because of the crisis in Ukraine, according to a survey by the Ifo Institute in Munich.

While confidence among all German companies continues to increase, the pace has slowed, the Ifo Institute said on Wednesday.

“For companies that have relations to Russia, the business outlook in particular has worsened more so than for companies that have no dealings with Russia,” Timo Wollmershäuser, acting head of business cycle analysis and surveys at the Ifo Institute, said in a statement.

The moderate increase in business confidence this year, he said, “is in good part due to concerns over the Ukraine conflict.”