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August 10, 2005

European Growth

For "Nightly Business Report," August 8, 2005 [TV]:

The International Monetary Fund has recently cut its estimate of western European economic growth this year from 2.2% down to 1.3%, and its estimate of growth next year from 2.3% to 1.9%. And the IMF is optimistic: it is hoping that the second half of the year will be better than the first half has been.

This is not a recession. But it is far from a boom. And it is far below what we would hope to see for a region where, after all, the unemployment rate is still near ten percent.

The problem that the IMF sees is that local European demand growth is anemic. Jumps in oil prices have raised costs and retarded demand. Stagnant wages--themselves in part a consequence of "structural reform" have led to low consumption growth. As a result, a truly satisfactory European economic expansion requires strong demand outside Europe. The leading component of demand has to be exports if the economic expansion is to lift the boats. And that strong demand for Europe's exports does not look like it is in the cards.

Now it is not as though rising inflation prevents Europe's central bankers from cutting interest rates from their current 2% level. Forecasts inflation for the next year are low: 1.1% for Germany, 1.6% for France, and 1.5% for the Eurozone as a whole.

However--even when there are no pressures pushing up inflation--Europe's central bankers simply do not see boosting employment as an important part of their job. Here in America, we have central bankers who have a more balanced view of their role--see their mission as to to try to get both stable prices and high employment.

We here should be thankful.

I'm Brad DeLong.

Posted by DeLong at August 10, 2005 04:54 PM