Caution in Davos Over Report of Growth in Europe
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Version 0 of 1. DAVOS, Switzerland — An index of industrial activity in the euro zone has reached its highest level since mid-2011, according to a report released on Thursday. But policy makers, business leaders and economists gathered at the World Economic Forum here seem deeply skeptical about whether growth will be strong enough to cut high levels of youth unemployment in the bloc. “We have turned the corner, but we cannot say we are out of the crisis with such high levels of unemployment,” José Manuel Barroso, president of the European Commission, said here on Thursday. In contrast to the last few years’ meetings in Davos, this year the state of the European economy is not the dominant topic of debate. Fears of the imminent collapse of the euro zone, which hung over the forum’s previous sessions, have eased. This time, more energy and debate are being directed to issues like the civil war in Syria, Iran’s nuclear program and global economic inequality. Recent economic data has supported the view that Europe is slowly growing again. A broad, closely watched survey of purchasing managers published on Thursday by Markit Economics, a data analytics firm, rose to 53.2 this month from 52.1 in December. That beat economists’ expectations and was the index’s highest level since June 2011. A reading above 50 signals expansion, while a figure below that level signals contraction. James Howat, an economist in London with Capital Economics, said in a research note that the data suggested that the zone’s gross domestic product grew about 0.4 percent over the latest quarter. That would be about 1.6 percent on an annualized basis, better than the 1.1 percent the European Central Bank is forecasting for 2014. But in Davos, the Markit report generated little optimism. There is widespread worry that the euro zone could face years or even decades of only slow growth, breeding a generation of frustrated young people who could be a source of political turmoil. Kenneth Rogoff of Harvard, one of many prominent economists here this week, pointed out that some euro currency countries, like Germany, have climbed back to the same level of economic output they had before the financial crisis began. “It will be another five years at least for a number of countries,” Mr. Rogoff said at a panel discussion on Wednesday. Financial markets have calmed, and countries like Italy and Spain are able to raise money on capital markets at lower rates. But many countries remain burdened by high debt, aging populations and weak banks. Devastatingly high youth unemployment, well above 50 percent in Spain and Greece, will stunt the professional development of millions of young people for years. “The recovery is lackluster. It’s uneven across Europe. It’s not enough to bring down unemployment,” Axel A. Weber, chairman of the Swiss bank UBS and former president of the German central bank, said at the same panel discussion Mr. Rogoff attended. The Markit survey on Thursday was among a number of hopeful signs for the European economy in recent months, including improvements in sentiment among consumers and businesses and relatively robust industrial production. Still, unemployment for the euro zone as a whole has been hovering around 12.1 percent for months, and deflation has begun to appear as a real threat. “We see some encouraging signs, but the recovery in the euro area is still weak and uneven,” Mario Draghi, the president of the European Central Bank, said in an interview published on Thursday in the Swiss daily Neue Zürcher Zeitung. “All in all, the risks are still on the downside. So I would be cautious about becoming overly optimistic.” The Markit survey tracks both services and manufacturing, and it showed that euro zone factory output expanded at the fastest rate in nearly three years. Services increased more modestly. Germany, the largest of the 18 European Union member economies that use the euro currency, picked up pace, according to the survey. France, still showing a modest contraction, moved closer to the break-even point. But many business leaders at Davos said that Europe remained unfriendly to business in many ways. Pierre Nanterme, chief executive of the consulting firm Accenture, complained about the costs of varied labor regulations in European countries, which he contrasted with those in the United States. To grow more strongly, Europe must act more aggressively to improve its competitiveness, Mr. Nanterme, who is French, told an audience in Davos. If Europe fails, he said, “we could have not five years but 10 years, if not 20 years, of mediocre” growth. |