Description
The recovery has so far been stronger than anticipated and should continue in coming months.
ECONOMIC OUTLOOK
SPRING 2011
___
FOR FURTHER INFORMATION: ECONOMICS DEPARTMENT
MARC STOCKER, DIRECTOR AND ISMAEL VALDES, ADVISER
TEL +32 2 237 65 23 – FAX +32 2 231 14 45 – E-MAIL: [email protected]
BUSINESSEUROPE AV. DE CORTENBERGH 168 – 1000 BRUSSELS
ECONOMIC SITUATION
? The recovery has so far been stronger than anticipated and should continue in coming
months. BUSINESSEUROPE predicts real GDP growth in 2011 to reach 1.8% in the EU
27 and 1.7% in the euro area.
? Almost one million new jobs will be created this year in EU 27, the vast majority of these in
the countries which have a stronger competitive position and sounder public finances.
Employment growth will be strongest in Poland, Luxembourg, Lithuania, Finland,
Netherlands, Germany, and Belgium.
? The recovery in Europe remains uneven, reflecting the unwinding of pre-crisis
imbalances. This implies particularly acute policy challenges for Member States which
accumulated large current account deficits before the crisis.
? In countries with stronger current account positions, the export-led recovery has now
broadened to domestic demand, with rising investment and employment being the main
sources for propagation of the momentum throughout the EU’s internal market.
? The events in Japan and North Africa are expected to have only a limited impact on EU
growth this year, although lasting disruptions to supply chains, commodity and financial
markets are at present very difficult to estimate.
? Main downside risks to our forecasts are in order of importance: oil prices, the situation of
public finances, wage pressures, financial market instability, and the risk of a tax-driven
budgetary consolidation.
POLICY CONSIDERATIONS
? Modernising wage bargaining and wage-setting mechanisms is key to improve competitive
adjustment channels. This must complement labour market reforms geared towards
flexicurity principles to improve mobility and skills matching.
? Member States’ commitment to improve competitiveness and pursue growth-enhancing
reforms should translate into concrete and ambitious National Reform Programmes to be
submitted to the European Commission this April.
? Fiscal consolidation in most Member States should be geared more clearly towards
enhanced public sector efficiency and cuts in wasteful expenditures, while supporting
growth-enhancing investments and tax reforms.
? Credible stress tests for banks must be accompanied by clear commitments to provide
financial backstops and recapitalisation plans for vulnerable institutions.
? The business community is fully confident in the ECB’s ability to firmly anchor price
expectations while preserving a dynamic recovery.
? Fiscal responsibility must lie with the Member States and the independence of the ECB
must be strongly defended.
SAILING UPWIND: EU BUSINESSES TO CREATE
1 MILLION NEW JOBS IN 2011
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 2
Table 1: BUSINESSEUROPE forecasts
EU27 Euro area
Main Variables 2010 2011 2010 2011
Real GDP (annual % growth) 1,8 1,8 1,8 1,7
Inflation (%) 1,8 2,6 1,6 2,2
Unemployment (%) 9,6 9,6 10 10
Employment (%) -0,6 0,4 -0,5 0,3
Hourly productivity growth (%) 1,6 1,0 1,6 0,9
government net lending (% of GDP) -6,9 -5,0 -6,0 -4,2
gross public debt (% of GDP) 79,1 81,6 84,1 86,1
EU27 Euro area
GDP components
(annual % growth) 2010 2011 2010 2011
Private consumption 1,0 1,0 0,8 0,9
Public consumption 0,8 -0,2 0,5 -0,1
Gross fixed capital formation 0,9 2,4 0,6 1,7
Private non-residential investment 2,1 4,2 2,1 3,5
Exports 9,9 7,0 10,8 6,6
Imports 8,6 5,9 8,4 5,4
Table 2: Forecast largest EU Member States
Change in %
Real GDP
Growth
Unemployment Investment Exports
Government
Budget Deficit
2010 2011 2010 2011 2010 2011 2010 2011 2010 2011
Germany 3,6 2,5 6,8 6,4 6,0 5,5 14,1 8,0 -3,3 -2,5
France 1,5 1,9 9,3 9,0 -1,7 2,2 9,9 6,1 -7,6 -5,9
United Kingdom 1,5 1,8 7,9 8,4 2,9 4,5 5,3 6,6 -10,2 -8,3
Italy 1,3 (c) 8,5 (c) 2,5 (c) 9,1 (c) -4,6 (c)
Spain -0,1 0,7 20,1 20,6 -7,5 -3,6 10,3 8,1 -9,2 -6,5
Netherlands 1,7 1,8 4,5 4,3 N/A N/A 12,7 7,3 N/A N/A
Poland 3,8 4,2 9,7 8,9 -2,0 6,0 10,2 16,0 -7,9 -5,0
Belgium 2,1 1.8 8,4 8,6 -1,8 2,1 10,2 4,8 -4,1 -4,7
Sweden 5,5 3,9 8,4 7,8 6,3 7,0 10,7 6,6 -0,3 -0,2
Austria 2,0 2,3 4,5 4,4 0,3 2,0 10,8 6,3 -4,5 -3,2
(c) Forecasts for Italy are confidential
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 3
1. RECOVERY CONFIRMED DESPITE RENEWED UNCERTAINTY
Until the onset of the events in North Africa and Japan, the recovery had been stronger than
previously anticipated. Based on the evidence gathered so far, our assessment for 2011
remains one of moderate optimism. BUSINESSEUROPE forecasts GDP growth in 2011 to
reach 1.8% in EU 27 and 1.7% in the euro area.
Employment is expected to grow this year by 0.4% in the EU and 0.3% in the euro area,
which means that a million new jobs will be created. Unemployment is expected to remain
stable at 9.6% of the labour force in the EU and 10% the euro area.
However, the situation differs widely from one country to another. Countries such as
Sweden, Germany, Finland or Poland are expected to grow strongly while real GDP in
Greece and Portugal are set to contract this year. The same goes for labour markets: while
the unemployment rate in Spain, for instance, is above 20% and still expected to increase
this year, joblessness in Austria and in the Netherlands is below 5% and decreasing.
As illustrated throughout this report, countries with higher external competitiveness, more
robust public finances and a sounder macroeconomic environment are generally holding out
better and contributing most to growth and labour market improvements in the EU.
As illustrated in Figure 1, countries scoring above average in our 2011 Reform Barometer
will create more than 80% of all new jobs in the EU in 2011 and should see employment
back to pre-crisis levels before the end of the year. A much less benign picture of labour
market trends is presented in Figure 1 for countries scoring below average in our Reform
Barometer.
Figure 1: Employment tightly linked to competitiveness and stability
0
2.000
4.000
6.000
8.000
10.000
12.000
Net Job creation EU
Total
Countries Above
Average Ranking
2011 Reform
Barometer
Countries Below
Average Ranking
2011 Reform
Barometer
Net Job Creation since 2005Q1, in 000s
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
EU Countries above Average Ranking:
Austria, Bulgaria, Czech Republic,
Denmark, Estonia, Finland, Germany,
Luxembourg, Netherlands, Poland,
Slovenia, Sweden
EU Countries below Average Ranking:
Belgium, Cyprus, France, Greece,
Hungary, Ireland, Italy, Latvia,
Lithuania, Malta, Portugal, Romania,
Slovakia, Spain, UK
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour
participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 4
The export-led recovery has now broadened to domestic demand, with rising investment and
employment being the main sources for propagation of the momentum throughout the EU’s
internal market. Strong industrial confidence has led to a turnaround in capital spending, with
investments becoming a key contributor to GDP growth.
More stable or gradually improving labour market conditions are supporting consumer
confidence and stimulating private consumption, which is expected to make an increasingly
positive contribution to GDP growth in the coming quarters.
However, recent events in Japan and North Africa combined with renewed tensions on
financial and commodity markets have led to renewed uncertainty on the strength of the
European and global recovery looking ahead.
The risk assessment by our members identifies oil prices and the ongoing sovereign debt crisis
as the main downside risks to growth. Other downside risks are the possibility of second-
round inflationary impacts on wage formation, financial market instability, and the risk of a
tax-driven fiscal consolidation. On the other hand, growth in the US has proved more
resilient than anticipated providing an upside risk to our baseline forecast (see Figure 2).
Figure 2: Assessment of main risks by BUSINESSEUROPE members
-50 -40 -30 -20 -10 0 10 20
US Growth
Taxation
Financial Market Situation
Wage pressures
Situation of Public Finances
Oil prices
Downside risks
Upside risks
% of responses, weighted (Min. -50; Max. 50)
Change since
November 2010
+ 25
- 1
- 5
- 25
- 8
- 19
Source: BUSINESSEUROPE April 2011 Economic Outlook
Concerns remain about the sustainability of public finances and a genuine drive to undertake
necessary reforms. We are now at a critical moment after the EU Spring Summit when
commitments must translate into concrete action at the national and EU level.
BUSINESSEUROPE 2011 Reform Barometer published on 22 March indicates that
governments are not yet sufficiently committed to stepping up their reform efforts. Policy
challenges are particularly acute in certain member states but all European countries have their
“homework” to do.
ECONOMIC OUTLOOK
Spring 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 5
Our 40 member federations have identified seven urgent priorities for further action:
? capping public expenditures and increasing public sector efficiency,
? improving framework conditions for research, development and innovation,
? supporting active labour market policies,
? removing regulatory barriers to entrepreneurship,
? developing effective public investments,
? reforming pension systems,
? improving wage bargaining and wage setting systems, in the framework of the necessary
labour market reforms based on the flexicurity approach.
2. GLOBAL DEVELOPMENTS: RISKS AND OPPORTUNITIES
a. Exports as an engine of growth
As world trade continues to expand, exports remain a key engine of the recovery in Europe,
driving industrial production and stimulating overall economic activity along the value chain.
Industrial production continues to grow healthily, but remains significantly below pre-crisis
levels, whereas industrial confidence has recovered to near-record highs.
The dynamism of exports can be attributed to strong demand from emerging markets, and
exports to Brazil or China grew by more than 40% during 2010. Exports continue to be the most
dynamic demand component in the EU economy, and are expected to grow by 7% in 2011 –
after a 10% increase during 2010.
Figure 3: export performance is a key factor of success
100
110
120
130
140
EU Countries
Above
Average
Ranking 2011
Reform
Barometer
EU Countries
Below Average
Ranking 2011
Reform
Barometer
Total Extra EU
exports
Export Volumes, billion EUR (2000), 2005Q1 = 100
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
Exchange-rate volatility is a source of concern, but the exchange rate of the EUR is still below
the pain threshold. The value of some emerging country currencies does not respond to market
fundamentals, and more exchange rate flexibility is important to correct global macroeconomic
imbalances.
EU Countries above average ranking:
Austria, Bulgaria, Czech Republic,
Denmark, Estonia, Finland, Germany,
Luxembourg, Netherlands, Poland,
Slovenia, Sweden
EU Countries below average ranking:
Belgium, Cyprus, France, Greece,
Hungary, Ireland, Italy, Latvia,
Lithuania, Malta, Portugal, Romania,
Slovakia, Spain, UK
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour
participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 6
Using the results from our 2011 Reform Barometer (Figure 3), it can be seen that countries that
obtained an above-average score across the range of 34 structural indicators have generally
seen stronger export growth in the past - which ultimately reflects competitiveness vis-à-vis
other countries (see Figure 3).
b. Risks inherent to the global environment
As stated previously, events since the beginning of 2011 have brought additional uncertainty to
the economic situation, and despite the baseline scenario being reasonably positive, the risks
are clearly on the downside.
None of the countries that are at present subject to turmoil (North Africa, Middle East and
Japan) hold a large share of extra EU exports. Among these countries, Japan is the EU’s main
trading partner, and accounts for 3.3% of export markets, whereas North African countries
account for a combined share of less than 5% (see Figure 4). Therefore, the impact from direct
trade links with Japan and North Africa could be limited.
Figure 4: Share of extra-EU exports: EU’s main trading partners (%)
18,7
8,1
7,5
6,0
4,0
3,4
3,3
2,5
2,3
2,0
2,0
2,0
34,5
1,2
0,8
0,6
United States
Switzerland
China (except Hong Kong)
Russia
Turkey
Norway
Japan
India
United Arab Emirates
Canada
Brazil
South Korea
Others
Egypt
Tunisia
Libya
Source: Eurostat
However, and more importantly, the situation in Japan may also affect the EU economy through
disruption of global supply chains, especially in sectors such as electronics, where Japan
accounts for more than half of the global production for some products. Although it is too early
to assess the gravity of the situation, there are already reports of companies in Asia, the US and
Europe being affected by the rupture of the supply-chain by their Japanese suppliers. Evidence
nevertheless suggests that the channel of transmission through global supply chains will also be
limited, as Japanese suppliers start to resume production, and manufacturers start to shift
towards alternative sources of supply.
Commodity and oil prices have returned to near-record levels not seen since the end of 2007
and beginning of 2008 (see Figure 5), due to political instability in North Africa and the Middle
East, combined with increased demand from emerging economies and robust global growth.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 7
Figure 5: Oil and commodity prices are reaching pre-crisis record levels
50
70
90
110
130
150
170
190
210
230
10
30
50
70
90
110
130
Feb
2001
Feb
2002
Feb
2003
Feb
2004
Feb
2005
Feb
2006
Feb
2007
Feb
2008
Feb
2009
Feb
2010
Feb
2011
Crude oil price (US$ / Brent barrel) (LHS)
Commodity Industrial Price Inputs (RHS), 2005=100
Source: IndexMundi based on IMF data. Commodity industrial price inputs price includes agricultural raw
materials and metals price index
While the first factor may prove to be transitory, the second could be of a more permanent
nature. The impact of the current geopolitical tensions is estimated to account for less than
25% of the recent increase in oil prices. Under these assumptions, the surge in oil prices
seems more of a lasting nature. The effect of the Japanese natural disaster on oil prices is, at
this stage, unclear.
This situation has renewed the concern over commodity price inflation, and the risk of second-
round inflation effects materialising into increased domestic prices and labour costs. This will
not only have a direct effect on economic activity, but could also put upward pressure on
interest rates, hence complicating the exit from the economic, financial, and sovereign debt
crisis.
Finally, the last, and perhaps most important channel of transmission, is through financial
market contagion, and the current uncertainty adds to existing tensions related to the sovereign
debt crisis and banking sector restructuring.
Besides, capital markets can also suffer from volatility as large capital stocks are repatriated to
Japan to finance reconstruction, having an additional impact on exchange rates and capital
availability.
3. DOMESTIC FACTORS OF RESILIENCE
a. Investment is picking up as the recovery broadens to the domestic sector
The outlook for investment has improved substantially since the last publication of our Economic
Outlook. Capital expenditure has been stronger than expected during the second half of 2010,
being the main contributor to GDP growth. Private non-residential investment is forecast to grow at
a healthy 4% during 2011, making a positive contribution to growth of almost 0.5 percentage
points. Nevertheless, investment is still below its pre-crisis levels.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 8
Increased global demand and profitability are the positive factors supporting capital investments,
whereas availability of finance and, to a lesser extent, cost of finance, are still a restraining factor
holding down capital spending (see Figure 6).
Figure 6: Factors supporting investment decisions
-60
-40
-20
0
20
40
60
80
100
Global
Demand
Profitability Capacity
Utilisation
Domestic
Demand
Cost of
Finance
Availability
of finance
November 2010 April 2011
net balance, difference between positive and negative responses , %
Source: April 2011 Economic Outlook
Investment decisions are mainly focused around rationalisation and replacement. Innovation, and
to a lesser extent, extension have increased their importance as a factor supporting investment
decision, highlighting a more positive general outlook for the EU economy (Figure 7).
Figure 7: Main investment needs
0
10
20
30
40
50
60
70
80
Rationalisation Replacement Innovation Extension
Difference between increased investment needs and decreased
investment needs (% of responses)
net balance, %
Source: April 2011 Economic Outlook
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 9
However, access to finance continues to be a hindering factor. Current capital spending appears at
present to be largely financed through internal financing. Looking ahead, external financing
constraints, linked to persistent dysfunctions in capital markets and rising public indebtedness, will
exert downward pressure on the investment recovery, as only companies with strong equity and
low leverage positions may be able to finance further investments at reasonable rates.
b. As labour markets stabilise, consumer confidence is recovering
The labour market has been the main factor of resilience during this crisis, supporting private
consumption, although large country divergences persist. As employment has started to recover,
consumer confidence has improved and is currently above its long-term average.
Figure 8: J ob creation has resumed after the crisis – one million jobs will be created in 2011
0
2.000
4.000
6.000
8.000
10.000
12.000
2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2
11 million
6 million
1.5
million
Net Job Creation since 2005Q1, in 000s
Source: Eurostat, BUSINESSEUROPE Spring 2011 Economic Outlook
Private consumption has become the largest contributor to GDP growth in the second half of 2010,
and is expected to add more than 1 percentage points to GDP growth in 2011.
From 2005 to 2008, more than 11 million jobs were created in the EU, however, the crisis wiped
out about half of these (Figure 8). The majority of the job destruction during the crisis took place in
the countries which had accumulated the largest macroeconomic and competiveness imbalances
before the crisis.
This year, one million new jobs will be created in EU 27, the vast majority of these in the countries
which had a stronger competitive position before the crisis, where labour markets have shown a
much greater level of resilience. This is shown in Figure 1, on page 3.
Labour market reforms geared towards flexicurity principles would improve geographical and
occupational mobility, as well as a better matching of skills and jobs. These are key preconditions
to enhance adjustment dynamics, employment, and productivity levels.
Modernising wage bargaining and wage-setting mechanisms is also key to improve competitive
adjustment channels, so that companies can produce in each country with unit labour costs that
are globally competitive. Removing price-indexation schemes, restricting indirect labour costs, and
reforming social benefit systems are important priorities in this respect.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 10
c. Main factors of success for a strong, resilient economy
Using the results from our BUSINESSEUROPE 2011 Reform Barometer, the overall score of the
different countries is compared with their performance in individual indicators, to assess what are
the most common features of successful economies at present.
Figure 9 shows that countries performing best in the current circumstances are likely to have
strong current account positions, lower public deficits, high employment rates, lower external debt,
a strong capital base in their banking sector and a large manufacturing sector.
Figure 9: Correlation coefficient between overall score in BUSINESSEUROPE 2011 Reform
Barometer and individual indicators
0 0,2 0,4 0,6 0,8
Size of industry
Empl.: youth & older
Bank reg. capital
R & D spending
Non perf. loans
Net foreign assets
Public debt
Employment
Unemployment
Public deficit
Current Account
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
The above relationship illustrates the interaction between external competitiveness,
macroeconomic stability, and employment. It tends to vindicate the importance of these
dimensions on the current debate on economic governance.
In this context, BUSINESSEUROPE supports the decisions taken by the European Council on 24
and 25 March to enhance crisis management instruments, improve policy coordination and
competitiveness in the “Euro Plus Pact”.
Member States’ commitment to improve competitiveness and better adapt their policy frameworks
to the reality of a monetary union, should translate into concrete action in the National Reform
Programmes to be submitted in April.
The ambitious legislative package to reinforce economic governance with automatic enforcement
rules and a central role for the Commission will also need to be agreed between the European
Parliament and the European Council before the end of June.
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 11
4. FISCAL SUSTAINABILITY AND FINANCIAL STABILITY
The state of the public finances and the lack of confidence in the banking sector are interacting
in complex ways which, ultimately, are creating instability in financial markets, and constraining
access to finance for companies.
? Large public debt financing needs are reducing capital availability for companies, and
sending waves of instability to financial systems with recurring episodes of sovereign debt
crisis (see Figure 10).
? Lack of confidence in the banking sector, balance-sheet restructuring, and new prudential
rules are limiting the amount of interbank lending, reducing risk appetite by banks, and,
resulting in reduced capital availability, and increased systemic risk of the financial sector.
? Upward pressure on interest rates stemming from rising inflationary pressures will affect the
conditions for exit from the sovereign and banking crisis.
Figure 10: Large financing needs by governments are reducing capital availability for
companies
95
100
105
110
115
120
125
130
2010Q4 2010Q2 2009Q4 2009Q2 2008Q4 2008Q2
Government Non-financial Corporations Households
Holdings of loans, securities and shares by financial
institutions by sector, Euro area
2008Q1=100
Source: ECB Statistical Data Warehouse
The interplay of these effects affects financial market stability, and consequently, access to
finance. As the recovery strengthens, credit constraints may hold down investments and growth
over the medium term. This ultimately translates into less investments and growth, as higher cost
of capital makes less investment projects viable, thus reducing potential output.
Our members expect cost of finance to increase over the next 6 months (Figure 11). Access to
finance for SMEs could also become slightly more restrictive, whereas members expect that it
could marginally improve for large companies.
Therefore, it is now even more urgent to take firm policy action, and put the recovery on a firmer
footing. This will largely depend on governments’ ability to restore confidence in public finances
and push forward ambitious competitiveness and growth-enhancing reforms.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 12
Figure 11: BUSINESSEUROPE’s Members assessment on cost and access to finance over the
next six months
0
20
40
60
80
100
SMEs Midsized and large SMEs Midsized and large
Sharply Up
Up / More
restrained
Same
Down / Easier
Cost of Finance
Access to finance
% of responses
Source: BUSINESSEUROPE April 2011 Economic Outlook
a. Smart consolidation of public finances and structural reforms
BUSINESSEUROPE members have identified the areas where governments are showing
insufficient commitment to budgetary consolidation (Figure 12).
Figure 12: Assessment of budgetary consolidation efforts by BUSINESSEUROPE’s members
-20 -10 0 10
Growth-enhancing tax reforms
Increased scope of public-private partnerships
More and better-targeted education and training
Prioritisation of infrastructure investments
More and better-targeted R&D and innovation efforts
Improved efficiency of healthcare sector
Greater efficiency of public administrations
Reform of pension systems
Credible cost-cutting measures
Tight fiscal rules and more effective institutions
Balance of responses between satisfactory (+) and unsatisfactory (-) progress, weighted (%)
Change since
November 2010
- 3
+ 5
+ 4
- 5
+ 3
+ 4
+ 8
+ 8
- 9
+9
Source: BUSINESSEUROPE April 2011 Economic Outlook
ECONOMIC OUTLOOK
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SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 13
While members assess that some progress has been made to consolidate public finances,
especially in terms of more tight fiscal rules, reform of pension systems, and greater efficiency of
public administration, the focus on a smart consolidation of public finances is missing. Expenditure
cuts have on occasion been more forceful through market discipline than motivated by a credible
commitment to undertake structural reforms.
A reform agenda for a smart consolidation of public finances should focus on expenditure cuts
while preserving productive public investments in education, innovation and infrastructure, and
undertaking growth-enhancing tax reforms. The fear of a tax-driven budgetary consolidation
underlines the necessity to combine fiscal sustainability and growth, and this can only be achieved
through far-reaching structural reforms.
b. Restoring financial stability is key to ensure access to finance
As mentioned before, access to finance is still restrained due to the interplay of the large financing needs
by the public sector, the health of the banking sector, and reduced risk appetite in financial markets.
This feedback loop is especially intense in Europe, where companies depend highly on bank
intermediation. As demand for capital intensifies, companies will find it increasingly difficult to obtain
credit, especially if securitisation markets remain dysfunctional, hindering banks’ ability to free up capital
for new lending.
BUSINESSEUROPE members’ assessment confirms that improving access to capital markets and
consolidating the banking sector are critical to restore access to finance by companies (Figure 13).
Financial market reform should aim at achieving well-functioning, resilient and stable financial markets,
facilitating the access to both debt and equity finance for companies and pursuing a balanced agenda on
financial sector reform which is more attentive to its impact on growth and job creation. Stress tests for
banks have been undertaken, and in this context, it is important that governments have financial
backstops to recapitalise banks if necessary.
Figure 13: Priorities to improve SMEs’ access to finance
0
10
20
30
Access to capital
markets
Consolidation of
Banking sector
balance sheet
Encouraging
equity financing
through tax
reforms
Better use of
existing EU
Instruments
(including EIB)
Greater Potential
for Public-Private-
Partnerships
(PPP)
net balance of responses, weighted , %
Source: BUSINESSEUROPE April 2011 Economic Outlook
Building counter-cyclical buffers in the financial sector, developing credible bank resolution frameworks
and orderly restructuring conditions in a crisis situation are all fundamental elements to mitigate risk and
protect taxpayers’ money in the future.
ECONOMIC OUTLOOK
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SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 14
c. Monetary policy of the ECB
Regarding monetary policy, the majority of BUSINESSEUROPE members believe that the current
monetary policy stance of the ECB is appropriate.
The business community views price stability as a key condition for sustainable growth and has full
confidence in the ECB’s ability to steer the right course of action, firmly anchoring expectations
while preserving a dynamic recovery.
We consider appropriate that the ECB does not pre-commit to a series of interest rate hikes after
its decision in April to increase its main refinancing rate to 1.25%.
An orderly exit from the sovereign debt and banking crisis remains of utmost priority and requires
growth in the euro area as a whole to remain firmly on track.
This said, country divergences is a matter for national governments to sort out, not the ECB.
Fiscal responsibility must lie with the Member States and the independence of the ECB must be
strongly defended.
Emergency liquidity measures and purchase of government debt by the ECB have been effectively
used as crisis management tools, but are of temporary nature and should gradually give way to
more structural solutions.
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011
WHO ARE WE?
BUSINESSEUROPE IS THE CONFEDERATION OF EUROPEAN BUSINESS, REPRESENTING SMALL,
MEDIUM AND LARGE COMPANIES. OUR MEMBERS ARE 40 LEADING BUSINESS FEDERATIONS FROM 34
COUNTRIES WORKING TOGETHER TO ACHIEVE GROWTH AND COMPETITIVENESS IN EUROPE.
WHAT IS THE ECONOMIC OUTLOOK?
THE ECONOMIC OUTLOOK TWICE A YEAR PROVIDES A BUSINESS INSIGHT INTO RECENT AND
PROJECTED ECONOMIC DEVELOPMENTS IN EUROPE, BASED ON A SURVEY OF BUSINESSEUROPE
MEMBER FEDERATIONS.
ANSWERS TO THIS SPRING’S QUESTIONNAIRE WERE RECEIVED BY EARLY APRIL.
MORE DETAILED RESULTS AND INDIVIDUAL MEMBER STATE FORECASTS ARE PUBLISHED ON OUR
WEBSITE WWW.BUSINESSEUROPE.EU
MEMBERS ARE 40 LEADING
NATIONAL BUSINESS FEDERATIONS
IN 34 EUROPEAN COUNTRIES
BUSINESSEUROPE AV. DE CORTENBERGH, 168 / BE-1000 BRUSSELS
TEL + 32 (0) 2 237 65 11 / E-MAIL: [email protected]
WWW.BUSINESSEUROPE.EU
Bulgaria Croatia
United Kingdom
SCHWEIZERISCHER ARBEITGEBERVERBAND
UNION PATRONALE SUISSE
Switzerland
The Netherlands Turkey
Austria Belgium Cyprus Czech Republic
Denmark Denmark Finland Germany
Germany Greece Hungary Iceland Iceland Ireland
Italy Luxembourg Malta
Norway Poland Portugal Portugal
Switzerland
Turkey
Estonia
Latvia Lithuania
Rep. of San Marino Romania
Slovak Republic Slovenia
France
Spain Sweden
Montenegro
doc_414746297.pdf
The recovery has so far been stronger than anticipated and should continue in coming months.
ECONOMIC OUTLOOK
SPRING 2011
___
FOR FURTHER INFORMATION: ECONOMICS DEPARTMENT
MARC STOCKER, DIRECTOR AND ISMAEL VALDES, ADVISER
TEL +32 2 237 65 23 – FAX +32 2 231 14 45 – E-MAIL: [email protected]
BUSINESSEUROPE AV. DE CORTENBERGH 168 – 1000 BRUSSELS
ECONOMIC SITUATION
? The recovery has so far been stronger than anticipated and should continue in coming
months. BUSINESSEUROPE predicts real GDP growth in 2011 to reach 1.8% in the EU
27 and 1.7% in the euro area.
? Almost one million new jobs will be created this year in EU 27, the vast majority of these in
the countries which have a stronger competitive position and sounder public finances.
Employment growth will be strongest in Poland, Luxembourg, Lithuania, Finland,
Netherlands, Germany, and Belgium.
? The recovery in Europe remains uneven, reflecting the unwinding of pre-crisis
imbalances. This implies particularly acute policy challenges for Member States which
accumulated large current account deficits before the crisis.
? In countries with stronger current account positions, the export-led recovery has now
broadened to domestic demand, with rising investment and employment being the main
sources for propagation of the momentum throughout the EU’s internal market.
? The events in Japan and North Africa are expected to have only a limited impact on EU
growth this year, although lasting disruptions to supply chains, commodity and financial
markets are at present very difficult to estimate.
? Main downside risks to our forecasts are in order of importance: oil prices, the situation of
public finances, wage pressures, financial market instability, and the risk of a tax-driven
budgetary consolidation.
POLICY CONSIDERATIONS
? Modernising wage bargaining and wage-setting mechanisms is key to improve competitive
adjustment channels. This must complement labour market reforms geared towards
flexicurity principles to improve mobility and skills matching.
? Member States’ commitment to improve competitiveness and pursue growth-enhancing
reforms should translate into concrete and ambitious National Reform Programmes to be
submitted to the European Commission this April.
? Fiscal consolidation in most Member States should be geared more clearly towards
enhanced public sector efficiency and cuts in wasteful expenditures, while supporting
growth-enhancing investments and tax reforms.
? Credible stress tests for banks must be accompanied by clear commitments to provide
financial backstops and recapitalisation plans for vulnerable institutions.
? The business community is fully confident in the ECB’s ability to firmly anchor price
expectations while preserving a dynamic recovery.
? Fiscal responsibility must lie with the Member States and the independence of the ECB
must be strongly defended.
SAILING UPWIND: EU BUSINESSES TO CREATE
1 MILLION NEW JOBS IN 2011
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 2
Table 1: BUSINESSEUROPE forecasts
EU27 Euro area
Main Variables 2010 2011 2010 2011
Real GDP (annual % growth) 1,8 1,8 1,8 1,7
Inflation (%) 1,8 2,6 1,6 2,2
Unemployment (%) 9,6 9,6 10 10
Employment (%) -0,6 0,4 -0,5 0,3
Hourly productivity growth (%) 1,6 1,0 1,6 0,9
government net lending (% of GDP) -6,9 -5,0 -6,0 -4,2
gross public debt (% of GDP) 79,1 81,6 84,1 86,1
EU27 Euro area
GDP components
(annual % growth) 2010 2011 2010 2011
Private consumption 1,0 1,0 0,8 0,9
Public consumption 0,8 -0,2 0,5 -0,1
Gross fixed capital formation 0,9 2,4 0,6 1,7
Private non-residential investment 2,1 4,2 2,1 3,5
Exports 9,9 7,0 10,8 6,6
Imports 8,6 5,9 8,4 5,4
Table 2: Forecast largest EU Member States
Change in %
Real GDP
Growth
Unemployment Investment Exports
Government
Budget Deficit
2010 2011 2010 2011 2010 2011 2010 2011 2010 2011
Germany 3,6 2,5 6,8 6,4 6,0 5,5 14,1 8,0 -3,3 -2,5
France 1,5 1,9 9,3 9,0 -1,7 2,2 9,9 6,1 -7,6 -5,9
United Kingdom 1,5 1,8 7,9 8,4 2,9 4,5 5,3 6,6 -10,2 -8,3
Italy 1,3 (c) 8,5 (c) 2,5 (c) 9,1 (c) -4,6 (c)
Spain -0,1 0,7 20,1 20,6 -7,5 -3,6 10,3 8,1 -9,2 -6,5
Netherlands 1,7 1,8 4,5 4,3 N/A N/A 12,7 7,3 N/A N/A
Poland 3,8 4,2 9,7 8,9 -2,0 6,0 10,2 16,0 -7,9 -5,0
Belgium 2,1 1.8 8,4 8,6 -1,8 2,1 10,2 4,8 -4,1 -4,7
Sweden 5,5 3,9 8,4 7,8 6,3 7,0 10,7 6,6 -0,3 -0,2
Austria 2,0 2,3 4,5 4,4 0,3 2,0 10,8 6,3 -4,5 -3,2
(c) Forecasts for Italy are confidential
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 3
1. RECOVERY CONFIRMED DESPITE RENEWED UNCERTAINTY
Until the onset of the events in North Africa and Japan, the recovery had been stronger than
previously anticipated. Based on the evidence gathered so far, our assessment for 2011
remains one of moderate optimism. BUSINESSEUROPE forecasts GDP growth in 2011 to
reach 1.8% in EU 27 and 1.7% in the euro area.
Employment is expected to grow this year by 0.4% in the EU and 0.3% in the euro area,
which means that a million new jobs will be created. Unemployment is expected to remain
stable at 9.6% of the labour force in the EU and 10% the euro area.
However, the situation differs widely from one country to another. Countries such as
Sweden, Germany, Finland or Poland are expected to grow strongly while real GDP in
Greece and Portugal are set to contract this year. The same goes for labour markets: while
the unemployment rate in Spain, for instance, is above 20% and still expected to increase
this year, joblessness in Austria and in the Netherlands is below 5% and decreasing.
As illustrated throughout this report, countries with higher external competitiveness, more
robust public finances and a sounder macroeconomic environment are generally holding out
better and contributing most to growth and labour market improvements in the EU.
As illustrated in Figure 1, countries scoring above average in our 2011 Reform Barometer
will create more than 80% of all new jobs in the EU in 2011 and should see employment
back to pre-crisis levels before the end of the year. A much less benign picture of labour
market trends is presented in Figure 1 for countries scoring below average in our Reform
Barometer.
Figure 1: Employment tightly linked to competitiveness and stability
0
2.000
4.000
6.000
8.000
10.000
12.000
Net Job creation EU
Total
Countries Above
Average Ranking
2011 Reform
Barometer
Countries Below
Average Ranking
2011 Reform
Barometer
Net Job Creation since 2005Q1, in 000s
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
EU Countries above Average Ranking:
Austria, Bulgaria, Czech Republic,
Denmark, Estonia, Finland, Germany,
Luxembourg, Netherlands, Poland,
Slovenia, Sweden
EU Countries below Average Ranking:
Belgium, Cyprus, France, Greece,
Hungary, Ireland, Italy, Latvia,
Lithuania, Malta, Portugal, Romania,
Slovakia, Spain, UK
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour
participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 4
The export-led recovery has now broadened to domestic demand, with rising investment and
employment being the main sources for propagation of the momentum throughout the EU’s
internal market. Strong industrial confidence has led to a turnaround in capital spending, with
investments becoming a key contributor to GDP growth.
More stable or gradually improving labour market conditions are supporting consumer
confidence and stimulating private consumption, which is expected to make an increasingly
positive contribution to GDP growth in the coming quarters.
However, recent events in Japan and North Africa combined with renewed tensions on
financial and commodity markets have led to renewed uncertainty on the strength of the
European and global recovery looking ahead.
The risk assessment by our members identifies oil prices and the ongoing sovereign debt crisis
as the main downside risks to growth. Other downside risks are the possibility of second-
round inflationary impacts on wage formation, financial market instability, and the risk of a
tax-driven fiscal consolidation. On the other hand, growth in the US has proved more
resilient than anticipated providing an upside risk to our baseline forecast (see Figure 2).
Figure 2: Assessment of main risks by BUSINESSEUROPE members
-50 -40 -30 -20 -10 0 10 20
US Growth
Taxation
Financial Market Situation
Wage pressures
Situation of Public Finances
Oil prices
Downside risks
Upside risks
% of responses, weighted (Min. -50; Max. 50)
Change since
November 2010
+ 25
- 1
- 5
- 25
- 8
- 19
Source: BUSINESSEUROPE April 2011 Economic Outlook
Concerns remain about the sustainability of public finances and a genuine drive to undertake
necessary reforms. We are now at a critical moment after the EU Spring Summit when
commitments must translate into concrete action at the national and EU level.
BUSINESSEUROPE 2011 Reform Barometer published on 22 March indicates that
governments are not yet sufficiently committed to stepping up their reform efforts. Policy
challenges are particularly acute in certain member states but all European countries have their
“homework” to do.
ECONOMIC OUTLOOK
Spring 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 5
Our 40 member federations have identified seven urgent priorities for further action:
? capping public expenditures and increasing public sector efficiency,
? improving framework conditions for research, development and innovation,
? supporting active labour market policies,
? removing regulatory barriers to entrepreneurship,
? developing effective public investments,
? reforming pension systems,
? improving wage bargaining and wage setting systems, in the framework of the necessary
labour market reforms based on the flexicurity approach.
2. GLOBAL DEVELOPMENTS: RISKS AND OPPORTUNITIES
a. Exports as an engine of growth
As world trade continues to expand, exports remain a key engine of the recovery in Europe,
driving industrial production and stimulating overall economic activity along the value chain.
Industrial production continues to grow healthily, but remains significantly below pre-crisis
levels, whereas industrial confidence has recovered to near-record highs.
The dynamism of exports can be attributed to strong demand from emerging markets, and
exports to Brazil or China grew by more than 40% during 2010. Exports continue to be the most
dynamic demand component in the EU economy, and are expected to grow by 7% in 2011 –
after a 10% increase during 2010.
Figure 3: export performance is a key factor of success
100
110
120
130
140
EU Countries
Above
Average
Ranking 2011
Reform
Barometer
EU Countries
Below Average
Ranking 2011
Reform
Barometer
Total Extra EU
exports
Export Volumes, billion EUR (2000), 2005Q1 = 100
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
Exchange-rate volatility is a source of concern, but the exchange rate of the EUR is still below
the pain threshold. The value of some emerging country currencies does not respond to market
fundamentals, and more exchange rate flexibility is important to correct global macroeconomic
imbalances.
EU Countries above average ranking:
Austria, Bulgaria, Czech Republic,
Denmark, Estonia, Finland, Germany,
Luxembourg, Netherlands, Poland,
Slovenia, Sweden
EU Countries below average ranking:
Belgium, Cyprus, France, Greece,
Hungary, Ireland, Italy, Latvia,
Lithuania, Malta, Portugal, Romania,
Slovakia, Spain, UK
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour
participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 6
Using the results from our 2011 Reform Barometer (Figure 3), it can be seen that countries that
obtained an above-average score across the range of 34 structural indicators have generally
seen stronger export growth in the past - which ultimately reflects competitiveness vis-à-vis
other countries (see Figure 3).
b. Risks inherent to the global environment
As stated previously, events since the beginning of 2011 have brought additional uncertainty to
the economic situation, and despite the baseline scenario being reasonably positive, the risks
are clearly on the downside.
None of the countries that are at present subject to turmoil (North Africa, Middle East and
Japan) hold a large share of extra EU exports. Among these countries, Japan is the EU’s main
trading partner, and accounts for 3.3% of export markets, whereas North African countries
account for a combined share of less than 5% (see Figure 4). Therefore, the impact from direct
trade links with Japan and North Africa could be limited.
Figure 4: Share of extra-EU exports: EU’s main trading partners (%)
18,7
8,1
7,5
6,0
4,0
3,4
3,3
2,5
2,3
2,0
2,0
2,0
34,5
1,2
0,8
0,6
United States
Switzerland
China (except Hong Kong)
Russia
Turkey
Norway
Japan
India
United Arab Emirates
Canada
Brazil
South Korea
Others
Egypt
Tunisia
Libya
Source: Eurostat
However, and more importantly, the situation in Japan may also affect the EU economy through
disruption of global supply chains, especially in sectors such as electronics, where Japan
accounts for more than half of the global production for some products. Although it is too early
to assess the gravity of the situation, there are already reports of companies in Asia, the US and
Europe being affected by the rupture of the supply-chain by their Japanese suppliers. Evidence
nevertheless suggests that the channel of transmission through global supply chains will also be
limited, as Japanese suppliers start to resume production, and manufacturers start to shift
towards alternative sources of supply.
Commodity and oil prices have returned to near-record levels not seen since the end of 2007
and beginning of 2008 (see Figure 5), due to political instability in North Africa and the Middle
East, combined with increased demand from emerging economies and robust global growth.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 7
Figure 5: Oil and commodity prices are reaching pre-crisis record levels
50
70
90
110
130
150
170
190
210
230
10
30
50
70
90
110
130
Feb
2001
Feb
2002
Feb
2003
Feb
2004
Feb
2005
Feb
2006
Feb
2007
Feb
2008
Feb
2009
Feb
2010
Feb
2011
Crude oil price (US$ / Brent barrel) (LHS)
Commodity Industrial Price Inputs (RHS), 2005=100
Source: IndexMundi based on IMF data. Commodity industrial price inputs price includes agricultural raw
materials and metals price index
While the first factor may prove to be transitory, the second could be of a more permanent
nature. The impact of the current geopolitical tensions is estimated to account for less than
25% of the recent increase in oil prices. Under these assumptions, the surge in oil prices
seems more of a lasting nature. The effect of the Japanese natural disaster on oil prices is, at
this stage, unclear.
This situation has renewed the concern over commodity price inflation, and the risk of second-
round inflation effects materialising into increased domestic prices and labour costs. This will
not only have a direct effect on economic activity, but could also put upward pressure on
interest rates, hence complicating the exit from the economic, financial, and sovereign debt
crisis.
Finally, the last, and perhaps most important channel of transmission, is through financial
market contagion, and the current uncertainty adds to existing tensions related to the sovereign
debt crisis and banking sector restructuring.
Besides, capital markets can also suffer from volatility as large capital stocks are repatriated to
Japan to finance reconstruction, having an additional impact on exchange rates and capital
availability.
3. DOMESTIC FACTORS OF RESILIENCE
a. Investment is picking up as the recovery broadens to the domestic sector
The outlook for investment has improved substantially since the last publication of our Economic
Outlook. Capital expenditure has been stronger than expected during the second half of 2010,
being the main contributor to GDP growth. Private non-residential investment is forecast to grow at
a healthy 4% during 2011, making a positive contribution to growth of almost 0.5 percentage
points. Nevertheless, investment is still below its pre-crisis levels.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 8
Increased global demand and profitability are the positive factors supporting capital investments,
whereas availability of finance and, to a lesser extent, cost of finance, are still a restraining factor
holding down capital spending (see Figure 6).
Figure 6: Factors supporting investment decisions
-60
-40
-20
0
20
40
60
80
100
Global
Demand
Profitability Capacity
Utilisation
Domestic
Demand
Cost of
Finance
Availability
of finance
November 2010 April 2011
net balance, difference between positive and negative responses , %
Source: April 2011 Economic Outlook
Investment decisions are mainly focused around rationalisation and replacement. Innovation, and
to a lesser extent, extension have increased their importance as a factor supporting investment
decision, highlighting a more positive general outlook for the EU economy (Figure 7).
Figure 7: Main investment needs
0
10
20
30
40
50
60
70
80
Rationalisation Replacement Innovation Extension
Difference between increased investment needs and decreased
investment needs (% of responses)
net balance, %
Source: April 2011 Economic Outlook
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 9
However, access to finance continues to be a hindering factor. Current capital spending appears at
present to be largely financed through internal financing. Looking ahead, external financing
constraints, linked to persistent dysfunctions in capital markets and rising public indebtedness, will
exert downward pressure on the investment recovery, as only companies with strong equity and
low leverage positions may be able to finance further investments at reasonable rates.
b. As labour markets stabilise, consumer confidence is recovering
The labour market has been the main factor of resilience during this crisis, supporting private
consumption, although large country divergences persist. As employment has started to recover,
consumer confidence has improved and is currently above its long-term average.
Figure 8: J ob creation has resumed after the crisis – one million jobs will be created in 2011
0
2.000
4.000
6.000
8.000
10.000
12.000
2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2
11 million
6 million
1.5
million
Net Job Creation since 2005Q1, in 000s
Source: Eurostat, BUSINESSEUROPE Spring 2011 Economic Outlook
Private consumption has become the largest contributor to GDP growth in the second half of 2010,
and is expected to add more than 1 percentage points to GDP growth in 2011.
From 2005 to 2008, more than 11 million jobs were created in the EU, however, the crisis wiped
out about half of these (Figure 8). The majority of the job destruction during the crisis took place in
the countries which had accumulated the largest macroeconomic and competiveness imbalances
before the crisis.
This year, one million new jobs will be created in EU 27, the vast majority of these in the countries
which had a stronger competitive position before the crisis, where labour markets have shown a
much greater level of resilience. This is shown in Figure 1, on page 3.
Labour market reforms geared towards flexicurity principles would improve geographical and
occupational mobility, as well as a better matching of skills and jobs. These are key preconditions
to enhance adjustment dynamics, employment, and productivity levels.
Modernising wage bargaining and wage-setting mechanisms is also key to improve competitive
adjustment channels, so that companies can produce in each country with unit labour costs that
are globally competitive. Removing price-indexation schemes, restricting indirect labour costs, and
reforming social benefit systems are important priorities in this respect.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 10
c. Main factors of success for a strong, resilient economy
Using the results from our BUSINESSEUROPE 2011 Reform Barometer, the overall score of the
different countries is compared with their performance in individual indicators, to assess what are
the most common features of successful economies at present.
Figure 9 shows that countries performing best in the current circumstances are likely to have
strong current account positions, lower public deficits, high employment rates, lower external debt,
a strong capital base in their banking sector and a large manufacturing sector.
Figure 9: Correlation coefficient between overall score in BUSINESSEUROPE 2011 Reform
Barometer and individual indicators
0 0,2 0,4 0,6 0,8
Size of industry
Empl.: youth & older
Bank reg. capital
R & D spending
Non perf. loans
Net foreign assets
Public debt
Employment
Unemployment
Public deficit
Current Account
Source: BUSINESSEUROPE 2011 Reform Barometer, Eurostat
The above relationship illustrates the interaction between external competitiveness,
macroeconomic stability, and employment. It tends to vindicate the importance of these
dimensions on the current debate on economic governance.
In this context, BUSINESSEUROPE supports the decisions taken by the European Council on 24
and 25 March to enhance crisis management instruments, improve policy coordination and
competitiveness in the “Euro Plus Pact”.
Member States’ commitment to improve competitiveness and better adapt their policy frameworks
to the reality of a monetary union, should translate into concrete action in the National Reform
Programmes to be submitted in April.
The ambitious legislative package to reinforce economic governance with automatic enforcement
rules and a central role for the Commission will also need to be agreed between the European
Parliament and the European Council before the end of June.
BUSINESSEUROPE 2011 Reform
Barometer Score is based on 34
indicators covering:
? Productivity and Investment
? Trade and Competitiveness
? Employment and labour participation
? Fiscal Sustainability
? Financial Stability
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 11
4. FISCAL SUSTAINABILITY AND FINANCIAL STABILITY
The state of the public finances and the lack of confidence in the banking sector are interacting
in complex ways which, ultimately, are creating instability in financial markets, and constraining
access to finance for companies.
? Large public debt financing needs are reducing capital availability for companies, and
sending waves of instability to financial systems with recurring episodes of sovereign debt
crisis (see Figure 10).
? Lack of confidence in the banking sector, balance-sheet restructuring, and new prudential
rules are limiting the amount of interbank lending, reducing risk appetite by banks, and,
resulting in reduced capital availability, and increased systemic risk of the financial sector.
? Upward pressure on interest rates stemming from rising inflationary pressures will affect the
conditions for exit from the sovereign and banking crisis.
Figure 10: Large financing needs by governments are reducing capital availability for
companies
95
100
105
110
115
120
125
130
2010Q4 2010Q2 2009Q4 2009Q2 2008Q4 2008Q2
Government Non-financial Corporations Households
Holdings of loans, securities and shares by financial
institutions by sector, Euro area
2008Q1=100
Source: ECB Statistical Data Warehouse
The interplay of these effects affects financial market stability, and consequently, access to
finance. As the recovery strengthens, credit constraints may hold down investments and growth
over the medium term. This ultimately translates into less investments and growth, as higher cost
of capital makes less investment projects viable, thus reducing potential output.
Our members expect cost of finance to increase over the next 6 months (Figure 11). Access to
finance for SMEs could also become slightly more restrictive, whereas members expect that it
could marginally improve for large companies.
Therefore, it is now even more urgent to take firm policy action, and put the recovery on a firmer
footing. This will largely depend on governments’ ability to restore confidence in public finances
and push forward ambitious competitiveness and growth-enhancing reforms.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 12
Figure 11: BUSINESSEUROPE’s Members assessment on cost and access to finance over the
next six months
0
20
40
60
80
100
SMEs Midsized and large SMEs Midsized and large
Sharply Up
Up / More
restrained
Same
Down / Easier
Cost of Finance
Access to finance
% of responses
Source: BUSINESSEUROPE April 2011 Economic Outlook
a. Smart consolidation of public finances and structural reforms
BUSINESSEUROPE members have identified the areas where governments are showing
insufficient commitment to budgetary consolidation (Figure 12).
Figure 12: Assessment of budgetary consolidation efforts by BUSINESSEUROPE’s members
-20 -10 0 10
Growth-enhancing tax reforms
Increased scope of public-private partnerships
More and better-targeted education and training
Prioritisation of infrastructure investments
More and better-targeted R&D and innovation efforts
Improved efficiency of healthcare sector
Greater efficiency of public administrations
Reform of pension systems
Credible cost-cutting measures
Tight fiscal rules and more effective institutions
Balance of responses between satisfactory (+) and unsatisfactory (-) progress, weighted (%)
Change since
November 2010
- 3
+ 5
+ 4
- 5
+ 3
+ 4
+ 8
+ 8
- 9
+9
Source: BUSINESSEUROPE April 2011 Economic Outlook
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 13
While members assess that some progress has been made to consolidate public finances,
especially in terms of more tight fiscal rules, reform of pension systems, and greater efficiency of
public administration, the focus on a smart consolidation of public finances is missing. Expenditure
cuts have on occasion been more forceful through market discipline than motivated by a credible
commitment to undertake structural reforms.
A reform agenda for a smart consolidation of public finances should focus on expenditure cuts
while preserving productive public investments in education, innovation and infrastructure, and
undertaking growth-enhancing tax reforms. The fear of a tax-driven budgetary consolidation
underlines the necessity to combine fiscal sustainability and growth, and this can only be achieved
through far-reaching structural reforms.
b. Restoring financial stability is key to ensure access to finance
As mentioned before, access to finance is still restrained due to the interplay of the large financing needs
by the public sector, the health of the banking sector, and reduced risk appetite in financial markets.
This feedback loop is especially intense in Europe, where companies depend highly on bank
intermediation. As demand for capital intensifies, companies will find it increasingly difficult to obtain
credit, especially if securitisation markets remain dysfunctional, hindering banks’ ability to free up capital
for new lending.
BUSINESSEUROPE members’ assessment confirms that improving access to capital markets and
consolidating the banking sector are critical to restore access to finance by companies (Figure 13).
Financial market reform should aim at achieving well-functioning, resilient and stable financial markets,
facilitating the access to both debt and equity finance for companies and pursuing a balanced agenda on
financial sector reform which is more attentive to its impact on growth and job creation. Stress tests for
banks have been undertaken, and in this context, it is important that governments have financial
backstops to recapitalise banks if necessary.
Figure 13: Priorities to improve SMEs’ access to finance
0
10
20
30
Access to capital
markets
Consolidation of
Banking sector
balance sheet
Encouraging
equity financing
through tax
reforms
Better use of
existing EU
Instruments
(including EIB)
Greater Potential
for Public-Private-
Partnerships
(PPP)
net balance of responses, weighted , %
Source: BUSINESSEUROPE April 2011 Economic Outlook
Building counter-cyclical buffers in the financial sector, developing credible bank resolution frameworks
and orderly restructuring conditions in a crisis situation are all fundamental elements to mitigate risk and
protect taxpayers’ money in the future.
ECONOMIC OUTLOOK
SPRING 2011
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011 14
c. Monetary policy of the ECB
Regarding monetary policy, the majority of BUSINESSEUROPE members believe that the current
monetary policy stance of the ECB is appropriate.
The business community views price stability as a key condition for sustainable growth and has full
confidence in the ECB’s ability to steer the right course of action, firmly anchoring expectations
while preserving a dynamic recovery.
We consider appropriate that the ECB does not pre-commit to a series of interest rate hikes after
its decision in April to increase its main refinancing rate to 1.25%.
An orderly exit from the sovereign debt and banking crisis remains of utmost priority and requires
growth in the euro area as a whole to remain firmly on track.
This said, country divergences is a matter for national governments to sort out, not the ECB.
Fiscal responsibility must lie with the Member States and the independence of the ECB must be
strongly defended.
Emergency liquidity measures and purchase of government debt by the ECB have been effectively
used as crisis management tools, but are of temporary nature and should gradually give way to
more structural solutions.
SAILING UPWIND: EU BUSINESSES TO CREATE 1 MILLION NEW JOBS IN 2011
WHO ARE WE?
BUSINESSEUROPE IS THE CONFEDERATION OF EUROPEAN BUSINESS, REPRESENTING SMALL,
MEDIUM AND LARGE COMPANIES. OUR MEMBERS ARE 40 LEADING BUSINESS FEDERATIONS FROM 34
COUNTRIES WORKING TOGETHER TO ACHIEVE GROWTH AND COMPETITIVENESS IN EUROPE.
WHAT IS THE ECONOMIC OUTLOOK?
THE ECONOMIC OUTLOOK TWICE A YEAR PROVIDES A BUSINESS INSIGHT INTO RECENT AND
PROJECTED ECONOMIC DEVELOPMENTS IN EUROPE, BASED ON A SURVEY OF BUSINESSEUROPE
MEMBER FEDERATIONS.
ANSWERS TO THIS SPRING’S QUESTIONNAIRE WERE RECEIVED BY EARLY APRIL.
MORE DETAILED RESULTS AND INDIVIDUAL MEMBER STATE FORECASTS ARE PUBLISHED ON OUR
WEBSITE WWW.BUSINESSEUROPE.EU
MEMBERS ARE 40 LEADING
NATIONAL BUSINESS FEDERATIONS
IN 34 EUROPEAN COUNTRIES
BUSINESSEUROPE AV. DE CORTENBERGH, 168 / BE-1000 BRUSSELS
TEL + 32 (0) 2 237 65 11 / E-MAIL: [email protected]
WWW.BUSINESSEUROPE.EU
Bulgaria Croatia
United Kingdom
SCHWEIZERISCHER ARBEITGEBERVERBAND
UNION PATRONALE SUISSE
Switzerland
The Netherlands Turkey
Austria Belgium Cyprus Czech Republic
Denmark Denmark Finland Germany
Germany Greece Hungary Iceland Iceland Ireland
Italy Luxembourg Malta
Norway Poland Portugal Portugal
Switzerland
Turkey
Estonia
Latvia Lithuania
Rep. of San Marino Romania
Slovak Republic Slovenia
France
Spain Sweden
Montenegro
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