All right, getting the perfect balance regarding the European economies is difficult, but maintaining imbalances should be even more challenging. Or should one say more absurd?
The question is that UK’s GDP will exceed the level seen at the start of 2008 with a 2.8% by the end of the year. Other major developed counterparts such as Germany or Sweden have already reached 2008 pre-recession peak in 2013 or even before. It partly depends on the GDP’s percentage that countries have to recover. Anyway, even though the British economy is on the right track, it is not yet growing at full speed. Some of its imbalances still remain: an excessive account deficit burdens long-term rebalancing towards net exports. Furthermore, British businesses will only increase their capital if low inflation and low interest rates persist.
Within the EU imbalances accumulated during previous years to crisis continue to normalize, but new ones appear, as reported by last European Commision’ study on macroeconomic gaps. New challenges to face would comprise the impact of high private and public debt on medium term growth; debt sustainability in a context of low inflation; the need to make credit flow to real economy of most vulnerable economies, especially to sectors different from exports, and finally high level of unemployment. The EC extends to 17 the number of countries under surveillance for their macroeconomic imbalances, as Italy, Croatia and Slovenia have been included in the group of excessive imbalances.
Germany, reprimanded by EC
Spain has left this last group thanks to reforms and the return of growth. However, the most important point is that the European executive timidly scolded Germany for its high current account deficit, which has exceeded 6% of GDP in last six years.
“This situation reflects not only German economy’s elevated competitiveness, but also its internal demand weakness as well as an inefficient distribution of resources,” BEKA Finance’s research department’s chief economist José Ramón Díez says. What is worse, “this excess of German saving is mostly invested outside therefore losing the opportunity to push internal investment up, which at the end reduces economic growth potential and generates severe imbalances in other EU’s countries,” Díez adds.
EMU’s countries share the same currency in a capital market which is absolutely liberalized. “Silently the euro is pricing over 1.38 against the U.S. dollar and this is the darkest cloud in European recovery since it can impact negatively on growth and on an 1% low inflation,” BEKA Finance’s chief economist concludes. Then could euro’s appreciation open new imbalances in Europe as a whole, including pound sterling-ruled UK?