In a typical economic cycle, the recessionary phase is followed by a recovery phase in which growth is marked and job creation strong. In the aftermath of the Global Financial Crisis, this model has not been seen. The main recessionary wave is clearly over, but although major economies have all returned to growth, the growth has been fairly anaemic and job creation has lagged behind the traditional curve.
In Europe, matters were exacerbated (notably within the Eurozone) by the Sovereign Debt crisis which was triggered by the uncovering of Greece’s use of creative accounting tools when joining the Euro at its inception. Markets worried about Greece’s ability to meet its financial obligations, pushing borrowing costs to unmanageable levels with knock-on consequences for other states determined to have fragile finances. The upshot of this was to propagate doubt and uncertainty which hindered business investment and expansion, muting the European recovery.
As a result of the Global Financial Crisis, many banks had to consolidate their balance sheets (not least because legislators insisted that their stockholders should bear the brunt of any future crisis), making it difficult for businesses to find financing and prolonging the subdued nature of the recovery. The upshot of this, repeated to a greater or lesser extent around the world, was to stifle global demand which led to a decline in commodity prices in response to the fall in consumption. The decline in the oil price was partially driven by weaker global demand, but other factors played a key role (killing off shale-oil production, for instance?).
Unemployment has remained high in Europe and business confidence subdued. Against this backdrop, the projection by the European Commission that growth for the EU in 2015 should come in at 1.9% may seem positively Bullish. They expect growth in the 28 member bloc to increase to 2% next year and 2.1% in 2017. The Eurozone projections are 1.6; 1.8 and 1.9%, respectively.
Growth is expected to be patchy across both the Eurozone and the wider EU. The benighted Greek economy is expected to shrink by 1.4% this year and by 1.3% in 2016, but bounce back to growth of 2.7% in 2017. Time will tell.