The ECB released its monthly bulletin for June today. Apart from a general overview of developments in the Euro area and a large stock of statistical information, it also includes a few interesting boxes.

Recovery from the Great Recession

Recovery since the Great Recession is compared with historical data of past recoveries and broken down in GDP components:

In the case of the Euro area, it is quite evident that the (household) balance sheet recession has impacted heavily on private consumption (which almost did not contribute at all to the recovery), while fiscal consolidation since 2010 in most of Eurozone countries also played a strong part (which basically eliminated public consumption contribution, although it did not turn negative overall, probably due to initial fiscal stimulus immediately after the Lehman Brothers episode). Almost all of the GDP recovery was due to net trade. Having the largest economic block in the world look for positive flows only from net trade is worrying, since recovery in major trade partners (USA, UK) is fragile and net trade (and the tradable sector in general) is too small to play a significant role in lifting the Eurozone from current high unemployment/low growth levels.

In the case of the US, recovery seems like a ‘smaller’ version of past recoveries. The major difference is in the public consumption contribution which, despite the 2009 fiscal stimulus package, is actually marginally negative, pointing to the fact that the federal deficit was actually not enough to offset declines in state/regional level and to provide a strong demand push. The US situation would probably have been a lot different if the fiscal stance was more expansionary. Net trade contribution was less negative than historical averages.

The case of the UK clearly points to a classic balance sheet recession (with a little help from positive public consumption), while Japan managed to maintain its private consumption levels (since it went through its own housing/stock bubble two decades ago) and achieve a large positive contribution from net trade.

What is quite important is the fact that the Euro area, UK and Japan all posted positive net trade contributions, while the US had much lower (probably below -0,1%) negative contribution. It seems that all of the developed world (which represents the major part of global GDP) is looking for positive flows from external trade in its path to recovery. Something feels a bit unsustainable in this view.

Construction Industry

A few, very informative charts on the construction industry evolution since the introduction of the Euro are included:

It is quite evident how the construction industry was a major contributor in economic and employment growth during the boom and how it acted as a negative force since 2008, actually dropping to levels lower than 2000 pointing to either overshooting or a structural transformation of the industry.

Value added for selected euro area countries also makes the boom (and bust) in Spain very clear, while it seems that there’s still way to go to reach 2000 levels. Substantial growth was also observed in Italy and France which seems to be gone by now, with some signs of stabilization in the case of France. Germany clearly faced a recession between 2000 and 2004, with no substantial growth since then, while the Netherlands managed a small boom between 2004 and 2008 which was wiped out in the 2009 recession.

The industry’s prospects do not seem positive for the near future:

Aging Fiscal Challenges

It seems that population aging will result in a substantial increase in fiscal costs after 2020:

What is interesting is a breakdown of projected increases in fiscal costs by countries:

Greece has clearly closed the gap with the 2009 projection to levels around 2,5-3% GDP, while Italy and Portugal are already near zero. Spain continues to pose a high risk, although a bit lower than 2009. Euro core countries such as Germany, Netherlands, Finland and Luxemburg actually have large projected increases in fiscal costs (close to 5% for Germany, 7% for Finland, close to 9% for the Netherlands), with Luxemburg being an outlier with a projected increase around 12%.