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The European Commission published its latest economic projections for the EU. The Eurozone economy is projected to contract 0.4% in 2012 and remain roughly steady during 2013, driven only by a small increase in net exports with employment deteriorating further and pushing the Euro unemployment rate close to 12%.

One interesting table is the one outlining the difference between GDP and GNI (Gross National Income) in periphery countries due to net outflows of primary income, which makes the fall in domestic income (and demand) much deeper than the corresponding fall in output. This situation is highly relevant in the case of Ireland where a large part of net exports income is transfered abroad to multinational company headquarters:

As a result, in terms of GNI Ireland will have lost a total of 15% by 2014 (a depression), Spain 8% while Greece and Portugal will have the equivelant of another deep recession year added to their list of ‘lost years’.

The employment outlook remains bleak, especially due to the fact that unemployment duration has elevated substantially since the start of the crisis, with long-term unemployed now accounting for more than 50% in the case of certain periphery countries:

The direct result is that screening procedures, skills loss and matching difficulties push the Euro Beveridge curve outwards which will lower future potential growth rates:

Moving to Greece, the EC expects a recession a bit lower than the current Greek government budget projections:

Since a recent Eurobank paper calculated Greek fiscal multiplier for the current macro environment, the 2013 austerity measures can be used to gauge on the expected impact on next year’s output (I will assume a moderate revenue multiplier of -0.3 and use the budget 2013 GDP deflator of -1.2%). Multipliers are real GDP multipliers.  I will also project an optimistic total real export growth of €2bn.

Given that the first budget draft was assuming a no policy change real GDP loss of 1.2%, the projected total loss of output will be around 6.7-10.5% of GDP and the 2013 nominal GDP €173 – 181bn.

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Kostas Kalevras

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