The ‘Japanisation’ of the Eurozone is an increasingly common theme these days. In one key respect, there are similarities – Japan and the Eurozone are both creating jobs. It is not the parallel implied. ‘Japanisation’ has become a by-word for slow growth and low inflation, exacerbated by an ageing population.
Despite all the ‘gloomy’ surveys, unemployment continues to fall across the Eurozone, down 174k in March. The jobless rate is now only 0.4 percentage points above the last cyclical low reached between November 2007 and March 2008. The importance of services should explain the discrepancy between perceptions of business surveys and the hard data. The headlines have been dominated by news of poor Ifo surveys, manufacturing PMIs, etc. However, the service sector indicators have broadly held up better, and this is where the jobs are being created.
For sure, Germany is struggling: the downturn in manufacturing has hit GDP growth. At the same time, however, both the surveys and hard data suggest that the rest of the economy has so far remained relatively unscathed. If the fate of the service sector has become less dependent on manufacturing, this suggests that Germany is transitioning, too, and may be becoming less dependent on the export-led model. A comparable shift is underway in Japan.
However, it is worth adding: Germany is not the Eurozone. A host of smaller, more nimble countries are showing how technology can be a stimulant for job creation. If Italy, and France, can learn some of these lessons, that would help bring the Eurozone jobless rate down past the lows of 2008. In Japan, full employment has led to bigger wage gains. A similar outcome is possible in the Eurozone.
