Much of the attention on the Eurozone has understandably been centred on Germany. Very poor IFO surveys, a contraction in real GDP (Q2) and the first signs of a rise in unemployment have put the ECB under pressure to deliver fresh monetary stimulus.
The Eurozone employment report released last Wednesday casts some light on precisely what has gone wrong, and why looser monetary policy is not the answer.
Germany is struggling, but that in part reflects a failure of its technology sector. Job creation has been weak. Manufacturing has run into difficulties, for a myriad of reasons. However, Germany is not alone in this respect. The key difference between Germany, on the one hand, and China, Japan and the US on the other, is the ability of the latter three to churn out jobs in tech-related services.
France is doing much better and demonstrates in part why the Eurozone ‘downturn’ is not a macro story. Tech-related employment is growing much more quickly, reflecting the more buoyant start-up scene, and the much higher investment in software. As a share of real GDP, intellectual property products expenditures were 5.8% in France, far exceeding Germany’s 3.9% share in Q2 (up from 3.8% in Q1).
Italy has been doing better too. In annual terms, it is still creating fewer jobs, but the trend in key sectors such as information & communication remains very encouraging. Furthermore, the data in Greece has been very positive. The recovery will be given a significant boost by government-led reforms.
