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The European economy has shown signs of recovery in 2002, but is still troubled by turbulent financial markets, weak domestic demand and the sluggish US economy.
The International Monetary Fund (IMF) has warned of a European slowdown. In a statement after talks with finance ministers from European countries in Brussels last month, the IMF said growth in the euro-zone in 2002 "may be somewhat weaker than expected." It also claimed the basic prospect would seem to remain one of an upswing back to potential growth.
The European economy had a good kick-off this year. The gross domestic product (GDP) of the 12-nation euro-zone grew by 0.3 per cent in the first quarter this year after registering a 0.2 per cent fall over the past three months of last year. The growth of GDP for the second quarter is expected to reach between 0.3 per cent to 0.6 per cent.
However, the European economy is still not strong enough to reach the projected growth rate of 1.4 per cent for the whole year. Economists attributed the positive growth to a strong performance in exports, up 0.8 per cent in the first quarter. At the same time, the financial and business sectors witnessed a growth of 0.5 per cent.
All these offset a drop of 0.5 per cent in investment and a drop of 0.2 per cent in consumption expenditure, which highlighted the fact that growth in the euro-zone lacks domestic demand support and is vulnerable to the ups and downs of the world economy.
As the biggest trade partner of the European countries, the United States will see its appetite for European goods significantly reduced by its weak economy. Meanwhile, a sharp rise of the euro against the US dollar also poses a challenge to the net exports of the euro-zone in the second half of this year.
To revive the euro-zone economy, the largest challenges are the sluggish consumption expenditure and investment. According to the latest data released by the European Commission, the consumer confidence index fell for the second consecutive month in July. Meanwhile, business confidence for June and July in Germany, France, Italy and Belgium, which account for three quarters of the economic output of the euro-zone, also experienced a fall.
Economists said the fall in confidence is mainly due to rising unemployment and falling stock markets. The jobless rate in the euro-zone rose to 8.4 per cent in June from 8.1 per cent in January.
The turbulent stock market also dealt a heavy blow to the confidence of consumers and investors. Given the close economic links across the Atlantic, the European stock markets always dance to the tune set in the Wall Street. The Dow Jones industrial average index has experienced a big plunge this year, dragging European markets down,too.
At the beginning of this year, The FTSE Eurotop 300 index of pan-European blue chips has decreased by 20 per cent, reflecting the fall in market confidence on the growth outlook. The setback from the stock market would eventually hinder the expansion of the real economy, warned analysts.
(Xinhua News Agency August 27, 2002)
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