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Biannual economic outlook of the Confederation of European Business

The Confederation of European Business, better known as BusinessEurope, has recently published its biannual economic outlook. The lobby group representing EU enterprises of all sizes, but often too aligned with the Commission, estimates that EU growth should proceed above its long-term rate. However, it expresses concerns over geopolitical uncertainties and skill shortages, especially related to the digital economy, that it feels might damage the EU economy.

The overall picture of growth is good for Northern Europe while Mediterranean countries still struggle for sustainable economic growth. The 2.2% EU GDP growth forecasted for 2018 and the 2.0% expected in 2019 are directly affected by Southern Europe’s lack of performance. While BusinessEurope contents that growth will slightly slowdown in most EU economies, figures nonetheless reveal that it will remain strong in Baltic states, Poland, Ireland, and the United Kingdom. [Table 2].

Improvements in labour markets around Europe have been central to this GDP increase. EU unemployment levels are now comparable to pre-crisis rates at about 6.8% (August 2018) and well below the 11% peak in March 2013. However, this is definitely higher than forecasts for the USA (3.5% for 2019) and directly linked to Mediterranean countries’ poor economic recovery in the last years.

Unemployment in the Euro-area remains above its pre-crisis level and is uneven across its member states. For instance, Greece and Spain are faced with endemic unemployment raising their rates around 10% — well above EU average. In comparison, unemployment in Hanseatic countries is much below EU average, and thus closer to the USA, with Germany, Poland, and the UK having rates below 4%. The higher GDP increase forecasted for these Northern European countries will further improve the labour market and translate into higher investments and business opportunities.

 

Key risks to growth, however, continue to be related to increasing policy uncertainty and geopolitical tensions, such as the future relationship between the EU and UK and the US-China Trade dispute. Estimations by the IMF consider that an escalating trade war will almost certainly lead to at least 1% GDP loss in 2020 – while the uncertainty regarding Brexit leaves its consequences unforeseeable — though BusinessEurope’s outlook suggests the UK will have a higher GDP growth and most EU member states.

It is also particularly concerning that enterprises surveyed by BusinessEurope have reported difficulties in hiring workers. The rapid digitalisation of the economy has brought signs of a structural mismatch with current labour markets trends and a genuine threat to the EU.

New technologies are fundamentally changing EU economies in a way that requires workers to have developed the necessary skills to facilitate the digital transformation. But current EU education curriculum and labour training have failed to provide such skills to workers. The Commission’s lack of leadership on the question further highlights its incapacity to foster innovation and adapt to the future business environment.

 

BusinessEurope argues for five policy considerations to ensure the EU’s prosperity. These largely reflect the fact that it is very much a part of the EU Establishment and tends to put forward views that support the interests of its big business members or will go down well with the Commission – or both! That said, it is worth reflecting on their suggestions which are:

  • Adapting EU education systems to the ongoing digital changes, equipping future workers with the right skills to navigate through the next technological revolution.
  • National and EU level reforms to reduce rigidities in product and labour market.
  • Member states need to respect the Stability and Growth Pact (SGP), drawing on in-built flexibility for structural reforms and growth-enhancing investment.
  • Decisive steps need to be taken in the Euro summit in December deepening Economic and Monetary Union (EMU).
  • Global trade uncertainties are far from being over and the EU will have to be extra careful as the WTO dispute settlement mechanism risks being ineffective in the coming months.