Tuesday, January 14, 2014

14/1/2014: DG ECFIN latest long-range forecasts for euro area, 2014-2023

Some interesting, although abysmal, forecasts from DG ECFIN on euro area's growth prospects out through 2023. Original paper is linked here.

Few charts of note with my comments:

Total factor productivity growth in Euro area... three regimes: decline in 1970s, gradual and shallow recovery in 1980s-1990s, collapse in 2000s and early 2010s, and now expected shallow recovery to below 1% trend in 2015-2023... In brief - abysmal...

Subsequently, steady decline in TFP relative to the US, from levels already below those in the US in 1995 (ca 85% of the US levels back then) to some 25% lower than the US into 2023... Meanwhile, physical capital share is declining less dramatically and is remaining close to that found in the US... which implies that we are witnessing in the case of the euro area increasing relative physical capital intensity of production compared to tech and human capital intensity?..

Notice how the crisis effects on output growth are 'permanent' - through 2023 forecasts, the euro area is not expected to regain the rate of growth in output, let alone the levels of output consistent with pre-crisis trends. That is ca 15 years of 'lost decade' (obviously subject to forecast uncertainty) and a gap of ca 20% of GDP... and this gap will remain beyond 2023 (unless one to dream up a scenario of a discrete jump in GDP of ca 20% comes 2024...)

 Now onto US-euro area comparatives. These speak for themselves.

Ugly prospects for the euro area, to put it mildly.

And a summary of that conclusion:

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