As I have pointed out repeatedly, unlike the United States, the European Union is stuck in a state of economic stagnation. This problem is now about to ruin the only moderately positive number for the EU economy: its moderately low unemployment rate.
Last week, Eurostat reported:
In the second quarter of 2024, seasonally adjusted GDP increased by 0.3% in both the euro area and the EU, compared with the previous quarter, according to a flash estimate published by Eurostat … In the first quarter of 2024, GDP had also grown by 0.3% in both zones.
On the employment side, they explain:
The number of employed persons increased by 0.2% in both the euro area and the EU in the second quarter of 2024, compared to the previous quarter. In the first quarter of 2024, employment had grown by 0.3% in both zones.
If we look solely at these numbers, there does not seem to be much of a problem in the EU economy. As shown in Table 1 below, the quarter-to-quarter increase (Q-t-Q) looks steady with no negative trend in it.
However, if we shift to year-to-year (Y-t-Y) data, we see that the European labor market is steadily weakening:
Table 1
It is only a matter of time—a short period of time—before the trend in the labor market turns negative, i.e., unemployment starts rising. If we break down the Eurostat numbers by month, we find a downtick in the unemployment rate in the spring, from 6.4% in February to 5.9% in April. Since then, the rate has only fallen marginally to 5.8% in June.
Just like numbers for a single quarter do not tell us much about long-term trends, numbers for isolated months are of little meaning in this regard. Nevertheless, it is worth noting that in June, nine EU member states experienced an increase in unemployment, compared to only four in April and May.
With that said, unemployment figures for the European Union are at historic lows. As Figure 1 reports, unionwide unemployment around 6% is unheard of this side of the Millennium. The rate, which is reported in blue, is compared to the growth rate in real GDP in red, with the anomalous swings due to the pandemic marked in gray (and flattened out by a 1.4% yearly average for 2020-2022):
Figure 1
The comparison of GDP to unemployment tells us two things. First, the classic business cycle swings in GDP have historically coincided with expectable swings in unemployment:
- When GDP growth was high in 2006-2007, unemployment fell;
- When GDP growth declined sharply in 2008-2009, unemployment rose rapidly;
- The GDP recovery in 2010-2011 was soon followed by a flattening of the unemployment curve.
After that, a new dip in GDP growth in 2012-2013 led to yet another spike in unemployment. This time, the jobless rate topped out at 12.2% (first quarter of 2013), after which it has fallen continuously, with a brief exception for the artificial, pandemic-related economic shutdown in 2020-2021. The recent flattening out of the downward trend in unemployment is laudable, though a bit surprising, given relatively weak GDP growth at or just above 2%. If anything, we should have expected the EU’s overall unemployment rate to turn upward sooner.
As another indication that it is about to do just that, the youth unemployment rate for the EU started weakening this spring. In May, 15 of the 27 member states experienced an increase in the jobless rate for workers 25 years and younger. The fact that only nine of them did the same in June is probably attributable to students seeking temporary employment during the summer.
Overall, 14.7% of the young workforce in the EU was unemployed in June. In comparison to 2023, youth unemployment is marginally higher so far through 2024, indicating but not actually confirming a weakening trend. However, unemployment among young workers is a persistent problem across the EU, with four countries above 20% in June: Sweden (29.5%), Spain (25.8%), Estonia (22.5%), and Greece (21.1%).
Another seven countries reported a youth jobless rate above 15%:
- Slovakia, 19.9%
- Italy, 19.4%
- Greece, 19.1%
- France, 17.0%
- Luxembourg, 16.6%
- Belgium, 15.7%
Three countries have had a youth unemployment rate above 20% for at least six consecutive months: Sweden, Portugal, and Spain.
Romania probably belongs in that category, but their reporting of youth jobless rates is so spotty that the Eurostat has not published any numbers for them since December last year. Their rate was at 22.2% for the last three months of 2023.
The big underlying problem for the EU is, of course, a practically stagnant economy. From the second quarter of 2023 through the first quarter of 2024—the most recent for which Eurostat has published national accounts—the union’s combined real gross domestic product grew at an average annual rate of 0.17%. This is less than one tenth of the 1.9% from 2019, or the 2.0% annual rate from the second half of 2022.
Although Malta, Croatia, Cyprus, and Lithuania managed to grow their economies by more than 3% in the first quarter of this year, the overall picture for the EU was bleak. Eight member states reported a shrinking GDP, half of which lost more than 1% of their GDP: Austria (-1.1%), Finland (-1.6%), Estonia (-2.1%), and Ireland (-4.7%).
It takes at least 2% real GDP growth for a country to sustain its standard of living over time; for the economy to offer better opportunities for its young than their parents had, conventionally an economy must grow at 3% or more. These rates must then be sustained over several years, something that has become rare in Europe in recent decades.
In the 2010s, Hungary, Malta, and Poland effectively qualified as 3%-growth countries, thus offering the best opportunities for their young to build a prosperous future. These three are also positive exceptions on an otherwise pessimistic economic platter: Malta sustains growth rates in excess of 3%, while Hungary and Poland appear to have just left brief recessions behind them for a return to an expanding GDP.
Overall, though, Europe is stuck in a state of economic stagnation that is not debated nearly as much as it needs to be.
