Economically speaking, Europe is heading in the wrong direction. After a slow and in many ways unsatisfactory recovery from the pandemic, the euro zone’s GDP growth in the first quarter of this year was down to 1.1% year to year. The EU as a whole did marginally better at 1.2%, but both these numbers are lower than in the second half of 2022.
Together with a slowly rising unemployment rate, these growth numbers indicate strongly that Europe is indeed entering a recession. However, the trend is not the same in all parts of the continent. Spain, which for a long time was stuck in economic stagnation, is now at the top of the GDP growth league, while equally long-time growth champions Hungary and Poland saw marginally negative GDP numbers in the first quarter.
At the same time, the Hungarian unemployment rate is a low 4.1%, one of the best in Europe. Spain, on the other hand, which has had solid growth numbers for over a year, does not seem to be able to reduce its high unemployment. It actually ticked up in the first quarter to 13.3%, from 12.9% in the last quarter of 2022.
Germany, whose economy is now standing still, continues to boast a record-low 3% unemployment rate. This is less than half the rate of the euro zone.
The contrasts continue across many other variables. To give a more accurate picture of where Europe is today, I have compiled a brief fact sheet on each of the 27 EU member states. It covers six different economic variables:
1. Annual GDP growth, adjusted for inflation.
The number reported is for Q1 this year, which is compared to the number for Q4 last year (reported in parentheses). The use of GDP growth as a gauge of economic performance hardly needs explanation; what matters is to use the year-to-year measurement for GDP growth. Other measures can lead to fatally erroneous conclusions regarding a country’s economic performance.
2. Inflation.
The common measurement for inflation is the consumer price index, which is either represented by the CPI acronym, or by PCE, which is short for personal consumption expenditures. This index is good for quick indicators regarding inflation, especially since they can be turned around on fairly short notice. This is why we get monthly CPI/PCE updates from major statistical agencies.
However, this index has its flaws, in that it is based on a select basket of consumer goods and services. This basket is carefully chosen and regularly updated, but its information value is nevertheless limited. For comprehensive studies of inflation and its trends, it is better to use the GDP deflator. This is also an index, but it is based on the entire economy. It has different data collection points than the CPI, making it less volatile over time, and it is less exposed to the ups and downs in prices that come with volatile prices on imported products.
For these reasons, I chose to use the GDP deflator for inflation numbers in this review. While the numbers vary from country to country, the overall picture is more troubling than we see in CPI numbers. There is also good news for some countries, in particular for Hungary: while their CPI-based inflation numbers remain above 20%, their GDP deflator numbers are far better, showing a much more decisive trend toward price stability than the CPI does.
As with the GDP numbers, the inflation figures are for the first quarter this year (with Q4 2022 added for comparison).
3. Private consumption as a share of GDP.
This number is included to give an idea of the inherent strength of the individual economies. A high ratio of consumption to GDP means that the economy is inherently resilient and that it is generally characterized by free markets for the delivery of goods and services to households.
By contrast, a low ratio suggests that the country may have a large, growth-stifling public sector; it is a good idea to compare this ratio to the tax-to-GDP ratio also reported here. Furthermore, when consumption is relatively low compared to GDP, it implies that economic resources are generally being used for other purposes than to build prosperity for the country’s own population.
This number is reported as a four-quarter average, in order to neutralize quarter-to-quarter fluctuations in the economic activity of individual countries.
4. Unemployment.
Nothing strange here, just the standard rate for total unemployment as a share of the workforce. Numbers are for first quarter 2023 (and 4th quarter 2022).
5. Taxes as share of GDP.
It is common to use spending to measure the impact of government on the economy. There is nothing wrong with that per se; both taxes and government spending contribute to depressing GDP growth. However, the effect of spending is more long term, as it replaces free-market distribution of goods and services with what are by definition economic-planning systems. Taxes affect the economy more directly. Here, again, a four-quarter average is used in order to smoothen out economic fluctuations.
6. Budget balance as share of government spending.
The greatest risk to European prosperity in the coming years is another fiscal crisis like the one that erupted in 2009-2010. Recessions are notoriously bad for government finances; the more EU member states that enter the impending recession with budget deficits, the higher the risk is for an EU-wide government-debt crisis.
All data reported here is sourced from Eurostat.
Austria
GDP growth: 1.91% (2.43%)
Inflation: 7.81% (6.53%)
Consumption, 4-quarter average: 48.7% of GDP
Unemployment: 5.5% (4.8%)
Taxes, 4-quarter average: 48.5% of GDP
Budget balance, 4-quarter average: -5.93% of government spending
Belgium
GDP growth: 1.48% (1.62%)
Inflation: 5.36% (5.64%)
Consumption, 4-quarter average: 49.8% of GDP
Unemployment: 5.6% (5.6%)
Taxes, 4-quarter average: 49.0% of GDP
Budget balance, 4-quarter average: -7.50% of government spending
Bulgaria
GDP growth: 2.11% (2.63%)
Inflation: 16.37% (15.57%)
Consumption, 4-quarter average: 58.8% of GDP
Unemployment: 5.6% (5.6%)
Taxes, 4-quarter average: 37.3% of GDP
Budget balance, 4-quarter average: -5.87% of government spending
Croatia
GDP growth: 2.83% (3.46%)
Inflation: 13.28% (10.62%)
Consumption, 4-quarter average: 56.8% of GDP
Unemployment: 4.4% (3.9%)
Taxes, 4-quarter average: 44.1% of GDP
Budget balance, 4-quarter average: 1.56% of government spending
Cyprus
GDP growth: 3.44% (4.59%)
Inflation: 5.09% (6.58%)
Consumption, 4-quarter average: 60.9% of GDP
Unemployment: 7.3% (6.8%)
Taxes, 4-quarter average: 41.1% of GDP
Budget balance, 4-quarter average: 6.24% of government spending
Czechia
GDP growth: -0.09% (0.14%)
Inflation: 12.18% (11.35%)
Consumption, 4-quarter average: 45.7% of GDP
Unemployment: 2.2% (2.6%)
Taxes, 4-quarter average: 39.8% of GDP
Budget balance, 4-quarter average: -8.09% of government spending
Denmark
GDP growth: 2.75% (1.86%)
Inflation: 1.25% (5.78%)
Consumption, 4-quarter average: 41.9% of GDP
Unemployment: 5.0% (4.6%)
Taxes, 4-quarter average: 48.2% of GDP
Budget balance, 4-quarter average: 7.36% of government spending
Estonia
GDP growth: -3.24% (-4.13%)
Inflation: 12.50% (16.02%)
Consumption, 4-quarter average: 49.0% of GDP
Unemployment: 5.3% (5.4%)
Taxes, 4-quarter average: 37.8% of GDP
Budget balance, 4-quarter average: -2.15% of government spending
Finland
GDP growth: -0.10% (-0.24%)
Inflation: 6.08% (4.79%)
Consumption, 4-quarter average: 50.0% of GDP
Unemployment: 7.1% (6.2%)
Taxes, 4-quarter average: 51.9% of GDP
Budget balance, 4-quarter average: -1.63% of government spending
France
GDP growth: 1.11% (0.19%)
Inflation: 5.60% (4.80%)
Consumption, 4-quarter average: 51.4% of GDP
Unemployment: 7.2% (7.3%)
Taxes, 4-quarter average: 52.6% of GDP
Budget balance, 4-quarter average: -8.25% of government spending
Germany
GDP growth: -0.17% (0.23%)
Inflation: 6.20% (6.23%)
Consumption, 4-quarter average: 49.9% of GDP
Unemployment: 3.0% (3.0%)
Taxes, 4-quarter average: 46.4% of GDP
Budget balance, 4-quarter average: -4.98% of government spending
Greece
GDP growth: 2.34% (4.47%)
Inflation: 4.32% (5.23%)
Consumption, 4-quarter average: 67.7% of GDP
Unemployment: 11.9% (11.9%)
Taxes, 4-quarter average: 49.6% of GDP
Budget balance, 4-quarter average: -4.92% of government spending
Hungary
GDP growth: -0.95% (0.39%)
Inflation: 13.72% (18.30%)
Consumption, 4-quarter average: 49.0% of GDP
Unemployment: 4.1 % (3.9%)
Taxes, 4-quarter average: 40.9% of GDP
Budget balance, 4-quarter average: -11.91% of government spending
Ireland
GDP growth: -0.19% (12.02%)
Inflation: 4.87% (7.36%)
Consumption, 4-quarter average: 22.8% of GDP
Unemployment: 4.1% (4.2%)
Taxes, 4-quarter average: 22.8% of GDP
Budget balance, 4-quarter average: 7.03% of government spending
Italy
GDP growth: 1.98% (1.08%)
Inflation: 5.86% (5.59%)
Consumption, 4-quarter average: 60.3% of GDP
Unemployment: 8.3% (7.9%)
Taxes, 4-quarter average: 48.0% of GDP
Budget balance, 4-quarter average: -14.43% of government spending
Latvia
GDP growth: 0.83% (1.20%)
Inflation: 8.98% (13.22%)
Consumption, 4-quarter average: 60.5% of GDP
Unemployment: 6.4% (6.7%)
Taxes, 4-quarter average: 35.2% of GDP
Budget balance, 4-quarter average: -9.15% of government spending
Lithuania
GDP growth: -2.49% (-0.35%)
Inflation: 13.01% (16.05%)
Consumption, 4-quarter average: 59.0% of GDP
Unemployment: 7.8% (6.4%)
Taxes, 4-quarter average: 35.2% of GDP
Budget balance, 4-quarter average: 0.19% of government spending
Luxembourg
GDP growth: -0.35% (-2.21%)
Inflation: 7.04% (3.17%)
Consumption, 4-quarter average: 28.2% of GDP
Unemployment: 4.9% (4.6%)
Taxes, 4-quarter average: 42.8% of GDP
Budget balance, 4-quarter average: 1.14% of government spending
Malta
GDP growth: 3.13% (5.15%)
Inflation: 5.97% (6.42%)
Consumption, 4-quarter average: 42.0% of GDP
Unemployment: 2.9% (2.9%)
Taxes, 4-quarter average: 34.2% of GDP
Budget balance, 4-quarter average: -14.02% of government spending
Netherlands
GDP growth: 1.93% (3.19%)
Inflation: 7.57% (7.01%)
Consumption, 4-quarter average: 43.5% of GDP
Unemployment: 3.7% (3.5%)
Taxes, 4-quarter average: 43.5% of GDP
Budget balance, 4-quarter average: 0.24% of government spending
Poland
GDP growth: -0.13% (0.72%)
Inflation: 15.42% (16.18%)
Consumption, 4-quarter average: 56.1% of GDP
Unemployment: 2.9% (2.9%)
Taxes, 4-quarter average: % of GDP
Budget balance, 4-quarter average: -7.14% of government spending
Portugal
GDP growth: 2.74% (2.84%)
Inflation: 8.09% (7.23%)
Consumption, 4-quarter average: 62.2% of GDP
Unemployment: 7.2% (6.6%)
Taxes, 4-quarter average: 43.2% of GDP
Budget balance, 4-quarter average: 0.44% of government spending
Romania
GDP growth: 2.31% (4.55%)
Inflation: 13.26% (11.72%)
Consumption, 4-quarter average: 63.3% of GDP
Unemployment: 5.8% (5.4%)
Taxes, 4-quarter average: 33.0% of GDP
Budget balance, 4-quarter average: -14.81% of government spending
Slovakia
GDP growth: 1.02% (1.22%)
Inflation: 12.02% (8.10%)
Consumption, 4-quarter average: 60.7% of GDP
Unemployment: 6.2% (6.1%)
Taxes, 4-quarter average: 39.1% of GDP
Budget balance, 4-quarter average: -4.47% of government spending
Slovenia
GDP growth: 0.67% (0.22%)
Inflation: 12.42% (9.35%)
Consumption, 4-quarter average: 54.2% of GDP
Unemployment: 3.8% (3.5%)
Taxes, 4-quarter average: 41.2% of GDP
Budget balance, 4-quarter average: -6.55% of government spending
Spain
GDP growth: 4.10% (3.29%)
Inflation: 6.09% (4.60%)
Consumption, 4-quarter average: 55.7% of GDP
Unemployment: 13.3% (12.9%)
Taxes, 4-quarter average: 42.0% of GDP
Budget balance, 4-quarter average: -8.92% of government spending
Sweden
GDP growth: 1.26% (-0.41%)
Inflation: 7.98% (7.11%)
Consumption, 4-quarter average: 42.4% of GDP
Unemployment: 7.8% (6.8%)
Taxes, 4-quarter average: 47.7% of GDP
Budget balance, 4-quarter average: 1.75% of government spending
