Macroeconomic trends in Europe with view to collective bargaining

1. Macroeconomic trends in Europe with view to collective bargaining EMF CB Committe summer school Portugal 13-15 September 2010 Béla Galgóczi Based on the macroeconomic chapter of the Eucoban report prepared by Vera Glassner and Bela Galgoczi vglassner@etui.org bgalgoczi@etui.org

2. Structure of presentation • Basic facts and prognoses on the fragile upturn in Europe • Is the crisis over now? • Labour market situation still depressed • The performance of the relevant manufacturing sub-sectors (output, orders, employment, productivity) • Productivity, inflation and wages - what does this mean for collective bargaining in the sector • Conclusions

3. The new danger: austerity • The debt crisis in the Eurozone has pushed governments in a number of high-debt and/or high deficit countries, • such as Ireland, Italy, Greece, Portugal and Spain, to apply draconian austerity measures. • Under pressure from the financial markets countries with low debt ratios, such as Germany and France, have also adopted consolidation programs. • This abrupt farewell to stimulus packages and the expansionary fiscal policy threatens to sweep away the hesitant and fragile recovery in Europe.

4. Europe in 2010 – a divided picture • GDP is expected to grow (annual average) by 1.0 per cent in the EU-27 and by 0.9 per cent in the Eurozone in 2010 • Signs of recovery took greater momentum in Germany in the second quarter of 2010. • 3.7 per cent year-on-year increase of GDP in the second quarter of 2010 • helped the Eurozone upwards with year-on-year GDP growth of 1.7 per cent (instead of the forecast 1.4 per cent) • The current upswing was driven by a surge in German exports that were mostly boosted by the weak euro in the first half of 2010. • This upswing seems to be over now…

5. Gross domestic product in 2009 and prognosis for 2010 (annual growth) Data Source: European Commission (2009).

6. Unemployment rate, 2009-2010

7. Labour market prospects By early 2010 unemployment has further grown in all EU countries, by summer 2010 only signs of stabilisation in a number of countries although on a very high level • High unemployment will remain a huge problem in the mid-term even if output starts to grow • It is a further danger that output growth is based on productivity growth and not on employment growth • We should not forget that manufacturing output fell by 19% in the first Q of 2009, employment fell by 6% • In automobile industry output down by 40% in Q1, employment by 7.5% • It will take a long time to restore pre-crisis employment

8. Industrial output – spring 2010 • Industrial output of the EU-27 showed a clear upswing by over 10% by Spring 2010 • This was however only enough to bring industrial output back to the level of 2001 • The scar of the economic crisis remains there • Slide 10 shows the upswing by product groups, intermediate goods (like steel, car parts, chemicals) taking the lead by over 10% year-on-year increase

9. Industrial output: with the upswing back in 2001 Data Source: European Commission (2009).

10. Industry upswing by product groups

11. Productivity, inflation, wages In the next slides we show major trends in productivity, nominal wages and inflation based on the Commissions Ameco data basis The first graph shows long-term productivity trends, where the industry and manufacturing have built up a huge productivity advantage compared to the whole economy During the crisis some of this `productivity reserve` disappeared, but the advantage remained Slides 13-14-15 show trends on whole economy level, as this is what counts at wage negotiations

12. Longer term trend of productivity (before crisis)

13. Development of productivity, 2009-2010

14. Inflation by country, 2009-2010

15. Development of nominal wages, 2009-2010

16. Real wage developments, 2009, 2010 • 2009: EU-27 average increased by 0.55% • + 0.88 per cent in the Euro area • Germany saw a decrease by 1.5 per cent. • The situation was worst in Latvia and Lithuania, where real wages declined by 11 and 5 per cent, • in 2009, Bulgaria, Greece had the highest increases, by 4% • In 2010 real wages to grow by 0.37% in the EU-27 and by 0.61% in the Eurozone. • Greece: a real wage drop by 3.6% and further CEE countries + UK and Ireland is also likely to have a decrease • Spain and Germany: slightly increase (by 0.5 and 0.8 per cent).

17. Wage formula in 2009 and 2010 • In 2009 the wage formula was `over-performed` by 2.9% in the Eurozone: 2 % drop in productivity and 0.9% increase of real wage • Not so in the EU-27 level, where in 2009 both productivity and real wages decreased by 2% • For 2010 for the Euro area expects a lower real wage increase (1.5 per cent) than that of productivity (almost 2%). • For the EU-27, again under-performing by 1.6%, with a productivity increase of 2 per cent and a real wage increase of 0.4 per cent. • Eurozone (without Germany) rather balanced, Germany and non-Eurozone MS under pressure

18. Conclusions on the bargaining climate • Even if the vague signs of an upturn get manifested in the rest of the year, auterity packages pose a huge threat • Labour market is further on under stress • 2009 was only an exception that the wage formula was fulfilled (but only in the Eurozone without Germany) • CB climate further on very difficult, especially because of the austerity obsession • Wage increases would be a precondition for recovery and the interest of all players as consumer demand is key in overcoming the crisis! • GERMANY should take the lead (in wage increases)