CHAPTER 46 Eurozone Growth Can’t Move beyond First Gear but Needs to Keep Deflation at Bay1

Not unlike most forecasters (including World Bank, Asian Development Bank, Organisation for Economic Co-operation and Development, and US Fed), the International Monetary Fund’s (IMF) midyear update tells the same story of consistent overestimations since 2009, in a long line of serial misjudgments.2 It blames unanticipated factors for the inaccuracies, never its outdated models. For now: Global growth is expected to rebound from the second quarter of 2014 to register a marked-down rise of 3.4 percent for 2014 as a whole; projection for 2015 remains at 4 percent. Similarly, growth in the eurozone is “expected to strengthen to 1.1 percent in 2014 and 1.5 percent in 2015.”3 Still too optimistic, I feel, given the prospective conditions. Today, we know better.

Definite Weakening

As I write, evidence is building that the conflict in Ukraine and the US/European Union (EU) sanctions and Russia’s countersanctions are undermining the eurozone/EU recovery that President Mario Draghi of the European Central Bank (ECB) has already judged to be fragile at best. Chronically deficient demand is definitely holding back EU growth. A clear sign came on August 6, 2014, when the Italian economy fell back into recession, with gross domestic product (GDP) down by 0.2 percent in the second quarter of 2014 (–0.1 percent in the first quarter of 2014). Seriously, Italy never emerged from recession in practice—in ...

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