Economic growth has now resumed in the EU, with positive GDP growth being recorded from the third quarter of 2009 onwards, although the recovery remains fragile.
The recession from which the EU has now emerged was the deepest and most widespread in the post-war era, and in some cases the contraction in activity was the largest seen since even the 1930s. After several years of favourable growth, and a particularly good performance in terms of employment creation, economic and labour market conditions deteriorated sharply in the second part of 2008. This occurred as a result of the impact of the financial crisis which deepened in autumn 2008, and which resulted from a fall in asset prices after a period of asset price inflation, leading to a liquidity shortage among financial institutions and concerns over their solvency. These concerns were subsequently transmitted to non-financial sectors (the so-called ‘real economy’), and came on top of a correction in the housing markets in many countries. The ensuing weakening in global and domestic demand, and a marked drop in investor confidence together with tighter financing conditions and a reduction in the availability of credit, had a dramatic effect on the economy and subsequently the labour market(5).
The downturn in the EU economy actually started in the second
quarter of 2008, as quarter-on-quarter GDP growth turned negative
following a substantial drop
(Chart 1). At the same time employment
growth in the EU effectively petered out, this quarter thus marking the
point at which the (seasonally adjusted) level of employment in the EU
peaked, while the unemployment rate began to head upwards after
reaching a low in the previous quarter. This turning point is therefore
used here as the reference point for comparing subsequent developments
in the labour market. The already negative trend was subsequently
bolstered in the latter part of 2008, following the marked deepening in
the financial crisis in September and October, leading to more
substantial impacts on the labour market in subsequent quarters. The
deterioration in employment in the EU only came to an end in the second
quarter of 2010, as late as a year after economic recovery had started,
when the level of employment remained unchanged on the previous quarter
for the first time in nearly two years and the unemployment rate
stabilised.
(5) | For a more detailed account of the causes of the crisis see “Economic Crisis in Europe: Causes, Consequences and Responses”, European Economy 7/2009, DG Economic and Financial Affairs, European Commission. |