The crisis has seriously affected the economic performance of every EU Member State. The EU27 seasonally-adjusted real GDP slumped by as much as 5% in the first quarter of 2009 compared to first quarter of 2008. While a detailed analysis of the crisis and its employment impact is contained in the previous chapter of this report, this section serves as a reminder of some facts pertinent to further analysis.
Though capital formation generally accounts for roughly a fifth of total GDP, Chart 4 (left) shows that the decrease in total demand was due to a large extent to a collapse in investment as the business climate deteriorated and as firms became more and more pessimistic about economic prospects. Indicators of business and market sentiment bottomed out in early 2009 however, and have recovered to their pre-crisis levels.(43) The chart also reveals that a huge increase in government expenditure designed to alleviate the economic and social impact of the crisis has served to prevent an even worse economic outcome.
Many of the government measures focused on the labour market are outlined above. Their main target was to prevent the slump in demand from pulling down employment. Most of them are temporary tools installed within the unemployment insurance system, or STWA aimed at encouraging a reduction in working hours rather than the number of jobs.
text
Given the magnitude of the economic slowdown, it is obvious that these measures were most successful in EU Member States where job losses appeared comparably moderate. Chart 4 (right) plots the change of real GDP from the 2nd quarter of 2008 to the 2nd quarter of 2009 against the change in the unemployment rate from the 4th quarter of 2008 to the 4th quarter of 2009 (noting that employment has a time lag in reacting to changes in overall demand). It can be noted that, as a result of the extensive use of STWA in Germany (where the number of take-ups peaked at around 3% of the total workforce during 2009), the German labour market proved relatively resilient to the demand shock. But the picture varies considerably across Europe - in the Baltic countries a GDP slump of 16% or more led to a doubling of the unemployment rate in only one year.
In fact, despite various measures facilitating the reduction of working hours, the sheer scale of the demand drop in 2009 brought reductions in both numbers employed and average hours worked, although there is no doubt that during the crisis the pressure to reduce staff was contained and alleviated to a considerable extent by the various schemes designed to provide compensation for reduced working time.
(43) | Sentiment indicators bottomed out at the beginning of 2009 and have recovered only recently to their pre-crisis levels (see EU Economic Sentiment Indicator in, for example, EU Employment Situation and Social Outlook, Monthly Monitor). |