The European Commission has warned in its latest quarterly economics report
on the Eurozone that per capita living standards could fall to 60% of US levels
by 2023, which would be a ratio comparable with the mid-1960s.
United States GDP (gross domestic product) grew an average inflation-adjusted
3.4% in the period 1960-2007 and is forecast to grow by 2.5% over the decade to
2023, similar to the years before the crisis.
The Commission's report says "that not only has the US's growth performance
been relatively less affected by the financial crisis but also that the US is
expected to emerge from the crisis in a stronger position compared with the euro
area. Following the inevitable rebalancing / restructuring of their
respective economies in the immediate post-crisis period (i.e. 2008-2013), the
US is expected to achieve average potential and per capita income growth rates
over the period 2014-2023 which are broadly comparable with the pre-crisis
decade, whereas the euro area's equivalent growth rates are
expected to be halved."
In the half decade before the outbreak of the crisis after the recovery from
the tech bubble burst, the US economy did not return to creating jobs at levels
seen in the 1980s and 1990s.
The best jobs year was 2005 when an average 208,000 jobs were added monthly
as the workforce naturally grew by about 90,000. In 1994, the average monthly
jobs gain was 320,000.
Nevertheless, the Eurozone absent reforms, performs poorly relative to a
period that wasn't a stellar one for the US.
In coming years, the United States also has an advantage
that the Eurozone
US crude oil production rose to the highest level in 25-years last month,
boosted by the shale fracking boom with annual growth forecast to average 0.8m
barrels per day (MMbbl/d) through 2016, when domestic production comes close to
the historical high of 9.6 MMbbl/d achieved in 1970. Even though domestic crude
oil production is projected to level off and then slowly decline after 2020
according to a US Energy Information Administration forecast, natural gas
production grows steadily, with a 56% increase between 2012 and 2040, when
production reaches 37.6tn cubic feet (Tcf).
The Commission report notes the catching up in terms of productivity between
the countries in the single currency with the US from the mid-1960s until 1995
while countries that would join the zone from 1999 were showing increasing divergences
between each other.
In 1995, hourly labour productivity was almost 90% of
the US level (the US
population was growing faster); the gap widened a further 10% by 2013 and will
widen to 73% by 2023 while "the euro area is forecast to end up in 2023 with
living standards relative to the US which would be lower than in the mid-1960's.
If this was to materialise, euro area living standards (potential GDP per
capita) would be at only around 60% of US levels in 2023, with close to 2/3 of
the gap in living standards due to lower labour productivity levels, and with
the remaining 1/3 due to differences in the utilisation of labour (i.e.
differences in hours worked per worker and the employment rate)."
The report says:
This issue of the need to boost euro area growth prospects was
forcefully highlighted at the launch of the Lisbon Strategy back in 2000, when
EU potential growth rates were at a healthier 2 ½% annual rate. It is necessary
to highlight this issue again, more than a full decade later, with the case for
reform now being manifestly more pressing. As demonstrated by the wide variation
in the past and current growth performances of individual euro area countries,
policies matter greatly in determining medium to long run growth and income
outcomes. Over the last years, Europe has reinforced its economic governance. In
order to bring the growth potential of all euro area countries up to that of the best
performers, structural reforms must be continued and further advanced in line
with the priorities identified in the European Semester and the 'Europe 2020'
Quarterly report on euro area, December 2013
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