THE following, which we are publishing below, is taken from the 'Monday Briefing', by Ian Stewart, Chief Economist for Deloitte UK:-
* We start this week's Briefing with a question. In which region or country – the US, Japan, euro area or the UK – have expectations for GDP growth remained most robust over the last year? A clue: it saw the fastest GDP growth in the first quarter of this year.
* The answer is the euro area. The outlook for the US, Japanese and UK economies has deteriorated markedly in the last year while euro area growth expectations have seen only modest downgrades.
* In the last four years the US and the UK economies have comfortably outpaced a stuttering euro area. But this year, with growth in the US and UK cooling, and euro area activity nudging up, GDP growth in the three regions is likely to be roughly the same, at around the 1.8% mark.
* Euro area growth is hardly stellar. But there has been a modest recovery, one which seems to have been eclipsed in the news by political uncertainties, the migration crisis and deflation risks.
* So where has Europe's low-key recovery come from?
* The labour market has turned up in the last couple of years, with the previously weakest economies including Italy, Spain and Ireland seeing some of the largest declines in unemployment. Europe has a reputation for high unemployment, but the reverse is true of its largest economy. At 4.3% Germany's unemployment rate is lower than that in the US or the UK and at its lowest level in more than 25 years.
* Falling inflation has boosted consumer spending power. In Germany, real earnings are rising by 2.0% a year, close to previous cyclical peaks.
* The result is that consumers are spending more. Confidence about splashing out on "big ticket" items such as TVs and furniture is close to levels last seen in the early 2000s. Car sales are up by almost 10% in the last year (the Italians seem to have thrown caution to the wind; car sales there have risen 19% in the last year).
* The European Central Bank's cheap money policies are having an effect. Credit demand from consumers and corporates has revived since the nadir in 2011. In the last year unsecured borrowing by euro area consumers has risen by 6.6%, a faster rate than in the UK. Easy monetary policy is one factor behind the decline in the value of the euro which has offered some support for the region's exporters.
* Recovery in the previously recession-stricken periphery of the euro area has been an additional tailwind. Spain and Ireland have seen strong recoveries and are at the top of the European growth league. But this is an unequal recovery: the return to growth in Italy and Portugal has been muted and Greece remains in recession.
* As Britain's EU referendum approaches the euro area economy seems to be narrowing the growth gap with the UK. Deloitte's survey of Chief Financial Officers across Europe shows that perceptions of uncertainty in the UK are higher than in the euro area. Corporate risk appetite has fallen sharply in the UK and is well below euro area levels. While UK CFOs expect to reduce capital spending and employment euro area CFOs expect to raise them. Much of this gap may be due to Brexit uncertainties. But whatever the cause it seems likely that the euro area will grow faster than the UK in the first half of 2016.
* The euro area recovery is fragile and risks abound. Brexit would be a political earthquake for the EU. Inflation is worryingly low. Greece needs another bailout; Europe's borders and its monetary union need fixing.
Brexit and European politics* The "What the UK Thinks: EU Poll of Polls", based on the average share of the vote for 'Leave' and 'Remain' in the six most recent polls carried out between 26th April and 8th May shows Remain and Leave tied on 50% (adjusting for the removal of "don't knows")* According to the latest political betting odds cited by PaddyPower, there is currently a 31% implied probability of Brexit – unchanged from last week* Polling by the British Chambers of Commerce (BCC) found 54% of BCC members said they would vote to remain in the EU, with support for Remain down seven points from 60% in February* In its most outspoken comments on the issue to date, the Bank of England used its quarterly Inflation Report to warn that Brexit could lead to a loss of jobs, higher prices, and even lead to recession* Cabinet Minister Michael Gove, the leave campaign's most senior figure, said that Britain will quit Europe's single market if the country votes to leave the EU* Two former US national security advisers Stephen Hadley and Tom Donilon, warned that the UK's EU referendum is putting at risk the postwar project of a "Europe whole, free and at peace"* Polling of nine EU member countries by Ipsos Mori shows that 45% of European voters now want a referendum on EU membership in their countries, suggesting wide-spread disillusionment with the current direction of the trade bloc* The same polling by Ipsos Mori also revealed that the idea that Brexit might start a 'domino effect' with other countries then leaving the EU is shared by 48% of those polled in Belgium, France, Germany, Hungary, Italy, Poland, Spain and Sweden* The French finance minister, Michel Sapin, said that a British exit from the EU would force European countries into closer co-operation, and might make countries like Sweden and Denmark "come closer to the euro"* Although 697,000 EU nationals were issued with UK national insurance numbers between June 2014 and June 2015, analysis by the Office of National Statistics shows that just 265,000 of these migrants stayed in the UK beyond a short-period working here* Former-Cabinet minister Iain Duncan Smith escalated his feud with the pro-EU Treasury by claiming that the institution should be broken up and is "the worst thing we have in Britain"* German Finance Minister Wolfgang Schäuble said that the UK won't be able to use a Leave vote to as leverage to negotiate a better deal with the EU, telling fellow finance ministers in Berlin that "In means in and out means out"* Campaigners for Britain to leave the EU have so far raised more money than their rivals in the Remain camp, according to data released by the Electoral Commission* Chancellor George Osborne confirmed to MP's on the Treasury Committee that "The Bank of England and the Treasury are doing quite a serious amount of contingency planning for the impact on financial stability in the aftermath of a vote to leave [the EU]"* Alan Johnson, the chairman of Labour's Remain campaign, prompted criticism from Eurosceptics after branding Leave campaigners "extremist" and "not rational" for refusing to acknowledge any positive benefits of EU membership* George Osborne warned that Brexit would lead to "tens of thousands" of potential job losses in the financial services industry, claiming that 285,000 jobs in the sector are linked to business with Europe.