#PolicyBlog Good news (for once)!


Good news (for once)!

The EU is recovering, writes the Economist. Consumer confidence is higher than in July 2011, growth in manufacturing and services industries is the highest in 4 fours, and the unemployment rate (at 11.3%) is the lowest since May 2012. So why is this the case? Reasons include:

  1. Falling oil prices act as a tax cut and spurs demand for goods; and
  2. Depreciating currency has increased demands for exports, in part due to the anticipation of the Quantitative Easing (QE) – a policy that creates money to buy financial assets by the European Central Bank (ECB). (For more information on QE click here.)

So will this recovery continue? The former reason will slowly fade away. However, the QE only started on March 9th, which will buy 60 billion euros of mainly public assets every month until September 2016. This will further depreciate the euro and is already helping the equity markets. However, there are fears that the QE will not be as effective as in the US, because the European capital markets do not play as big of a role in the provision of finance as in the US. That, coupled with huge public debt and private debt could jeopardize the recovery. We shall have to wait and see.

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