A matter of perspective

Euro zone growth cycle is virtuous but slow

Suppose that there had been no 2009 Great Recession in the Euro zone. In that case, the unemployment rate now would be no higher than the seven per cent of 2008, instead of the current 12 per cent; GDP would have increased to around eight per cent higher than now; and the fourth quarter's 0.3 per cent GDP growth would be acceptable.

After all, a 1.2 per cent annualised GDP growth rate is probably just about high enough to keep up with technological improvements in a region that is already rich with an ageing population. Better still, the pace of Euro zone growth is increasing. The previous quarter's increase was only 0.1 per cent and analysts only expected 0.2 per cent in the most recent period. That suggests that the GDP growth rate will soon rise to 1.5 to two per cent, fast enough to improve Europeans' global economic standing in the hypothetical world without any recession scars. In the real world, the preliminary GDP estimate represents more mixed news.

On the good side, the Euro zone seems finally to have entered a virtuous circle of growth. Germany, which had 0.4 per cent GDP growth in the fourth quarter, is clearly on the right track, although its unemployment rate is already a comfortingly low 5.1 per cent. For the region's laggards, the positive GDP numbers, including the first quarterly increase in Italy since mid-2011, provide hope for more jobs and naturally falling government deficits. With more jobs and less austerity, GDP should then increase faster.

On the bad side, the improvements could easily be derailed by a new panic in financial markets, political problems within or between the members, or even a sharp reduction in emerging economies' demand for European exports. Even if nothing bad happens - indeed, even if the GDP growth rate increases a bit - unemployment will fall only slowly and government debts will hardly fall at all.

It would be nice to erase history, and it would be splendid if more Euro zone members could emulate the German record of job creation. As it stands, though, inadequate growth is about the best that the Euro zone can produce.