Economic Survey 4-2012

The dismal growth in the global economy has continued this autumn. The Euro zone has once again entered a period of declining levels of production. The GDP in many European countries never regained the same level as before the financial crisis during the period of recovery in 2010 and 2011 before production levels once again began to decline. With years of large continuous budget deficits, national debt as a proportion of GDP therefore continues to rise, even though some countries have managed to reduce their deficits. The deficit reduction has occurred through the implementation of contractionary fiscal policies, which have contributed to the poor growth in GDP. Steps taken by the European Central Bank have led to reduced interest rates on public debt and led to a more manageable burden of debt for these countries. A significant level of emigration may now be witnessed from several European countries to other countries both within and outside of Europe. This could permanently weaken the production potential of heavily-indebted countries as the emigrants are often younger persons. If many of the younger persons in the labour force were to leave on a permanent basis, it is difficult to see how the economic growth in these countries will be high enough to significantly reduce the debt ratio in the future. Even though the crisis in Europe has stabilised somewhat recently, it is unlikely to take long before a recurrence of unrest in countries with particularly high levels of national debt will take place.