View more on these topics

Tough challenges ahead for Europe

European governments face tough challenges over the next three to five years to resolve imbalances in the region, says Iain Begg, a professorial research fellow at the London School of Economics.

Speaking at Fund Strategy’s Investment Summit in Dublin today, Begg said unemployment would be the next key issue that the authorities would have to resolve. “We know about the collapse in growth rates in the last 18 months and the slow growth forecast for the next two years at least. But the focus will shift from the growth rate to unemployment, which takes longer to react,” he says. “It will become the most sensitive element in policy-making.”

At present the pattern of GDP growth in Europe is mixed, with Poland, for example, seemingly relatively unscathed, while some of its neighbours have been badly hit by the recession. “But the unemployment rates tell a different story,” Begg says. “Holland has a very low rate of 3.7%, while Spain’s has rocketed from 10% to 20% over the course of the recession. It faces a big problem.

“The second reaction to the recession is that fiscal debt will rise by tens of percent of GDP over the next few years,” he says. “There has [already] been a huge jump in debt as a percentage of GDP across Europe. Latvia went into the recession with 0% and will be up to 50% in a year’s time. Governments will have to sort out their fiscal deficits, but the timing is crucial,” he adds. Begg warns that if the authorities “take their foot off the gas too soon” in terms of quantitative easing, this could be just as damaging as waiting too long to withdraw their supportive measures.

Begg also points to certain sectors of the market which have contributed to Europe’s imbalances. “The volatile construction sector in Spain is behind several of these trends in European countries,” he says.

“Dealing with imbalances will be a major policy challenge over the next three to five years. There are no easy solutions,” he adds.

Future problems triggered by the recession may include the erosion of human capital and the withdrawal of investment in Europe, leading to a decline in future growth rates. Other pressures such as oil and commodity prices, competition in key markets, and how quickly governments are able to restore public finances may also contribute to slow growth.

Related Articles:
Bootle predicts stable rates for years
Fund costs higher in Europe, says Lipper
_______________________

Recommended

1

Gilliat goes for lock-in

Gilliat Financial Solutions has introduced a structured product that has the potential to lock in returns at any of the annual anniversaries leading up to maturity.

Shortt takes on Joint Equity role

Goldsmith Williams corporate services director David Shortt has joined Joint Equity, a private shared-equity scheme which pairs investors with property buyers.

Spring has sprung

Well, it’s been lovely to see a little bit of sunshine, even if it was only a brief appearance. I live in Scotland so, believe me, it was very brief.  Of course, with even the tiniest hint of spring, thoughts turn to the inevitable clearout that must take place.  And that got me to thinking […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com