The eurozone slowdown spells trouble for the UK

Eurozone growth is at its weakest level since October 2009.

The world economy appears to be slowing. This is bad news for Slasher and the UK economy.

This morning, Markit released its flash eurozone purchasing manager indices (PMIs), which are pretty good predictors of what is happening to output. Official data takes some months to be published and is frequently revised, so the timeliness of the PMIs is a big asset. What do they show?

Eurozone growth turns out to have been the weakest since October 2009, led by a sharp manufacturing slowdown. Input costs showed their smallest rise in eight months.

The main indices were as follows:

Flash eurozone PMI composite output index at 53.6 (55.8 in May). Twenty-month low.

Flash eurozone services PMI business activity index at 54.2 (56.0 in May). Six-month low.

Flash eurozone manufacturing PMI at 52.0 (54.6 in May). Eighteen-month low.

Flash eurozone manufacturing PMI output index(4) at 52.4 (55.2 in May). Twenty-one-month low.

Yesterday, the Fed completed its policy meeting and Ben Bernanke held his second press conference, in which he left open the possibility of more quantitative easing. Most importantly, the members of the FOMC downgraded their forecast for US growth and increased their forecasts for unemployment. This had an impact on oil and other commodity prices, which fell on the news. West Texas intermediate crude was down to $92.75 a barrel on the news, having been over $102 earlier in June.

The hawks on the MPC are wrong. Inflation is headed down.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Germany's political stability could be threatened by automation

The country's resistance to populism may be tested by changes to its manufacturing industry.

Germans head to the polls this Sunday 24 September. With Merkel set to win a fourth term as Chancellor, it has been dubbed a "sleepy" election – particularly compared to the Dutch and French campaigns a few months ago. Populism, while present, has not taken off to the same extent as in Germany’s neighbouring countries.

In a new Legatum Institute report co-authored with Matthew Elliott, we explore in detail why this is the case, evaluating the historical and economic circumstances as well as social, cultural and political attitudes. In short, support for both the populist Left Party (Die Linke/DL) and for the populist right Alternative for Germany (AfD) has so far been concentrated in former East Germany. At the national level, it has therefore been hard for either party to win more than around 10 per cent of the vote.

However, a longer term trend that might disrupt German politics in future election cycles is automation. With manufacturing making up a large proportion of the German economy, a significant amount of jobs are set to shift between occupational groups. According to the OECD, the portion of jobs at high risk of automation in Germany – 12 per cent – is one of the highest among countries measured.

While the elimination of some jobs and occupations does not necessarily mean net job losses – on the contrary, BCG estimates a net increase of 350,000 jobs by 2025 – it does mean upheaval, both in the job market and in the political sphere.

On the job market front, Germany has a shrinking pool of skilled labour. The Association of German Chambers of Commerce and Industry (DIHK) consider this poses the biggest risk to their businesses. The government is acutely aware of the issue – its August 2017 progress report projects 700,000 fewer skilled workers in 2030 than in 2014. Moreover, with an ageing population, the demographics are currently not in Germany’s favour.

Resolving this issue will require big and difficult political changes. On the one hand, it means that more immigration, particularly of young skilled workers, will likely be necessary. Given the backlash to Merkel’s "welcome" policy at the height of the refugee crisis, an anti-immigration sentiment was stirred which was dormant before.

On the other hand, while new jobs will be available, this does not necessarily mean that from one day to another that those working, for example, in manufacturing, will be keen to move into the service industry or another occupation altogether. Nor does it mean they will want to, or even perhaps be capable of, reskilling to carry out new digital roles.

In the UK and the US, we recently witnessed how these labour market changes were one of the big factors associated with support for the protectionist and anti-immigration rhetoric of the Leave campaign for Brexit and Donald Trump for president.

In Germany, the regions most exposed to the effects of automation are in the industrial south and west – parts of the country so far spared from the worst of populism. The potential for populist support to expand at the national level should therefore worry observers. To its credit, the current government has already been thinking about it, as evidenced in the Work 4.0 White Paper.

However, policy choices in the next few years will be crucial for mitigating the future labour market and political shockwaves of automation. If politicians choose to merkeln (do nothing) on the issue, the populist backlash might hit Germany, too.

Claudia Chwalisz is a consultant at Populus and a fellow at the Crick Centre, University of Sheffield. She is the author of The People’s Verdict: Adding Informed Citizen Voices to Public Decision-making (2017) and The Populist Signal: Why Politics and Democracy Need to Change (2015). Her guide to the German election authored with Matthew Elliott can be downloaded here