Domestic demand driving EU recovery
Despite a less supportive external environment, with a slowdown in growth in the emerging economies, the economic recovery in the euro area is continuing.
Output rose by 0.4%, quarter on quarter, in the second quarter of 2015, giving an annual growth rate of 1.5%. In the UK, output rose slightly faster than the EU average, at 0.7%, giving an annual growth rate of 2.3%. A similar rate of expansion is expected for next year, based on the EU Commission’s latest economic forecasts.
Private consumption has been rising since the start of 2013, becoming the main driver of economic recovery in the euro area. Falling oil prices have supported private consumption growth since the second half of 2014. The purchasing power of households has increased by around 0.9 percentage points due to the fall in energy prices between the start of the recovery and the second quarter of 2015.
However, this only accounted for a third of the overall improvement in households’ purchasing power during this period. The rest is mainly down to strong increases in labour income. Modest increases in wage inflation have been supported by the unemployment rate in the euro area, which stopped rising in 2013 and started to fall in 2014. Nevertheless, the current level of employment remains around 2% below its pre-crisis peak in 2008, while unemployment is still high at a rate of 11% last August.
Recent consumption growth has been higher in countries where labour markets have improved the most. For example, in Spain, Ireland and Portugal both employment and wage growth have been relatively strong, leading to higher increases in disposable income and consumption. In the UK, real disposable income rose for the first time since 2007, largely due to food and fuel deflation.
Trade data for July and August point to slowing export grow thin the third quarter of 2015, given weakening growth in emerging markets and the gradual slowdown in China. However, overall, the latest indicators are consistent with continued economic expansion in the latter half of this year and into 2016.
The continued recovery within the EU economy and, in particular, private consumption, is potentially good news for the pig meat industry. The rise in consumer confidence and increased private consumption may translate to an increase in demand for pig meat as well as a transfer of demand to higher value products and cuts.