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OECD’s predictions for 2013

The OECD is predicting that the Euro zone crisis and deficit reduction efforts will hinder the UK economy and result in contraction and continued recession.

According to the Paris-based think tank, the paying down of consumer debt was also limiting growth. The expectation is that UK output will shrink by .3% – .4% for 2012.

While the job market remains tight and unemployment relatively high, growth is expected to recover within a 12-month window, which would put the first signs of recovery in early 2014. These projections are based upon several assumptions, among them that the debt crisis can be miraculously resolved, that global markets and consumption will resume their rise, that there is no tsunami of inflation due to the indiscriminate increase in the money supply resulting in a Weimar-style destruction of wealth and purchasing power, and that no costly disasters from climate change or ecocide strike.

The OECD noted that across a basket of 34 countries, “employment grew in 2012,” however “unemployment is expected to rise slightly in 2013.”

In the UK, as in France, however, 2012 saw marked increases in unemployment and downward pressure on salaries as a result of labor influx from regions with lower salaries. In France, this has resulted in renewed scrutiny of the value of the EU and in the UK a greater political resistance to any further commitments to the European Union. In Brussels, the EU continues to increase it operating budget and extend its bureaucracy offering a ray a much needed stimulus to the labor market and local economy in Belgium.

More widely, the OECD sees global stagnation persisting for the next two years – and sees “deep” reduction of deficits acting as a break on any growth. In the UK, despite any drop in the value of the pound, the economy could not rebalance because of the euro zone crisis hit exports.

The report further noted that declining wages and an increase in part-time working had limited job losses (!), but it expressed concern about increasing youth unemployment and admitted that this is likely to worsen. In France, youth unemployment is roughly 25% (in Spain it is 50%). Nonetheless, unemployment is expected to rise further in 2013.

Expansion is expected for EU economies in 2014, though it is unclear that the expansion will result in any amelioration in living standards.

In France the political debate centers on a perceived loss of competitiveness due to its tax structures, in particular its corporate payroll charges. To this end, a recent implementation of tax breaks for companies to offset these was welcomed. There is still media discussion over the decision to increase taxes on the very wealthy, with coverage of several new high profile tax exiles like actor Gerard Depardieu.

Ratings agency Moody’s has identified some risks in France linked to problems in the rest of the euro zone: France is exposed particularly through its banks to the ailing peripheral economies. Added to this private sector liability (which, one may note in passing, can potentially be foisted on the public like previous private sector debt) there are also growing French public obligations from collective European decisions to support peripheral bankrupt countries.

Moody’s, which has an Anglo-American perspective, also accuses France of persistent structural economic challenges, “rigidities” in its labor and services markets, and high taxes and social contributions, as well as high employment protection legislation.

These ‘uncompetitive’ aspects of France, which contrast distinctly with aspects of the UK labor market, are a result of French beliefs in social justice and responsibility; they highlight that differing conceptions of fairness, differing notions justice, and access to opportunities, remain a key fault line, among several others, of the European Union.

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