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2005-07-14

Difficult times ahead 

In an interview [DE] with state-controlled daily Wiener Zeitung, Alexander Van der Bellen, chairman of the oppositional Austrian Green Party and economics professor, was asked about the main weakness of the current government. His reply:
It is becoming clear that there exists no concept in the area of the increasing unemployment and the slowing economic growth. I have the impression that the government ... has not thought out how economic growth can be sped up again in a sustainable manner, because with the 1 to 1.5 percent growth that we have had for years now it will not be possible to get unemployment under control.
There is also this from Veit Sorger, head of the government-friendly industrialists lobby IV, in an interview [DE] with Der Standard:
In the face of the low growth one should think hard whether the concepts from [2002] are still up-to-date. In 2002 we saw globalisation differently. We still had nice growth rates and thought we could deal with this.
If you are ready for a real scare however, have a look at these predictions from the OECD's latest Economic Survey of the Euro Area 2005, discussed by Mahalanobis:


The OECD message is that with unchanged policies, and partly due to the ageing population, trend GDP growth in the eurozone will slow continuously from 2.0 percent at present to 0.9 percent after 2020. The OECD - and Mahalanobis - emphasise the need for more structural reforms because of this. Personally, as a bit of a political pessimist, I worry that the politically digestible reforms might not suffice to boost trend growth to the 2.5 to 3 percent needed to reduce unemployment. Demographics and immigration might change the scenario to an extent. But I fear that the mid-2020s European labour market that my child will have to confront will be truly ugly, and that it will be an uneasy political ride for the next 20 years until we get there.


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