Essay on Macroeconomics and Eu Economy Situation

Submitted By vickijia
Words: 1413
Pages: 6

Since the end of 2007, the consumer expenditure in the Europe fell dramatically. As the Visa Europe indicates the household expenditure decreased round 10% in the EU in 2008.Despite the consumption is improving in the EU, growth prospects looks grim ever since. This essay is going to discuss how is the consumer expenditure recently and what causes it in the EU, moreover, the forecast of the economy situation by the end of 2016 will be covered.
Consumer expenditure fell dramatically recently caused by many factors, one of the most significant factor is the recession started from the third quarter of 2007. Recession defined as the two down quarter of Gross Domestic Product. As Cole(2009) defined Gross Domestic Product (GDP) is the value of all final goods and services produced in an economy in a given year. The components of GDP are to Consumption(C) plus investment(I) plus Government Spending (G) plus Exports (X)minus Imports(M) , it is known as Y=C+I+G+(X-M). In those components, consumption consists the biggest element of the entire GDP, in the UK, consumption counts 2/3 of the total GDP. On the other words, GDP reflects the consumer spending directly.
[pic]http://econ.economicshelp.org/
As the figure illustrates above, the UK and Eurozone had a economic negative growth since the third quarter of 2008 and bottomed to -5% GDP growth in 2009, by 2010 the EU has started to recover slowly. It can be seen that the consumer expenditure in the EU has fell considerably. Another example from Visa Europe official website shows consumer expenditure in the EU compare with UK within few years, it reports the similar information with the diagram mentioned above: consumer expenditure fell significantly from 2008 and fluctuated afterwards.
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In the recession, industries tend to make redundancy of employees since they would like to keep profit or trying to reduce their losses, then the unemployment rate would go up.
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The online resource describes the unemployment in the 2008 recession increased sharply, [pic]http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Unemployed_persons,_in_millions,_seasonally_adjusted,_EU-27_and_EA-17,_January_2000_-_December_2011.PNG&filetimestamp=20120131090207
As the European Commission statistics provided the information , the unemployment rate started to increase from 2008 and have the trend of keep remain at a high level. When unemployment rate increase, people who lose jobs are spending less and prefer saving since they don not know when will they be employed again; for those who are still employed are feared of losing job therefore they are more concerned of spending money. They may deter their spending on unnecessity goods and save their money. It is kind of link a spiral: in the recession people reluctant of spending money, because people do not spending money therefore the economy can hardly get recovered.

Secondly, housing market could affect consumer expenditure as well. This is called wealth effects, as Cole(2008) defined wealth is the total amount of all the assets in the economy, it is a stock concept meaning that changes in wealth does not have a direct impact on the circular flow of income, but changes in wealth could have effects on income and spending in the economy. It plays a crucial role in affecting consumer confidence, spending etc. For instance, if the property's value has been decreased, then the household feel less confident about spending in the economy. Moreover, if the property become less valuable, then the household could not go to his/her mortgage provider asking for release mortgage equity: take out loans based on the increased property value. Therefore the household is less likely to spend extra money, the economy would lose potential increase in circular flow. However, this may not be the major reason of consumer expenditure has been decreased in the EU recently since according to the online resource saying that EU housing market has…