South-Western College Publishing - Economics  
European Union Domestic Demand Growing
Topic International Trade
Key Words Domestic Demand, Economic Growth, and Exports
Full Article

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Reference ID: A149481910

News Story The European Union--the economy of the 12 nations that use the euro as currency--registered a 0.9 percent growth rate for the second quarter of 2006 from April to June, compared to 0.6 percent in the first quarter of the year. Even though growth appears uneven, the overall rate is accelerating. France and Germany led the growth at 1.2 and 0.9 percent respectively.

The good news lies in the observation that, while recent growth has reflected strong exports, the latest data suggest growth from business investment and consumer spending. "Domestic demand is doing its job finally," said Chief Goldman Sachs Europe economist Erik Nielsen. "We finally have a little drive from something other than exports, which is good."

With precise details of the growth pattern yet to come, economists say the data on German retail sales point directly to strong consumption, as does a fall in unemployment. Business confidence surveys also indicate that firms expect further investment growth.

"The situation on the labor market has noticeably improved," said German economics minister Michael Glos. "Therefore, the prospects for the year are exceptionally positive."

The picture is not all rosy, as the EU central bank grapples to steer an economy that is picking up speed. It faces the age-old macroeconomic problem of slowing inflation without hampering employment and economic growth. EU central bankers' decisions are made more difficult because most expect the U.S. economy to soften in the months ahead. U.S. economic performance affects the E.U. economy directly, as the two are important trade partners. A slow U.S. economy thus exerts a drag on the EU's ability to jump forward economically.

Discussion Questions:
1. The article mentioned France and Germany as members of the European Union. Use any source available to identify the other 10 member countries that use the single euro currency. What difficulties has the EU faced as it has integrated some of the lesser developed nations in Europe?
2. Why do you think a softening U.S. economy will be a drag on the European Union? Give evidence for your answer.
Multiple Choice/True False Questions:
1. Fourteen member nations currently comprise the European Union.
  1. True
  2. False
2. The official currency of the European Union is the euro.
  1. True
  2. False
Source Carter Dougherty, International Herald Tribune, "Economy Grows Nearly 1% in Europe", The New York Times Online, August 15, 2006.
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