This paper investigates the microeconomic origins of aggregate economic fluctuations in Europe. It examines the relevance of idiosyncratic shocks at the top 100 large firms (the granular shocks) in explaining aggregate macroeconomic fluctuations. The paper also assesses the strength of spillovers from large firms onto SMEs. Using firm-level data covering over 14 million firms and eight european countries (Austria, Belgium, Finland, France, Germany, Italy, Portugal and Spain), we find that: (i) 40 percent of the variance in GDP in the sample can be explained by idiosyncratic shocks at large firms; (ii) positive granular shocks at large firms spill over to domestic SMEs’ output, especially if SMEs’ balance sheets are healthy and if SMEs belong to the services and manufacturing sectors.
Finland has undergone a fundamental structural shift from a resource-based to a knowledge-based economy. The productivity surge in the dynamic information and communications technology sector fueled a strong export-driven recovery. However, the optimism of the past year has dissipated, as the global slowdown takes its toll especially on the high-tech sector, including international market leaders such as Nokia. This paper assesses the services sector and its potential for employment creation, in particular in the area of personal services and other services with low skill requirements.