Eurozone Economy Headed for Another 'Lost Year'
Germany, Europe’s biggest economy, now has become its biggest burden
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Europe’s economy appears to be poised to enter a technical recession, defined as two consecutive quarters of shrinkage. The region’s GDP shrank by 0.1 percent in the third quarter and is widely expected to contract again in this year’s final three months.
High interest rates and reduced government and consumer spending have held the region’s economy on the brink of recession throughout this year, with analysts forecasting overall growth for 2023 to register just 0.6 percent.
Perhaps an even greater problem is that there seems to be no engine to drive an economic recovery, Reuters noted, leaving the region’s GDP to stagnate in 2024.
“Europe has been through a year of zero growth and is now heading into a year in which both monetary and fiscal policies are designed to put a brake on growth,” Erik Nielsen, an economic advisor at Unicredit bank, told Reuters.
“The European economy has been flat on its back for a year,” he added. “Monetary and fiscal plans for 2024 seem to accept the high probability of another lost year.”
The problems range beyond inflation and central bank policies.
Europe’s workforce is aging and shrinking, productivity is declining, and bureaucracy is growing, Reuters pointed out.
Those factors will hold the Eurozone’s GDP to a mere 1.5-percent expansion next year and drag it down to 1.2 percent in 2027, the European Commission has forecast.
Germany, Europe’s biggest economy, now has become its biggest burden, the GDP there seen as able to grow by less than 1 percent next year.
Germany’s economy is centered on energy-intensive manufacturing for export and is unprepared to adapt to a world of more expensive fuels and reduced global demand for its products, Reuters noted.
TREND FORECAST: We forecast Europe’s lost year will begin with a recession.
As noted above, the current quarter probably will book a contraction, just as the previous one did. Two consecutive quarters of economic shrinkage defines a technical recession.
Because there is nothing on the horizon that will energize Europe’s economy out of its technical recession, odds are that it will coast into a full-blown recession.
China’s economy is mending only slowly. The global economy is moving in low gear. Russia will continue its war in Ukraine which will keep sanctions on Russia and keep many relative commodity prices, such as oil in the high range. And as we also note, should Israel and the United States confront Iran militarily, Brent Crude will spike to above $130 per barrel which will in turn crash equity markets and the global economy.
These and other external factors will give Europe’s economy no handhold to pull itself out of a downturn. Any recovery will require internal stimulus, which will sink European governments deeper into debt, lower the value of the euro, and push inflation higher.
As a result, Europe’s recession will be longer than shorter.
Living in the Dutch part of the European economic engine (much of which is situated in Germany's neighboring countries) this hardly comes as a surprise. The de-industrialization of this area has been underway for decades, but reached breaking point following the 2008 financial crisis and for good reasons.
The American banking sector successfully relegated much of the pain of the US subprime housing implosion on Europe's financial sector and European banks never fully recovered. Consequently Europe's economies pretty much flat lined since then. A situation that was exacerbated by ever more US led sanctions against nations all around the globe.
Let's zoom in on these American sanctions for a little. It is rather odd that every one of these sanctions seem to hurt the American allies significantly more than they do the US. It suspiciously looks like these sanctions were deliberately designed that way. When you think about it; the biggest direct competitors for American industries are all too often European. What a great way to thwart competitors.
In my neck of the woods the latest victim in Washington's relentless drive to sanction the world is the critical Dutch semi-conductor industry. Now local manufactures have not only lost the Russian and Chinese markets but also cheap energy, cheap components and vital raw materials. All this is making it increasingly hard to compete on the world market in the long run.
Henry Kissinger once said “To be an enemy of America can be dangerous, but to be a friend is fatal.” For some reason Europe refuses to see the truth of this and instead buries its head in the sand.
I do not want to trash Jews, and I will not. It is funny though that in parts
of the US, it is a punishable offense to criticize Jews by official mandate.
Europe has always had an uneven system when comparing the poorer
nations to the wealthy nations. What the populous of the various
nations think and believe is not my concern...what the leaders of the EU think
and do is the problem. Same as in the US. The Arabs, et al, have entered the 21st
century, at last, but that may be bad for the Jews, as there is building resentment
due to the treatment of the Palestinians. Oh boy...what a mess. The US may be lost
forever because of the treatment of people in the US. Case in point, the open border.
The practice of taxation, the failing businesses, maxed out social safety nets/welfare
state practices. And yet very few talk peace and cooperation, but you do dear Gerald.
Thank you very much for that. I always appreciate your point of view, and peace and
cooperation are the only solution for our world to thrive.