FRANKFURT, Nov 14 (Reuters) – The eurozone appears to be in the midst of another recession, but concerns about whether the final growth figures due early next year will have a positive or negative sign are weighing on the overall Missing the statue.
The good news is that the 20-nation monetary union is on track to avoid a significant economic contraction that could scar businesses, households and banks for years. The bad news is that growth is hovering near zero, with little to fuel a meaningful recovery.
Economic headwinds are so strong that next year will be tough, and declining growth potential suggests the euro area will struggle to grow much more than 1%, even with a strong recovery. are doing.
Serious structural problems mean that Europe will continue to lag behind other large economies for years to come.
Near future
The short-term outlook isn’t great, but it’s not terrible either.
Data on Tuesday showed gross domestic product (GDP) fell 0.1% in the July-September period compared with the previous three months, pushing the economy into a shallow recession if the fourth quarter is weak as early indicators suggest. The possibility of falling was suggested.
But growth has been roughly flat for the year, with record interest rates and tighter government spending, a byproduct of soaring inflation, likely keeping growth to just 0.6% next year, according to a Reuters poll.
Optimists, including European Central Bank chief economist Philip Lane, say demand should pick up as workers enjoy a recovery in real wages, boosting confidence.
The labor market remains tight, and with the global economy on the mend, external demand is likely to be healthier.
But there is little to suggest the recovery in confidence the ECB is hoping for, with high borrowing costs discouraging investment, a softening labor market and weaker-than-expected overseas demand. There is another way to look at it.
“Europe has experienced a year of zero growth and is now entering a year in which both monetary and fiscal policy are designed to put the brakes on growth,” said Erik Nielsen, economic advisor at UniCredit. Ta.
“Europe’s economy has remained flat over the past year, and monetary and fiscal policy plans for 2024 appear to accept that another lost year is likely.”
bad tendency
The outlook remains poor for next year and beyond.
While Europe’s working-age population is decreasing, productivity gains are small. Businesses complain that increased bureaucracy has made them less competitive, while integration into the euro zone economic union has stalled with little political will to move forward.
The European Commission currently forecasts potential growth in the region to be below 1.5%, shrinking to 1.2% by 2027, down from 2%-2.5% at the beginning of the century, due to are demographic changes and slowing efficiency growth.
ECB President Lane recently said: “Many countries are now retreating from where they were in the 1990s. There is no progress, there is regression.”
“Over time, different types of reforms have been canceled and different types of reforms have been rolled back. This is an own goal that can be avoided,” he added.
Meanwhile, the potential growth rate in the United States is expected to be stable at around 1.8%.
It is also possible that there are some characteristics behind the decline in Europe’s working-age population. As companies hang on to workers now for fear of future employment difficulties, the labor market could become even tighter, accelerating wage growth and reducing productivity.
Reinhard Kruse, an economist at UBS, said: “Demographic shifts and skills mismatch are exacerbating the structural shortage of qualified labor, despite rising cost pressures and economic uncertainty. “Companies are hoarding labor.”
Germany appears to be the biggest obstacle. Energy-intensive heavy industry relies on external demand for growth and remains ill-prepared for the new reality of expensive energy and trade tensions.
The potential growth rate of Europe’s largest economy is currently below 1%.
Meanwhile, European Union governments are struggling to reach agreement on the bigger issues that will help shape the future. These include what role immigration should play in alleviating labor shortages, whether a true banking union should be formed, and whether centralized spending should be used to address problems across the 27-nation bloc. included.
“Instead of being satisfied with average growth rates of around 1.2%, let’s be more ambitious,” Lane said.
Editing: Mark John and Katherine Evans
Our standards: Thomson Reuters Trust Principles.