Europe’s problem is bigger than a recession, the real problem is stalling economic growth

The Eurozone appears to be in the middle of another recession, but the real economic problem in this area is economic neutrality.

Photo collage of euro coins and stars from the EU flag

The euro zone is no longer developing economically

The economic effects are so strong that next year will also be a challenge, and the diminishing potential for growth suggests that the euro zone will struggle to grow by more than 1%, even in the event of a strong recovery.

Deep structural problems mean that Europe will lag behind most other large economic areas for years to come.

The short-term outlook isn’t great, but it’s not terrible either. Data on Tuesday showed gross domestic product fell 0.1 percent in the July-September period from the previous three months, pointing to a shallow recession if a weak fourth quarter follows, as early indicators suggest.

But growth has been broadly stagnant all year, and record interest rates – a byproduct of rising inflation – along with tightening budget spending will limit expansion to just 0.6 percent next year, according to a Reuters poll.

Optimists, including the European Central Bank’s chief economist, Philip Lane, say demand should pick up as workers now enjoy a rebound in real wages that will boost confidence.

The labor market remains tight and the global economy is recovering, so foreign demand is also likely to be healthier.

But others say there are not many signs to suggest the kind of recovery in confidence the ECB is hoping for, citing high borrowing costs that are holding back investment, a weaker labor market and foreign demand that has not lived up to expectations .

Europe went through a year of zero growth and is now heading into a year where both monetary and fiscal policies are set to dampen growth“, said Erik Nielsen, UniCredit’s economic adviser.

The European economy has been on its back for a year (and) monetary and fiscal policy plans for 2024 appear to accept the high probability of another lost year“.

Europe’s working-age population will decline, while productivity gains will be reduced. Businesses complain that red tape is growing, making them less competitive, while the euro zone’s integration into an economic union has stalled, with no apparent political will to move forward.

The European Commission currently estimates the bloc’s potential growth at less than 1.5%, which will decrease to 1.2% by 2027, down from 2%-2.5% at the turn of the century and due in mainly demographic changes and poor efficiency gains.

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