Barring a common vision, or unity of purpose on how to get their economies out of the slump, all that European policy makers have for 2020 is hope. Hope that stronger growth will materialize as global headwinds recede.
But a look at what awaits the four largest European economies next year shows that governments everywhere are hanging at the mercy of a continuous slowdown, as the persistent recession of the manufacturing sector begins to spill over into the rest of the economy. Many countries also suffer from self-inflicted harm that they haven’t done much to tackle during the recovery.
The U.K. will leave the European Union legally at the end of January but enter a renewed period of uncertainty after Prime Minister Boris Johnson’s decision to clinch a deal with the E.U. before the end of 2020. It’s an impossible achievement that means a possible trade treaty would only cover the exchange of goods and leave aside the services sector, notably the finance services that is crucial for the U.K. economy.
Uncertainty means that gross domestic product would only grow 1% next year, according to Bank of America analysts. The only relative upside is that inflation would then be constrained, allowing the Bank of England to lower rates if the economy takes a turn for the worse.
The U.K. at least has a stable government supported by a strong majority in Parliament, after the conservative landslide in the Dec. 12 elections. The same cannot be said of Germany under Chancellor Angela Merkel. Her ruling coalition is split after her Social Democrat partners from the SPD party chose a hard left duo to lead them. It still hangs on to power, but that will most likely lead to political paralysis.
The once-powerful German economy avoided recession last year but it hasn’t seen the end of its problems. Slowing global trade hit the export-led economy in 2019. But the lack of confidence, dearth of investment, and the ingrained problem of the country’s automobile industry will spill over into 2020.
The government seems unable to decide whether or not to do more to support the economy through much-needed public investment. But with unemployment at barely more than 3%, less than half the E.U. average, there are little incentives for Berlin to decide major fiscal expansion.
France surprised in 2019 with one of the eurozone’s strongest growth rate but the country’s main economic problem looks similar to Germany’s: political paralysis. The major strikes and demonstrations against Emmanuel Macron’s pension reform over the holiday period could signal the end of the French president’s reform drive.
Nation-wide elections to town and city councils are due in March, and Macron is already thinking about his 2022 reelection campaign. Meanwhile little has been done to reform the state apparatus and find the billions needed to invest in the dilapidated French suburbs.
Italy will continue to underperform, even though its small and mid-size businesses do wonders on world markets, as witnessed by a robust trade surplus. But the self-inflicted harm of a government that played a little too close to bond markets’ fears last year will continue to exact a price on an economy that has long been Europe’s growth laggard.
Staggering under a debt load topping 130% of GDP, it is doubtful that the fragile coalition government could muster the courage to launch the structural reforms the country has been needing for much too long.
2019-12-26 11:30:00Z
https://www.barrons.com/articles/europes-biggest-economies-will-struggle-to-recover-in-2020-51577359800
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