After 15 years of economic upheavals, from the European debt crisis to the COVID-19 pandemic and Russia’s invasion of Ukraine, the European economy appears set to underperform in 2024. But are appearances deceiving?
Germany, Europe’s largest economy, has been hit particularly hard by the surge in energy prices and China’s ongoing slowdown. Moreover, Germany has exacerbated its own economic woes by diluting or abandoning many of former Chancellor Gerhard Schröder’s market-oriented reforms, which had previously underpinned its robust GDP growth. Although leading German forecasters project that the country will (barely) avoid a recession in 2024, its economic outlook remains precarious.
France is faring slightly better. But with a fiscal deficit of 5.5% of GDP in 2023 and real interest rates rising globally, the French government is under pressure to tighten policy. On the other hand, after years of declining productivity and persistent debt issues, Italy is growing again and appears to be on a positive trajectory. And Greece, which maintains the European Union’s largest underground economy, continues to struggle, primarily owing to rampant tax evasion.
Nevertheless, there are several reasons for hope. First, Central and East European economies have been outperforming Western Europe for some time now. According to Eurostat, Poland has overtaken both Greece and Portugal in terms of real GDP per capita, with countries like Romania on track to achieve similar milestones within the next five years. While Hungary has grappled with exchange-rate fluctuations and a 0.8% contraction in 2023, reflecting Prime Minister Viktor Orbán’s attempts to curb the central bank’s independence, the country is expected to return to solid growth in 2024 and 2025.
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