According to data released this week, the Euro zone hovers over the prospect of a recession, and there is no policy consensus over how to react.
Europe’s biggest economy, Germany, narrowly escaped recession, technically defined as two consecutive quarters of negative growth. The French economy, which outperforms German, is also decelerating, with an immediate impact on the labor market.
The two biggest economies are slowing down as Europe’s export-driven economy is particularly exposed to the Sino-American trade war.
Given historically low levels of unemployment, domestic consumption provides some resilience, but growth is decelerating rapidly across the 19-member currency area.
German unemployment currently stands at 3,1%, with GDP per capita having recovered the shock of the financial crisis. The French unemployment nudged to 8,6% in the second quarter.
Exports account for 47% of the German GDP, with manufactured goods weighing heavily in the “Made in Germany” basket. The Sino-America trade war is costing Germany, as China is a significant importer of German vehicles and industrial equipment.
At the same time, US tariffs on aluminum, Airbus, food and drink are also taking their toll on the French economy, not to mention the Spanish and the Italian.
While business and consumer confidence are weakening and exports cannot drive the economy forward, European Central Bank (ECB) President Christine Lagarde faces resistance in implementing the second wave of quantitative easing announced by her predecessor, Mario Draghi.
New Europe / ABC Flash Point Economy News 2019.