Doug Sheridan Says
“Most worrying is Germany, which has contracted or stood still since the last three months of 2022 and seems all but certain to tip into recession.”
Doug Sheridan Says
Gerard Baker writes in the WSJ, Europe appears to be headed for a recession—if it's not there already. Matters are worse if you ask, Who will save the continent this time? Maybe Europe will have to fix itself. It will certainly take some effort. The European Union had zero growth quarter-on-quarter, and 0.4% year-on-year.
Most worrying is Germany, which has contracted or stood still since the last three months of 2022 and seems all but certain to tip into recession. Industrial output has fallen all Summer, driven by falling orders of investment goods such as machine tools, notes Holger Schmieding of Berenberg. This suggests a broader decline in confidence at home and in many of Germany's export markets.
In previous European downturns, foreigners were ready to help. This has taken the form of a booming US economy or a roaring Chinese market—or both—that gave Europe an export-and-investment boost. Maybe not this time. Chinese growth is in a slump of its own. Undergoing a repricing of inflated assets such as property means a recovery may be slow.
Even if Beijing does respond with credit-easing stimulus for which many foreigners long, Europe is unlikely to be as big a beneficiary. When Chinese households and companies buy consumer goods or business equipment, these days they buy Chinese.
The US might offer Europe more relief, but maybe not as much as usual. Much of current US growth is the result of government spending, and subsidized private investment, in earmarked projects or industries. European companies are struggling to profit from this owing to Buy American provisions built into laws. This could still provide a profit boost to European companies able to build factories in the US. But it won't create European jobs.
That leaves European leaders to fend for themselves, and they don't know what to do. The EU is trying to pursue its own version of America's green subsidy bonanza but lacks the financial resources. This may be just as well since Europe doesn't need more statist distortions than it already has.
To Sum It Up: The global economy needs a Europe able to grow for itself, not least to finance the welfare states and increased defense spending its countries will need to deal with new global threats. The race is on to see which politicians and voters on the continent can return to the pro-growth policies their democracies need.
Our Take: What Baker doesn't mention is that there's a growing number of Europeans who see economic growth as the enemy. That's because they associate it with despicable things like population growth, natural resource usage, and carbon emissions. We've often wondered how long it would take the Continentals to conclude that low growth isn't all it's cracked up to be. We may soon find out.