While European economies have been struggling for quite some time, no trend remains permanent. Despite the current bleak outlook for Europe, there is potential for its economic prospects to improve later this year.
After enduring 15 years of economic turbulence, including challenges such as the European debt crisis, the COVID-19 pandemic, and Russia’s invasion of Ukraine, the European economy is poised to underperform in 2024. However, appearances can be deceiving.
Germany, the largest economy in Europe, has been significantly affected by surging energy prices and China’s ongoing economic slowdown. Additionally, Germany has compounded its economic challenges by diluting or abandoning many of the market-oriented reforms implemented by former Chancellor Gerhard Schröder, which previously supported robust GDP growth. Although leading German forecasters anticipate that the country will narrowly avoid recession in 2024, its economic outlook remains uncertain.
France is faring slightly better, but with a fiscal deficit of 5.5% of GDP in 2023 and rising global real interest rates, the French government faces pressure to implement tighter policies. On the other hand, Italy, after years of declining productivity and persistent debt issues, is experiencing growth and appears to be on a positive trajectory. However, Greece, home to the largest underground economy in the European Union, continues to struggle, primarily due to widespread tax evasion.
Nevertheless, there are reasons for optimism. Central and Eastern European economies have been outperforming Western Europe for some time. Poland has surpassed both Greece and Portugal in terms of real GDP per capita, with countries like Romania expected to achieve similar milestones within the next five years. Although Hungary faced exchange-rate fluctuations and a 0.8% contraction in 2023, it is projected to return to robust growth in 2024 and 2025.
Furthermore, Southern Europe is experiencing faster growth than Northern Europe, with Spain, Portugal, and even Greece surpassing German growth by a significant margin since 2020. This growth is partly driven by recovery from the slow growth following the global financial crisis and is supported by robust tourism industries and lower dependence on manufacturing.
Additionally, there is the potential for a long-term resurgence of the German economy. Despite recent political shifts, Germany’s historical efficiency in economic matters suggests that it may correct its course and invest in high-quality infrastructure.
Moreover, upcoming elections across Europe could bring about much-needed effective leadership. There is a possibility of leadership changes in both France and Germany, while Italian Prime Minister Giorgia Meloni has emerged as an effective and popular leader.
Finally, the looming threat of a Russian victory in Ukraine could spur fiscal integration in Europe, an idea that was once unthinkable. Despite ongoing political turmoil in the United States, Europe’s economic prospects could improve in 2024, with European stock markets potentially replicating the unexpectedly strong performance of the previous year.
In conclusion, while European economies have faced challenges for an extended period, there is potential for improvement. Despite the current pessimism, Europe’s economic prospects could brighten later this year.
