Europe still at risk of falling into an economic crisis in 2020
Thomas Chenel 16 Oct 2019, 19:01 Economy 9,473
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Flickr.com/Paxson Woelber
Negative signals on the world economy and the euro zone are multiplying. And the latest growth forecasts of the International Monetary Fund (IMF) are hardly likely to reassure. The Washington-based institution downgraded its global growth forecast for 2019 to 3 percent, 0.3 percentage point lower than expected in April. This is the slowest pace of growth since the 2009 financial crisis.
"The slowdown in growth is the result of increased trade barriers, heightened uncertainty about trade and the geopolitical situation, specific factors that cause macroeconomic stress in several emerging countries, and structural factors. including a low productivity and an aging population in advanced countries, "said the IMF pell-mell quoted by AFP.
Developed countries are expected to experience a slowdown in growth, to 1.7% in 2019 and 2020, while emerging and developing countries should see their economic activity accelerate. Within the eurozone, Germany raises serious concerns, while its industry is in trouble and remains highly exposed to trade tensions, fueled in particular by US President Donald Trump.
Industrial production, highly dependent on exports, risks turning the country into a technical recession, two consecutive quarters of decline in gross domestic product (GDP). A contraction in economic activity is particularly to be feared if the weakness of the manufacturing sector wins services.
The suffering industrial activity
"The economy of the euro area stopped in September, surveys PMI (on manufacturing activity, ed) setting the darkest picture since the beginning of the expansion period, mid-2013", says Chris Williamson, chief economist of IHS Markit, quoted by Reuters. "The slowdown is also showing signs of spread from manufacturing to services," he adds.
The IMF expects a growth of 1.2% of the euro area this year, then 1.4% in 2020, against 1.3% in 2019 and 1.6% for next year that had been anticipated in July . In Germany, growth is expected to be only 0.5% in 2019 and 1.2% in 2020. For France, the forecasts of the international institution have also been lowered but remain better than for the German neighbor. 1.2% this year and 1.3% in 2020 - against 1.3% in 2019 and 1.4% next year in the July forecast.
New customs duties and Brexit
While world trade has already fallen in 2019, the countries of the European Union will undergo the raising of customs duties decided by the United States from October 18 on a whole range of products, such as French wine, the Italian cheese or German industrial goods and British textile products. Added to this are the uncertainties related to Brexit and the consequences of the UK's exit from the European Union, which is due to take place at the end of October.
"Increased trade barriers and geopolitical tensions, including Brexit risks, could further disrupt supply chains and hinder confidence, investment and growth," said IMF chief economist Gita Gopinath.
To stimulate activity, central banks should continue their accommodative policies. The European Central Bank should continue to inject liquidity into the euro area economy and keep interest rates at very low levels. Very low, even negative, rates that affect the profitability of banks, increasingly competing with new players such as fintech.
Swiss fund manager Felix Zulauf is very critical of the eurozone and is known for his outspokenness. He is pessimistic about the year ahead. He believes that "the single currency causes many imbalances" and expects, according to L'Echo, a new crisis of the euro accompanied by a possible banking crisis in 2020
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