“The situation today is different from the earlier [sovereign debt] crisis insofar as Europe’s most acute problems are no longer concentrated in smaller economies like Greece. Instead, it is Europe’s two most important economies that are struggling,” Neil Shearing, group chief economist at Capital Economics said in analysis in December.
“Europe faces ongoing decline without fundamental reform at its core,” Shearing said, noting that if this is not carried out, “it is difficult to escape the conclusion that Europe’s future is one of very low growth, continuing concerns about fiscal sustainability and a dwindling sense of standing in a world increasingly characterised by a superpower rivalry between the U.S. and China.”
“Our base case is that Europe will face a pretty difficult year in 2025,” Sven Jari Stehn, chief Europe economist at Goldman Sachs told CNBC, with the investment bank forecasting 0.8% growth for the euro zone in 2025 — compared with 2.5% for the U.S., over the same period.
“People are asking about whether in Germany, when there are new elections, we could get some more fiscal support — maybe, we think there’ll be some, but we think ultimately it will be limited,” Stehn said.
“People are also asking whether the European consumer could finally surprise to the upside, the saving rate is high, there’s actually quite a bit of money [that could be spent], but again we think there will be some support but it’s unlikely there will be a big upside surprise.”
Stehn noted that lower interest rates “will help somewhat with savings and boosting consumer spending, and that is one reason why we do actually think that Europe will grow next year, despite these challenges.”
“But at the same time, I think we also have to be realistic that a lot of the headwinds we’ve talked about [such as] energy prices, China, structural things. Cutting rates is not going to fix all of those things,” he said.
Source: https://www.cnbc.com/2025/01/02/europes-economy-faces-the-danger-of-ongoing-decline-economists-say.html