Europe’s economy defies difficult forecasts, still, faces new challenges

In a recent address, Paolo Gentiloni, the European Union’s (EU’s) outgoing Commissioner for economy, highlighted the resilience of Europe’s economy in the face of significant global challenges. Despite difficult forecasts predicting recessions and instability due to the Ukraine conflict, the EU’s economy has shown signs of slow but steady growth.

Resilience in the face of challenges and navigating dynamics with China

Gentiloni noted that the European economy managed to evade the alarming predictions of economic downturns. During an interview with CNBC at the Ambrosetti Forum, he further emphasised the European Union’s (EU’s) need to balance its commitments to Ukraine while maintaining important trade relationships, particularly with China. This delicate balance is crucial as the EU navigates its future amidst complex geopolitical dynamics.

Emerging from the COVID-19 pandemic, the EU is now grappling with a cost-of-living crisis and high inflation, worsened by Russia’s invasion of Ukraine and subsequent energy supply issues. Early indicators showed a Gross Domestic Product (GDP) growth of 0.3 per cent for the second quarter of this year. According to the European Commission, a GDP increase of 1 per cent is forecasted for 2024, driven by rising private consumption and a robust labour market.

The challenging trade situation of Europe with China remains a major issue that needs to be addressed soon. The recent tariff increases on Chinese electric vehicle imports, imposed to protect European industries, signify the EU’s commitment to fair trade practices. Gentiloni highlighted the need for the incoming Commission to prioritize addressing relations with China, as trade issues coupled with support for Ukraine will define Europe’s forthcoming strategies.

The EU’s decision to impose tariffs on Chinese electric vehicles (EVs) was made to counter unfair subsidies that benefited Chinese manufacturers and posed a risk to European EV producers. This move has placed the EU in Beijing’s sights, underscoring the need for careful navigation of these trade issues. Focus needs to be thrown on resolving differences and finding a reasonable solution.

Looking Ahead: Challenges and Opportunities

The challenges ahead increase considerably due to the upcoming US elections and the uncertain political landscape in Europe. Gentiloni remained optimistic, indicating that even with a potential change in the US administration; he does not foresee significant shifts in economic ties. He emphasized the importance of supporting Ukraine and maintaining open international trade channels, which does not align with accepting China’s stance on trade.

Gentiloni also cautioned that failure to enhance competitiveness, progress towards a capital markets union, and address defense challenges could render the evolving global landscape, making it extremely challenging for the Europeans. As he prepares to depart from his role, his commitment to contributing to European matters remains firm.

Hence, as Gentiloni prepares to leave the Commission, he has not yet revealed his future plans. However, he intends to contribute to European matters and perhaps engage in Italian politics. The left-leaning politician may face challenges from rising far-right support across Europe, which has prompted skepticism about the current Commission’s ability to bring about needed changes.

Therefore, Europe’s economy has demonstrated remarkable resilience in the face of difficult challenges. As it navigates the complicated landscape of global trade and geopolitical tensions, the EU must remain focused on its commitment to fair trade practices and support for Ukraine. The incoming Commission will need to prioritize these issues to ensure the continued growth and stability of the European economy.