European economy lags behind the US and China

 European economy lags behind the US and China

Eurozone growth is slowing due to high energy prices, supply chain bottlenecks and new restrictions in response to Omicron.

Data from three of Europe's largest economies released over the weekend showed that many countries in the region are still lagging behind before the pandemic. Meanwhile, the US has returned to pre-pandemic levels since the middle of last year. China is also quickly returning to normal in 2020, although growth has slowed down recently because of the plunge in the real estate market.

GDP in the 19 eurozone countries is likely to grow 1.6% in the final quarter of the year, down sharply from 9.1% in the previous quarter, according to Commerzbank estimates based on GDP data from Germany, France and Spain. In the US, GDP grew by 6.9% last quarter. Meanwhile, China's GDP grew by 4%.

A seaport in Germany - a country whose economy is heavily dependent on exports. Photo: AP

A seaport in Germany - a country whose economy is heavily dependent on exports. Photo: AP

The gap between the world's largest economic blocs is confusing investors, especially when major central banks have a divergence in monetary policy. While the US Federal Reserve (Fed) is set to raise interest rates this year and reduce its bond holdings, the European Central Bank is unlikely to raise interest rates and will continue to buy large-scale bonds at least. especially until October. The People's Bank of China last week even lowered the basic lending rate to support the slowing economy.

China's slowing growth and its zero-Covid policies have a big impact on the euro area. Large manufacturing economies such as Germany and Italy are more dependent on international trade than the US, where services make up the bulk of the economy.

Holger Schmieding, chief economist at Berenberg Bank, said: "If China applies more and more blockade policies to prevent the spread of the epidemic, the global supply shortage could worsen. This could hold back. European growth".

Economic confidence in the euro area weakened in January as businesses and households struggled to cope with the wave of Omicrons, according to a survey released over the weekend by the European Commission. Berenberg's data also shows that the rate of Covid-19 infections is still increasing in the euro area, while the US and UK are gradually decreasing. That could lead to more European workers quitting their jobs, worsening labor shortages and weighing on economic activity for about four to six weeks, a bank representative said.

Europe also faces possible leadership changes in the coming months that will affect economic policy. French elections will begin on April 10. A general election will also be held next June in Italy to choose a new president.

In Germany, Europe's largest economy and export powerhouse, GDP contracted by 0.7% in the last quarter of 2021 from the previous quarter, about 1.5% below pre-pandemic levels. Germany is affected by its dependence on exports, which contribute about 30% of the country's jobs. Germany's exports to China, its biggest trading partner in 2020, fell about 8% in December year-on-year, reaching 8.5 billion euros, or $9.5 billion. Meanwhile, exports to the US increased by about 18% to 10.7 billion euros.

In France and Spain, the economy grew in the fourth quarter from the previous quarter, albeit at a slower pace. Spain's GDP is still 4% below its pre-pandemic level, while France's economy is just 0.9 percent above that.

France's stable economy gives impetus to President Emmanuel Macron's re-election hopes. However, the country's manufacturing sector continues to stagnate, as bottlenecks and shortages in the supply chain hold back production, especially in the auto sector.