Mgloomy summer forEuropean economy. In the third quarter, activity in the eurozone decreased (-0.1%), weighed down by the fall in gross domestic product (GDP) in Germany (-0.1%) and its near stagnation in France (+0.1%). Worse, the outlook for the end of the year is far from a recovery: activity should stop at best… and slow at worst. In total, during 2023, the member states of the monetary union are expected to achieve slow growth (+ 0.7%). But the situation is even more disappointing when we look across the Atlantic. The United States is expected to post a healthy 2.1% GDP growth this year…
If we look in the rearview mirror, the difference is even more obvious. “The United States today has a GDP in volume that is 7.4% higher than it was immediately before Covid, while in the Eurozone it grew by only 3.4%, with a very strong contribution from Ireland, which alone represents a third of this growth,” he notes. Charles-Henri Colombier, Economic Director at Rexecode. A break that already existed before: since 2007, growth per capita in the United States has reached 19.2%, while in the Eurozone it was only 7.6%!
The weakness of the technological sector
Led by a less dynamic demographics and slow productivity growth, the eurozone suffers from potential growth much lower than that of the United States (1.3%, compared to 1.8%). “The productivity of the eurozone is significantly undermined by its less significant efforts in research and development, investment in new technologies, but also by the weakness of its technological sector”, analyzes Patrick Artus, Natixis economic advisor. “The United States has managed to stimulate the growth of immigration and ensure that it creates more added value,” emphasizes Ana Boata, director of economic research at Allianz Trade.
But the difference in magnitude in response to economic shocks also played a role in the eurozone’s fallout. The United States, benefiting from the dollar advantage, was able to increase its deficits with large checks to households and massive investment plans, such asInflation Reduction Act (IRA), that is, the Law on Chips and Tax Reduction. This year too, the deficit has increased by 23 percent and exceeds 6 percent of GDP. The euro zone has more limited room for maneuver: the total deficit of the monetary union will amount to 3.4 percent of GDP this year. Member States have actually had to turn the “whatever it takes” faucet much faster, as they do not benefit from the same market slack and will soon have to re-submit budgetary rules, suspended since the Covid crisis.
Cicadas and ants
Another difference: the United States, which is energy autonomous, was not affected in the same way by the energy crisis, unlike the Eurozone, fueled by Russian gas, which suffered this shock. Households also had a different response to the wave of inflation and rising rates: Americans dipped into their savings due to Covid, while the Eurozone, especially the Germans and French, were more ants than cicadas. “American consumers are less risk-averse: they used credit leverage to a significantly greater extent than did Europeans,” emphasizes Christophe Barraud, chief economist of Market Securities. The reason: undoubtedly a lack of confidence in the future…
Finally, the eurozone is much more penalized by restrictive monetary policy. “In the United States, it was faster, but it penetrated the economy less than in the Eurozone, especially because European companies are less profitable, more indebted and less rich in cash than across the Atlantic,” describes Ana Boata. The only consolation for our Eurozone: next year we should experience somewhat stronger GDP growth (1.2%). While American growth should slow down to 1.5%.