French Media: Eurozone to Face a Difficult Year-End

Reference News Network, September 28 — The French newspaper "Les Échos" published an article on September 23 titled "Eurozone to Face a Difficult Year-End," stating that although the Eurozone appears to have avoided a severe recession in the second half of this year, all indicators suggest that the best-case scenario for growth is zero, and a rebound in 2024 will also be challenging.

The article pointed out that as autumn begins, European business leaders are no longer as pessimistic about the future month by month. The Purchasing Managers' Index (PMI) for the expectations of Eurozone managers for the coming months, as published by S&P Global, did not deteriorate in September, but instead rose from 46.7 in August to 47.1. In Germany, this improvement is even more pronounced. In the short term, it seems that the European continent has avoided the risk of a severe recession. Therefore, an economic catastrophe is unlikely to occur. However, this does not mean that a rebound is imminent.

The improvement is attributed entirely to the service sector. In the industrial sector, demand is still weakening, with new order volumes experiencing the largest decline in three years, and business hiring intentions are at their lowest level in three years. Furthermore, overall, surveys on September 22 still indicate that Eurozone Gross Domestic Product (GDP) will decline in the second half of 2023.

Indeed, inflation in the Eurozone is slowing down, but the European Central Bank believes that it will not reach the target level of 2% until mid-2025. At present, the speed of wage increases in most European countries is faster than that of prices, but this will not immediately translate into consumption.

The article noted that the decline in purchasing power over the past two years is likely to prompt households to postpone consumption, as it will take them several years to return to the living standards of 2021, according to the forecasts of the European Central Bank, possibly until 2026 or even 2027.

According to data from the Oxford Economics Institute, real wages, adjusted for inflation, have even fallen back to the level of 2015 in the first half of this year. In this context, it is not surprising that the consumer confidence index calculated monthly by the European Commission declined in September.

The article believes that another factor suppressing economic activity is that the Eurozone's rising interest rate cycle over the past year and a half is the shortest on record. In this regard, corporate credit demand is still weakening, and the number of housing loans issued to households is also decreasing.

Jean-François Uffler, an economist at Morgan Stanley, said, "Many limiting factors will remain active until the middle of 2024."

He warned, "The labor market is reversing, and global economic momentum will not accelerate immediately. The industrial sector of Germany, the largest economy in the Eurozone, will be weakened due to the energy crisis, and competitiveness will decline. 2024 will still be a difficult year for the Eurozone."

"We face the risk of long-term weak economic growth," said Mikara Maxen, Chief Economist at Crédit Industriel et Commercial Bank. "Today's global economy has no real engine."

The article pointed out that this is especially true in the Eurozone. Economists at Crédit Industriel et Commercial Bank predict that the Eurozone's economic growth this year will be 0.7%, and only 0.5% next year. This snail-like pace is likely to continue thereafter. Others are even more pessimistic.

Stefan Hofrichter, Chief Economist at Allianz Global Investors, said, "Most countries in the world are striving to reduce debt because interest rates will remain higher and the cycle longer than in the past. At the same time, the real estate bubble is bursting. Historically, this situation has led to significantly slowed economic growth and very slow economic recovery."

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