TRENDS

Victor Rivera

Fri, Feb 15


Mind the Politics - EU: When Internal Politics Require a Global Perspective

Introduction

The International Monetary Fund (IMF) lowered expectation of global economic growth has triggered major concerns due to the limited room for advanced economies to utilize monetary policies such as the lowering of interest rates.  Moreover, in her speech, Christine Lagarde, Chairwoman of the IMF, mentioned that “growth in advanced economies is projected to slow down… mostly due to downward revisions for the euro area”.

This precautionary statement comes at a time when politicians in major European countries are occupied with their internal politics; with Brexit in the UK and all of the uncertainty it generates, France dealing with the Yellow Vests Movement, and Italy trying to fulfil social promises made during the elections with a tight fiscal budget while strengthening its financial system and generating jobs. Finally, Germany has been able to manage its immigration controversy due to its strong economic performance, but according to the IMF’s predictions, such growth might decrease soon as well.

Taking into account that among EU countries, 68% are still expected to grow in 2019 higher than 2018, including Spain, and 46% are expected to grow higher than 3% in 2019, perhaps now is the time to for the political leaders of the major European economies to take a step back, and think out of the box on how to approach the near future in order to generate growth that will be mutually beneficial across the Euro area.

 

UK

In our first episode of Mind the Politics we mentioned that uncertainty would probably be the biggest threat of all for UK politicians when leading the country while still finalizing a Brexit deal.  The economy has been impacted in consumer confidence and materialized in slower real GDP growth reaching 1.4% in 2018 compared to 1.8% in 2017.

Graphic 1 – UK Real GDP Growth (2011-2023)
Data Source: IMF – Expectations for 2019-2023

 

France

In France, the Yellow Vests Movement (Mouvement des Gilets Jaunes) is a protest against social inequalities which so far has been active without any association to a particular political party, but has managed to congregate 136,000 people in Paris around the Arc de Triomphe.  Early wins include forcing the President of France Emmanuel Macron to adapt new fiscal policies such as €100 monthly raise in the minimum wage, the abolition of taxes on overtime pay in 2019 and improving taxes for pensioners earning less than €2,000 a month. While these measures have helped calm the violent actions of the Yellow Vests Movement, it has stunted the growth of the French economy from its upward GDP growth trend which started in 2012.

Graphic 2 – France Real GDP Growth (2011-2023)
Data Source: IMF – Expectations for 2019-2023

Italy

Italy is facing a challenging 2019, with President Sergio Mattarella focused on driving the country back to economic growth while restructuring and strengthening its financial institutions with a new government in place currently led by Giuseppe Conte. At the same time, there are very active socialist and left-wing party leaders such as Mr. Di Maio from the south-orientated anti-establishment Five Stars movement, who has managed to deliver on his campaign promises by implementing citizens income and reducing tax,However, with aims to gain new supporting votes in the upcoming EU elections, his recent meeting with the Yellow Vests Movement has caused friction with France and President Emanuel Macron, escalating to the point of the recalling of French ambassadors for consultations.


Graphic 3 – Italy Real GDP Growth (2011-2023)
Data Source: IMF – Expectations for 2019-2023


Germany

On the contrary, Germany has been more stable in comparison and has faced positive real GDP growth as well as low unemployment rates while maintaining a stable political environment.

Graphic 4 – Germany Unemployment Rate (2011-2023)
Data Source: IMF – Expectations for 2019-2023

 

According to the German Trade and Investment Organization, the automotive sector is the backbone industry in Germany generating 20% of the total domestic industry revenues. With more than 15% of total export, this industry has shown outstanding growth since 2008.  However, taking into account that the majority of the cars are exported across EU, followed by the USA and China according to OEC, if IMF’s global slow down expectations are correct, one wonders how the political agenda of the German government for 2019 would be reshaped in order to continue achieving all-time low employment and positive growth now that uncertainty might be knocking on the door.  Other challenges ahead include Chancellor Angela Merkel not running in the next elections, a strong statement expressed through the closing of her Facebook account, as well as the far right actions discontented with immigration policies.

 

Graphic 5 – Germany Real GDP Growth (2011-2023)
Data Source: IMF – Expectations for 2019-2023

Conclusion

In conclusion, the IMF expectation on global slowdown has risen multiple concerns specifically for the bigger European countries faced with their own difficult internal politics.  Confronted with concerns of economic slowdown now on a global scale, perhaps now is the time for major European political leaders to adopt a more global perspective with aims to find opportunities for collaboration and partnerships to work together in  sustaining growth across the region, recalling the words of President Sergio Mattarella, “A world dominated by unilateralism is a world without friends and can only lead to growing distrust, friction and new conflicts”.


291 views

USER IMAGE