Europe stalls

While economic growth in the Eurozone contracted by 0.4% p.a. (q/q) in the third quarter, that of the United States rose by 4.9% p.a.. The growth gap between the two sides of the North Atlantic has been widening for 15 years. With each crisis, Europe loses a few points of growth to the United States. According to the Observatoire français des conjonctures économiques (OFCE), since 2007, per capita growth has risen by 19.2% on the other side of the Atlantic, compared with just 7.6% in the eurozone, a gap of almost 12 points. The average income of Americans is now more than 20% higher than that of Europeans. The main reason for this widening gap is the difference in fiscal policy on the two sides of the Atlantic. In 2020 and 2021, the US deficit was 14% and 11.6% of GDP respectively, compared with 7.1% and 5.3% in the Eurozone. American households and industries have therefore benefited from colossal support from their government. In August 2022, the US government launched a new $400 billion support plan for industry. As a consequence of this massive spending, the US public deficit is expected to remain at around 7% of GDP until 2028, and public debt could reach almost 140% of GDP by 2028. Nothing like that in Europe. Firstly, the much stricter European budgetary rules should be reinstated in 2024 (maximum 3% deficit authorised), which should have a negative impact on European growth of almost 1% in 2024. Furthermore, as the eurozone is not a fiscal union, such public spending is not possible, as it is difficult to finance it, particularly for highly indebted countries such as Italy. Finally, since 2022, the war in Ukraine has severely penalised the European economy, whose energy costs have soared, which is not the case for the United States, which exports gas, particularly to Europe. The ECB’s monetary tightening has therefore mainly been to combat soaring energy prices, while the Federal Reserve has raised interest rates to combat a surge in household consumption. As things stand, Europe’s slide is likely to continue.