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Europe’s economy faces uncertainty in light of Germany’s downturn

The Yomiuri ShimbunSigns of a slowdown in Europe’s economy are growing. Difficult economic management is likely to be required to pull the region out of its current slow growth.

Against a backdrop of uncertainty over prospects of the global economy, financial markets have continued to fluctuate, with stock prices plunging in the United States and Europe on Wednesday.

One of the factors is a downturn in the economy of Germany, the largest economic powerhouse in the eurozone.

Germany’s gross domestic product shrank by 0.1 percent in real terms for the April-June period from the previous quarter, marking the first negative growth in three quarters.

Exports, particularly of automobiles, were sluggish due to China’s economic slowdown. Because Germany is more dependent on exports than Japan, the United States and other countries, its economy is easily affected by overseas economic conditions. It can be said that such a weak point has weighed on the country.

With business sentiment in the country’s manufacturing sector rapidly deteriorating, speculation has grown that the German economy will soon enter a recession.

The growth rate of the entire eurozone is also slowing. If this situation remains unchanged, Japan, which has concluded an economic partnership agreement with the European Union, could be adversely affected. The Japanese government and companies need to be more vigilant.

Europe was hit by a debt crisis, triggered by Greece, around 2010 to 2012. Fiscal concerns spread to southern European countries such as Italy, Spain and Portugal, shaking financial markets.

Flexible stimulus needed

At that time, Germany, which increased exports thanks to the weaker euro, was the only winner. Despite negative aspects that widened the North-South disparity in the EU, it is also true that Germany did lead the economic recovery in Europe.

This time, however, the German economy, the anchor for Europe, is the one flashing warning signs.

Italy, the eurozone’s third-largest economy after Germany and France, also registered zero growth in the April-June quarter. It is concerning that political turmoil, stemming largely from warring political orientations, has raised the possibility of the collapse of Italy’s coalition government amid an economic slowdown.

Italian financial institutions have been behind in dealing with bad loans. Financial unrest could rekindle if the business performance of one borrower after another deteriorates. To prepare for a possible crisis, political stability is urgently needed.

In Britain, since Boris Johnson took office as prime minister, speculation over a “no-deal Brexit” has been growing. If that happens, it will inevitably cause chaos in both Britain and the EU.

At its Governing Council meeting in mid-September, the European Central Bank is highly likely to decide to take monetary easing measures, including an interest rate cut. It is hoped that the ECB will show flexible responses.

Needless to say, monetary measures alone have limited effects. Countries such as Germany and the Netherlands have continued to have fiscal surpluses. Countries with sufficient room for fiscal stimulus are urged to shore up their economies by implementing economic measures flexibly.

(From The Yomiuri Shimbun, Aug. 17, 2019)Speech



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