Summary of the day
Eva Maria Poptcheva, a Spanish member of the European parliament, said she believes “the top challenge right now is really competitiveness of the European economy” and called for more investment in productivity and strategic sectors.
Maria Demertzis, a senior fellow at the Bruegel thinktank in Brussels, and a professor of economic policy at the European University Institute, told us today that in Europe “the risk of recessions are very, very real, given the uncertainties”.
Philipp Lausberg, a policy analyst in the European political economy programme at the European Policy Centre, said today that “the main challenge to the EU economy is the bloc’s diminishing competitiveness”.
Guntram Wolff, CEO and director of the German Council on Foreign Relations, told us today that “higher energy costs combined with geopolitical uncertainty represent a major headwind to the EU and the German economy in particular”.
Germany’s federal agency for energy and communications told consumers they can rest assured that Europe’s biggest economy has stored enough gas to see it through the winter, with storage units across the country reported to be 100% full, but urged consumers to continue to use gas sparingly.
The European Central Bank released results from a new survey showing that “large firms expect to become more active in (re)locating operations over the next five years to make their businesses more resilient”.
An opinion poll carried out for El País newspaper and SER radio network found that almost 23% of Spaniards have experienced “anxiety or depression” due to the rise in the cost of living.
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Europe should invest in productivity and strategic sectors, parliamentarian says
Eva Maria Poptcheva, a Spanish member of the European parliament from the Ciudadanos party, told us today that she believes “the top challenge right now is really competitiveness of the European economy”.
So how do we get there, to be competitive again? We need a lot of investments, but we need investments in two things. The first is productivity. And the second is to invest in strategic sectors. And we are not good in doing neither one nor the other.
Because in Europe, we are really good in investing in infrastructure, in buildings, this kind of things, but we don’t really have a culture of investing into productive goods, like reskilling.
Poptcheva, who serves as vice-chair of the EU parliament’s committee on economic and monetary affairs, stressed that “our jobs are going to go somewhere else if we’re not productive enough”.
Speaking of strategic sectors, Poptcheva added:
We have digital hubs here and there, in Dublin and in Portugal, etc, but we don’t have a Silicon Valley. So we have a big fragmentation in terms of strategic sectors.
And why is that like this? Because we have investment at national level. And this is something that makes me very worried actually, because if we are looking now at the revision of the fiscal rules, one of the problems there again, is that in the new European fiscal rules … everything is designed at national level, so national investments. But actually the big strategic projects, these are cross-border projects.
Poptcheva said the EU needs “common fiscal capacity” and “implementation at EU level directly” to address this issue.
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Expert cautions of uncertainties in European economies
Maria Demertzis, a senior fellow at the Bruegel thinktank in Brussels, and a professor of economic policy at the European University Institute, told us today that in Europe “the risk of recessions are very, very real, given the uncertainties”.
Inflation is “eroding the ability of the households to finance their daily needs,” she said in a phone interview. She added that “inflation has come down tremendously by comparison to the peak, but it’s nowhere near where it ought to be for this not to be an issue any more”.
“The energy prices actually have come down by comparison to where they were at the peak and they are no longer contributing to inflation, but there is uncertainty here,” she said, referring to the war in the Middle East. “So there’s a fear this might come back and we’re not out of the woods yet.”
Rising food prices, meanwhile, were “bad for many reasons”, Demertzis said. “First of all, because it adds to the inflation but also because it affects the poorer the most”.
Demertzis said that when it came to the economy itself, “the EU for all intents and purposes is really stopping growing … With Germany now being at zero, it really is a matter of time before the European economy kind of stops” growing.
After Russia’s war in Ukraine, “now we have yet another wave of uncertainty … coming from the Middle East,” she said. “Uncertainty is never good for the economy, so this is something that might actually accelerate some of these tendencies.”
But she cautioned: “The EU isn’t just one story, there’s many stories.”
Countries had different degrees of vulnerabilities, she noted.
There’s just so many different economies that cannot really apply identical economic policies.
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Germany has gas for winter but no room for complacency, federal agency says
German consumers are being told they can rest assured that Europe’s biggest economy has stored enough gas to see it through the winter, with storage units across the country reported to be 100% full, according to the Bundesnetzagentur, the federal agency for energy and communications.
However, consumers are being urged to continue to use gas sparingly, with the head of the agency saying there is no room for complacency.
The current levels of stored gas equate to the amount which would be required to get the country through two to three cold months, according to the Gas Infrastructure Association, GIE.
Klaus Müller, president of the Bundesnetzagentur, said he was relieved.
“It’s good news that the storage facilities are now 100% full. We’re far better prepared for the winter than we were last year,” he told the Germany Press Agency (DPA). “However, we urge people to continue to consider where they can make savings in their usage,” he added, pointing out the clear financial benefits to consumers who use less gas.
The stable situation is in contrast to a year ago when Germany was cut off from its main gas supplier, Russia, after Moscow’s invasion of Ukraine, and struggled to see how it would get through the winter.
Gas prices went up by over 80% compared to the previous year. The temperature in public buildings was reduced to 19C (66F), blankets and hot-water bottles were brought in as heating substitutes in many workplaces, and the heating of private swimming pools with gas was banned. Large numbers of private households followed suit and even now many are continuing to stick to a 19C limit.
The crisis prompted the government to bring in a direct support programme to help deal with the cost increases, and led to the introduction of a controversial building energy law to replace old fossil heating systems with renewable alternatives.
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German economy in major transition, expert says
Guntram Wolff, CEO and director of the German Council on Foreign Relations, told us today that “higher energy costs combined with geopolitical uncertainty represent a major headwind to the EU and the German economy in particular”.
Wolff outlined the key challenges facing Europe’s economy.
Germany especially is going through a major transition after having lost its comparative advantage of very cheap Russian gas.
Renewables will eventually drive down the prices of electricity substantially but the comparative advantage will be gone.
This adjustment comes on top of a less dynamic market in China and the digital transformation in which the EU has far fewer players than the US.
He added: “The good news, though, is that interest rate hikes have come to a halt and inflation dynamics look so favourable that I do not see rates rising.”
“That will eventually provide some relief to investments including in housing.”
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Diminishing competitiveness main challenge for EU's economy, analyst says
Philipp Lausberg, a policy analyst in the European political economy programme at the European Policy Centre, said today that “the main challenge to the EU economy is the bloc’s diminishing competitiveness”.
In an emailed note, Lausberg said: “In an increasingly confrontational global geo-economic environment, high energy prices, skills shortages, the regulatory burden, and a weakening of the single market are all threats to Europe’s competitive edge and economic success.”
He added:
The investment efforts in innovative green and digital industries as well as for the move towards greater economic security is not comparable to the ambitious industrial policy programmes in the US and China.
This also translates into a slower uptake of renewables to tackle the challenge of high energy prices.
Public investment is largely channelled through member states and not sufficiently through EU-wide funding, which creates inefficiencies and undermines the European single market, the EU’s biggest competitive asset.
Lausberg also noted that “the EU’s businesses have to grapple with increasing regulatory compliance costs, which can hamper innovation and reduce competitiveness, as the EU’s efforts to push ahead the green deal create increasing regulatory burdens and costs.”
“The decrease of skilled labour because of the demographic change and a lack of skilled immigration,” he noted, “poses another great challenge to the union’s economy.”
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More large firms expect to relocate operations, ECB survey finds
The European Central Bank released results from a new survey today showing that “large firms expect to become more active in (re)locating operations over the next five years to make their businesses more resilient”.
In the survey, “companies were asked how the location of their production/operations had changed over the last five years and how they expected it to evolve over the next five years,” the ECB said. The bank noted that “the replies indicate higher shares of firms expecting to (re)locate more production both into and out of the EU in the next five years than in the previous five years”.
Nevertheless, “there is still a higher proportion of companies expecting to move production out of the EU than into the EU,” the survey found.
A higher share of firms also said that they expected a tendency to (i) relocate more production geographically closer to the final production site or country of sales (“near-shoring”), (ii) diversify operations to a greater extent across countries, and/or (iii) (re)locate more production within/into countries politically closer to the main country of sales (“friend-shoring”) in the next five years than in the last five years.
The survey found that “geopolitical risk was the most frequently cited factor behind decisions to (re)locate production into the EU, while demand and cost factors motivate moves out of the EU”.
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Downturn in eurozone business activity increases
The downturn in eurozone business activity accelerated last month, a survey showed today, Reuters reported.
The final composite purchasing managers’ index (PMI) compiled by S&P Global fell to 46.5 in October from 47.2 in September, its lowest reading since November 2020.
According to Reuters, Adrian Prettejohn at Capital Economics said: “Final PMIs released today confirmed the preliminary estimates and are consistent with our forecast that eurozone GDP will contract again in Q4.”
The outlook also looks very weak, with the new orders PMI falling to its lowest level since September 2012, excluding the early pandemic months, while exports were also particularly weak.
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Tesla plans to build a €25,000 car at its factory near Berlin, a source with knowledge of the matter told Reuters today.
The carmaker also intends to double the German plant’s capacity to 1m vehicles a year, Reuters reported.
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Middle East war could spark global recession, say Wall Street experts
The conflict in the Middle East could lead to a global recession, as the humanitarian crisis compounds the challenges facing an already precarious world economy, two of Wall Street’s biggest names have warned.
The downbeat comments come as the City braces for another gloomy update on the UK economy, with the Office for National Statistics due to report on Friday on growth in the third quarter.
After barely growing during 2023, the UK economy is again expected to be almost at a standstill, according to estimates by City economists. There are also new disheartening figures on the housing market, with UK mortgage lending predicted to show decade-low growth during 2023 and 2024.
In terms of the global economy, Larry Fink, chief executive of the world’s largest asset manager, BlackRock, said a combination of the Hamas atrocities of 7 October, Israel’s resultant attack on Gaza, and Russia’s invasion of Ukraine last year had pushed the world “almost to a whole new future”.
In an interview with the Sunday Times, Fink said: “Geopolitical risk is a major component in shaping all our lives. We are having rising fear throughout the world, and less hope. Rising fear creates a withdrawal from consumption or spending more. So fear creates recessions in the long run, and if we continue to have rising fear, the probability of a European recession grows and the probability of a US recession grows.”
Read the full story.
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Ryanair to reward shareholders as it heads for record profits after fares rise
Ryanair is to hand its shareholders regular payouts for the first time, after soaring air fares put the airline on track to make record profits.
The budget carrier said it expected to record profits of between €1.85bn (£1.6bn) and €2.05bn in the financial year to the end of March 2024, far outstripping its previous highest annual profit of €1.45bn in 2018.
Ryanair has been helped by a 24% rise in average air fares to about €58 in the six months to the end of September 2023, amid a post-pandemic increase in demand for international travel. A strong Easter, record summer traffic and the growth in air fares helped to offset higher fuel costs.
The Irish airline, which is the largest in Europe, saw its profits reach €2.18bn over the six months, 59% better than its previous record for the period, set last year. It expects “modest losses” over the winter season, when airlines typically struggle to make a profit.
Read the full story.
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Hungary, meanwhile, is continuing to court Chinese investment.
Márton Nagy, the Hungarian minister of economic development, attended the China International Import Expo, where he “reaffirmed Hungary’s commitment to being the primary destination for Chinese investments in central Europe,” according to a government spokesperson.
🇨🇳🤝🇭🇺Minister of Economic Development Márton Nagy, at the 6th China International Import Expo, reaffirmed Hungary's commitment to being the primary destination for Chinese investments in Central Europe. 🤝The minister emphasized the country's strategic position between East and… pic.twitter.com/VRJwkjWtEJ
— Zoltan Kovacs (@zoltanspox) November 6, 2023
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After visiting Ethiopia, Czech Republic prime minister Petr Fiala is in Kenya today in an effort to build closer business and defence ties.
Opening of the Czech-Kenyan Business Forum in Nairobi. I am very pleased with the great interest, more than a hundred Kenyan businessmen have arrived.
— Petr Fiala (@P_Fiala) November 6, 2023
The Czech Republic has strong security and defence relations with Kenya and we have much to build on. I see potential in the… pic.twitter.com/sHmXuGKYiU
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Spain's services sector activity grows
Spain’s services sector activity grew at a slightly faster rate in October, Reuters reported today, citing the HCOB Spain Services Purchasing Managers’ Index (PMI) compiled by S&P Global.
Business people surveyed by S&P Global said their operating expenses kept on rising, but most of them protected their margins by raising their own prices.
“While the wider European service sector is experiencing continuous downward pressure in business activity, Spanish companies are kicking it up a notch and reviving growth,” said Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.
Inflation rise in Russia 'almost certain' to increase cost of war, UK says
The UK Ministry of Defence said today in a public intelligence update that inflation rose to 6% in Russia in September, up from 5.3% the previous month, addingthat “higher inflation is almost certain to increase the costs of funding Russia’s war in Ukraine”.
The British ministry said “it is highly likely” that Russia’s central bank “will maintain high interest rates through 2024” and “this is highly likely to increase borrowing costs for Russian consumers” while also likely affecting the Russian government’s debt servicing costs.
“The Russian economy is likely at risk of overheating,” the ministry said, adding that “continued high inflation is likely to erode real terms government spending, particularly in areas such as social care with below-inflation spending rises.”
“This further illustrates the reorientation of Russia’s economy to fuel the war above all else,” the ministry said.
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Nearly one-quarter of Spaniards feel anxiety or depression over inflation
Almost 23% of Spaniards have experienced “anxiety or depression” due to the rise in the cost of living, according to an opinion poll carried out for El País newspaper and SER radio network.
A majority, 57.7%, said they felt discouraged or pessimistic due to inflation.
Almost all respondents – 90% – said they saw inflation as the current biggest global threat, even more than war, energy instability, terrorism and the climate crisis.
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Welcome to the blog
Good morning and welcome back to the Europe blog.
Today we will be delving into the state of the European economy.
Send comments and tips to lili.bayer@theguardian.com.
