The poor economic situation in Germany and nine other EU countries could have negative consequences for the entire bloc, the European Commission warned yesterday. Macroeconomic imbalances in these countries were a cause for concern in the Commission’s so-called Alert Mechanism Report and will be analysed in more depth
Amid political turmoil, some weak economic data and warnings about its lack of growth potential, Europe has had a difficult year. However, amid a bleak outlook, analysts say there could be some bright spots to be seen in 2025. Economic growth in Europe is not expected to pick up anytime soon, with the European Central Bank last week cutting its 2025 growth forecast to 1.1%.
Meanwhile, ECB President Christine Lagarde said risks to growth “remain tilted to the downside”.
It comes as GDP is expected to expand by 0.8% in the euro zone this year – an improvement from the 0.4% annual growth rate in 2023, but a far cry from the 3.4% in 2022. In comparison, US officials expect growth of 2.7% this year. Eurozone inflation is also in focus after briefly dipping below the ECB’s target in the autumn to 1.8%, but rose back above the 2% target in November.
10 PROBLEM COUNTRIES
The poor economic situation in Germany and nine other EU countries could have negative consequences for the entire bloc, the European Commission warned yesterday. Macroeconomic imbalances in these countries were a cause for concern in the Commission’s so-called Alert Mechanism Report and will be analysed in more depth. “The EU faces serious structural challenges that threaten our long-term prosperity,” said European Commissioner for the Economy Valdis Dombrovskis, warning that “urgent action is needed.”
The aim of the report is to detect and address such problems early. Indicators taken into account include unemployment rates, debt levels, credit flows and property prices.
Macroeconomic imbalances in one EU country, for example a high current account deficit or a real estate bubble, can have spillover effects on other member states. The exceptionally high inflation in recent years, including rising labour costs and property prices, has had its impact, the Commission said in a statement. In addition to Germany, which has long been considered the leading European economy, Cyprus, Greece, Italy, Hungary, Estonia, Romania, Slovakia, Sweden and the Netherlands will be subject to a deeper analysis by the Commission in 2025.
EU PROPOSALS
According to the Joint Employment Report proposal, the EU labour market remains relatively strong. The EU employment rate reached a record high of 75.3% in 2023 and rose further to 75.8% in the second quarter of 2024. At the same time, the unemployment rate fell to a historic low of 6.1% in 2023, a trend that continued in 2024. But challenges remain. Although real wages are recovering, they have not yet fully regained the purchasing power lost in previous years. Widespread labour and skills shortages also pose obstacles to the gains in productivity, innovation and competitiveness.
The proposal recommends further promoting skills development across the EU, as well as promoting quality jobs and an anti-poverty strategy in order to achieve the 2030 objectives of the European Pillar of Social Rights Action Plan. This year’s euro area recommendation calls on EU countries to act individually, including by implementing their recovery and resilience plans, and collectively within the Eurogroup to improve competitiveness and foster economic resilience.
