Growth in the largest economies within the European Union is slowing and showing little or no improvement. This means that Europe may be on the brink of a recession. In addition, the European Central Bank (ECB) currently has no options left to chase a possible recession.
The end of June said Mario Draghi, the President of the ECB, already stated that the risks to economic growth within the European Union have not disappeared. These risks now appear to be reflected in the German, Italian and British economies, which are underperforming.
Germany in trouble
According to the research agency Oxford Economics, German industrial production fell by 1,5% in June compared to May. In the second quarter, production even fell by 1,9% compared to the first quarter. According to the economists, this is the largest decline since 2012 (in 1 quarter). The main reason for this is the trade war between China and the United States, reducing overall global trade.
The same researchers expect that the German economy will show a decline in the coming month. This is also confirmed by the fact that unemployment rose for the second time in a row in July. The slowdown in growth is therefore starting to have an effect on the German labor market.
United Kingdom performs poorly
Not only Germany is in difficult waters, because the British economy is also underperforming. The UK economy fell in the second quarter for the first time since 2012. According to economists, this is a sign that the uncertainty surrounding Brexit is now about to retaliate. "The economy managed to stay afloat thanks to government and consumer spending," market analyst Ranko Berich of Monex Europe said in their report. As a result of the results, the British pound fell by 9% on Friday, August 0,4.
Economists also expect economic growth to stagnate in the United Kingdom. According to them, this is an example of what awaits the country in the coming months, in view of Brexit. These negative expectations may cause the Bank of England to decide to lower interest rates earlier than currently thought. This in an attempt to revive the economy.
New elections in Italy?
The economy in Italy is also facing an enormous challenge, especially now that the country's deputy prime minister (Matteo Salvini) has lost confidence in the government. He announced that in October new elections wants, although it does not appear that a decision will be made on this in the short term. According to various party leaders, it is not useful to hold elections just before the budget for 2020 has to be presented.
The crisis has also had an effect on the financial markets, because the interest rate on government bonds has risen as a result. The national debt in the country now amounts to 130% of national income, making it one of the highest debts in the country European Union is. However, due to the weak Italian economy, the debt will not decrease. Research agency Capital Economics therefore expects that Italy has no other way out than a debt review or default.
Role of the ECB?
The biggest problem, however, is that it appears that the ECB can do little at the moment to alleviate some of the pressure on the economy. The bank will probably lower interest rates in September, but according to several analysts that is not enough. The ECB has little room for maneuver, because interest rates are already very low (-0,4%). That would a recession are sometimes unavoidable.