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European economy struggles amid recession fears, geopolitical chaos

FRANKFURT, GERMANY | Xinhua | As German companies are getting increasingly dissatisfied with their status quo, their scepticism over business prospects for the first half of 2024 has grown.

The Ifo Business Climate Index, which measures entrepreneurs’ sentiments about the current business situation and their expectations for the next six months, slipped to 86.4 points in December, according to the Munich-based economic think tank Ifo.

The dismay of companies in the biggest economy of the European Union (EU) demonstrated profound concerns that the sluggish European economy risks falling into recession in the near future.


As the tightening policies of the European Central Bank (ECB) have held sway over the real economy, European companies, especially those in the real estate, retail and energy-intensive industries, found themselves in a tight spot.

European property and retail giant Signa has become one of the latest victims of the tightening cycle featuring elevated borrowing costs and dampened demand, as several divisions of the company filed for insolvency in Austria and Germany.

The bankruptcy of Signa, which owns properties and shopping malls in central areas of many German cities, is likely to trigger price falls of commercial properties in Europe if the company is forced to sell its properties as collateral, said Markus Fugmann, a chief analyst at German financial consultancy Actior AG.

The default of real estate companies in Europe, if it materialises on a large scale, could cause a banking crisis in Europe, Fugmann warned.

The number of German companies that filed for bankruptcy increased 23.5 percent this year compared with 2022, according to a recent survey by German economic research institute Creditreform Wirtschaftsforschung.

“The number of insolvencies will continue to increase significantly in the coming months in these difficult economic conditions,” said Patrik-Ludwig Hantzsch, head of Creditreform Wirtschaftsforschung.

Since July last year, the ECB has lifted key interest rates ten consecutive times, adding a total of 450 basis points, marking the central bank’s most aggressive round of tightening in recent years.

The ECB put rate hikes on hold at its rate-setting meeting in December. It insisted that in the short term, inflation in the euro area may rebound, and it is in no position to loosen monetary policies at present.


The EU economy and the economy of the 20-member euro area both stagnated in the third quarter (Q3) of this year. Compared to the previous three-month period, gross domestic product (GDP) in the EU in Q3 remained flat, while GDP in the euro area shrank 0.1 percent, data published by the EU’s statistics office Eurostat showed.

The HCOB Eurozone Composite PMI Output Index, which combines the manufacturing and services sectors, fell to 47 in December, an indication of a “steeper” contraction of business activities in the euro area.

“Once again, the figures paint a disheartening picture as the Eurozone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“The likelihood of the Eurozone being in a recession since the third quarter remains notably high,” he cautioned.

The latest GDP figures show that the eurozone contracted in the third quarter, and it looks like it will do the same in the last three months of the year falling into a continent-wide recession, said British think tank Oxford Economics in a note.

The European economy is also bearing incremental pressure as the Israeli-Palestinian conflict is still raging. It is feared that Europe will have to cope with a resurgence of soaring inflation if the conflict lingers or continues to exacerbate.

The conflict between Israel and Palestine will have a significant impact on inflation and economic growth in Europe unless energy prices are under control, according to a recent study by Goldman Sachs.

In its latest staff forecast published this month, the ECB lowered its expectation for economic growth in the euro area to 0.6 percent this year and 0.8 percent in 2024, from 0.7 percent and 1 percent respectively.


This year marks the 20th anniversary of the establishment of the China-EU comprehensive strategic partnership.

Over the past 20 years, the volume of China-EU trade has increased almost nine times. EU investment in China has nearly tripled, and China’s investment in the EU has grown from zero to today’s 104.4 billion U.S. dollars.

Bucking the trend of a slow global recovery, bilateral trade between China and the EU reached a record high of 847.3 billion dollars in 2022, representing a year-on-year growth of 2.4 percent. This translates to over 1.6 million dollars in trade occurring between the two sides per minute on average.

As Europe and China are two key drivers for economic globalization and multi-polarization, stable and lasting bilateral cooperation will inject a much-needed impetus into Europe to achieve economic growth.

Many European companies such as Volkswagen, Airbus and Mercedes have increased their investments in China to gain a stronger foothold in China’s vast market.

Given its large population of educated people and advanced infrastructure, China will play a crucial role in Europe’s economic recovery, said Christian Dreger, a professor of economics at the European University Viadrina Frankfurt (Oder).

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