The Heavy Slab of Low Growth in Europe

The global economic slowdown is a palpable fact for the big economic blocs. All of them have cut growth estimates during this year, but we must highlight the specific case of Europe, which is positioned as the economic block with the lowest growth.

For this year, the IMF projects economic growth for the world of 3 %. Emerging and developing economies will grow by 3.7%, while those in advanced economies will grow by 1.7%. Within the advanced economies, the United States would grow to 2.4%, and the Eurozone as a whole would only advance 1.2%.

It is not a timely fact. Europe has been the economic bloc that has suffered two strong recessions during this century. And the growth rate of the countries with the greatest weight in the European Union has declined significantly in recent decades.

We are therefore faced with a heavy slab of low economic growth that has rather structural roots due to an erratic economic model.

Europe: A unique economic model in the world

The European economic model is identified as one of the most interventionists around the world because public spending has a weight on GDP by around 46 %. And in countries like Finland, France, Belgium, and Denmark exceed 50% quota.

On the contrary, in the most capitalist economies of our environment, we have the United States with a relative weight the public expenditure of 38% on GDP and Switzerland with 32.5 %. It should also be noted that within Europe, Ireland falls apart from the European model with a public expenditure of 25.70%. Not only are the countries with the highest per capita income in the world, but they lack economic growth problems.

The problem is not that all European institutions create a fiscal hell for their citizens in which decisions are centralized through public spending, but that, in the private sector economy, more and more, the number of regulations to develop economic activity, which reduces business development through so-called regulatory costs.

In case the tax problem and the problem of regulatory costs are insufficient, we have a monetary authority that is intervening the short part of the debt curve with 0% interest rates or even negative the deposit rate and the long part with purchases in the secondary debt market, which has generated a bubble with negative bond yields.

For more inri, the problem of population aging is added – a joint problem for advanced economies – in which life expectancy is increasing more and more, which means that those over 65 will increasingly have a greater weight on European society during this century.

Demographic changes represent a significant portion of the downward trend in economic growth in these countries over the past decade, including in Japan and the United States. In addition, the continuation of the shift towards a larger population is likely to be an important factor that slows economic dynamism.

All these factors described lead us to a stagnant growth both in the medium and in the long term in which if the current policies that have taken us to the present scenario are not reversed, they will lead us not only to the low growth scenario but to a Decadent economy with a lower degree of competitiveness compared to our business partners, with greater sensitivity to recessions.

An uncertain future

Europe lives settled by the great past income, where it was the central axis of world economic development. If we look at Europe from a static point of view, it enjoys a large per capita income compared to emerging or developing countries.

As we can see in the following map, the set of advanced economies, which includes Europe, is colored green with incomes per capita above $ 20,000 per year.

But the reality should not be seen from the static point of view but dynamic, and that is where we have the problem… Increasingly, the expansions are slower, Europe is losing strength in its growth against its and the risks of strong recessions.

Europe is especially vulnerable because, due to its economic model, it is not considered a pole of attraction of the capital. In a scenario of strong volatility and uncertainty in global markets, investors turn to shelters such as the dollar, the US bond, the Swiss franc, among other assets, which creates problems both in the public sector and in the private sector at the time Need liquidity for its operation.

Nor is it standing out in the current technological revolution. Of the 20 most capitalized technology companies in the world, the United States has 12 companies, while Europe has only one, the German Deutsche Telekom.

But, to date, Europe is reluctant to change. It is a market of 740 million inhabitants, with one of the highest incomes in the world that gives it the power to impose its rules on the economic board.

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