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Europe in 2024, Germany is a new problem and Italy, an old problem

2023-12-30 12:25:06Biznes SHKRUAR NGA REDAKSIA VOX

Europe in 2024, Germany is a new problem and Italy, an old problem

In the last decade, the north of Europe has been the most economically prosperous region. The Scandinavian countries, plus Germany, Poland, and even Britain, have had good economic growth and employment.

In contrast, Southern Europe was hit first by the 2010-12 Euro crisis and subsequent austerity measures, then by the pandemic, which damaged economies heavily dependent on tourism.

But while Europe is facing new challenges such as climate change and geopolitical upheaval, the economic fortunes of European countries are also changing in new ways, which will begin to become more visible in 2024, writes The Economist.

Let's start with climate change. Europe aims to become the first continent to eliminate carbon emissions. In order for this to happen, electricity supplies must be carbon-free, then industries, heating and transport must be changed to run on green energy.

These are quite difficult tasks to accomplish. For some countries, this green transition can spur economic growth, as investment boosts demand and geography creates favorable opportunities. Countries with a lot of potential in renewable energy, such as those along the North Sea coast or countries with a lot of sun like Spain, can experience high levels of economic growth.

But legacy industries will face many challenges in adapting. Processes like cement or steel production require fossil energy that is difficult to replace with green energy without spending a mountain of money.

In the global market where such products are traded, other producers will have much lower energy costs than European ones because they own natural gas, or because it is easier for them to produce green electricity and abundant hydrogen.

In heavy industry, Germany is the biggest user of energy in Europe, consuming about twice as much as other large countries, such as Italy and France.

The auto industry also faces new competition as diesel and gasoline cars are being replaced and the market is being taken over by electric vehicles. The latest EU investigation into China's subsidies for the electric vehicle industry highlights just how nervous Europe has become about this new rival.

European countries with large automotive industries, such as the Czech Republic, France, Germany, Slovakia and Spain, will suffer as a result of this change.

Another factor is demographics. Already, companies across Europe are struggling to find enough employees. The job vacancy rate, which shows the ratio between job vacancies and the total number of jobs in the economy, exceeded 4% in Austria, Germany and the Netherlands in the second quarter of 2023 (Eurozone average it was just over 1% about a decade ago).

And every year, many employees retire. The Eurozone has around 23 million people aged 60-64, but only 18 million aged 15-19. Among large countries, this gap is most pronounced in Germany, Italy and Poland. There is almost no gap in France or the Scandinavian countries and a very small gap in Belgium and the Netherlands.

Not all European countries can compensate for this lack by increasing immigration. The war in Ukraine forced many people to flee to the West, giving the Czech, German and Polish economies a new source of workers. In 2024, immigration will again dominate the political debate.

Labor shortages will be accentuated as more Ukrainians return home, even as migrants from outside Europe continue to arrive on the continent's shores.

Finally, the growing geopolitical rivalry between America and China (and by extension, democracies and autocracies), will have economic consequences across Europe. States with strong trade ties to autocracies may face disruptions in supply chains, or may be victims of economic retaliation.

Germany and Italy have already experienced such a blow, after blackmailing Russia to cut off gas supplies. These two countries, along with some Eastern European economies like Poland, have stronger trade ties with autocracies than countries like France or Sweden. The EU, which aims to connect its countries' economies, has faced similar challenges before.

But those that will hit the continent in 2024 will be much harder to deal with.

 


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