EU's economic recovery hinges largely on new drivers of growth

The recovery of the eurozone economy has been weaker than expected, with manufacturing still shrinking, growth in services decelerating, and businesses holding back investment spending in the face of weak demand and a highly uncertain outlook.

The International Monetary Fund pointed out in its European economic outlook in October that technology productivity in Europe has almost stagnated since 2005, while that in the United States has increased by almost 40 percent, a major factor behind the lack of business dynamism in Europe. Some analysts believe that the three key external conditions that have long supported Europe's prosperity — open markets, cheap energy and a stable geopolitical environment — no longer exist, and Europe must turn to large-scale investment and policy innovation to maintain its long-term competitiveness.

Faced with the reality of a growing recession, decision-making institutions in the European Union have taken a number of internal and external measures to try to enhance the bloc's overall competitiveness. The European Central Bank has cut interest rates multiple times this year, gradually lowering borrowing costs for companies and households, in an effort to stimulate market activity. The ECB is expected to further reduce borrowing costs in 2025.

The EU also plans to invest heavily every year in technological innovation, green energy and digital transformation to ensure that Europe has a place in global competition. The bloc is also devoted to streamlining regulations and eliminating overlaps and differences across its whole legislative chain to improve its lengthy and inefficient decision-making mechanism.

However, lingering geopolitical risks, fragile energy supply security, and the rising sovereign debt risks in eurozone countries still threaten the EU's stability. In addition to natural disasters, the rise of protectionism around the world will put particular pressure on the EU's export-oriented economy. For example, potential new tariffs by the new US administration will pose multiple challenges for European exporters and exacerbate volatility in EU business and consumer confidence. To sustain its recovery, the EU economy badly needs new drivers of growth.

ECONOMIC DAILY