European economy disaster: 2024 will be recession with pro-cyclical fiscal and monetary measures
Let's make an easy prediction: 2024 will be a disaster for the European real economy. The manufacturing forecast economic indicators , the PMIs, are practically all negative for European countries. To avoid making a list of numerous indices, we use an illustration by Robin Brooks that summarizes them all:
Let us remember that the manufacturing forecast indices indicate contraction if lower than 50 and here the countries indicated above are all below 50, fifths are all in contraction. Some, like France and the Netherlands, are even worsening. Some, like Germany and Austria, indicate a rebound, but others, like France, only see worsening, but, in any case, they all indicate a notable manufacturing contraction.
So the economic conditions are terrible, but there is worse: the new European budget rules, those on which an agreement has been reached, provide for very strong constraints on the deployment of expansionary fiscal policies. The fact that the deficit cannot exceed one percent of GDP for almost all European countries makes any anti-cyclical policy impossible, indeed it will impose tax cuts and increases that will be pro-cyclical. Therefore the economic crisis will not only not be countered by the EU's economic policies, but will even be accentuated. The 2011-2014 crisis taught us nothing at all.
If in the previous crisis, the one linked to the debt of the euro area, the ECB had taken an active position, at least since 2015 with QE, after Draghi's famous Whatever it takes, in this case we can expect very little from of the Central Bank. First of all there are still the restrictive pressures of some institutes, such as the Dutch one, on the other hand there is no longer an economist at the helm of the central institute, but there is a policy which, so far, has gotten very few right. If the ECB does something it will do so late and inadequately.
This does not mean that the European financial markets will go badly: they now move with their own logic. However, the real economy will suffer greatly, and it is to be expected that unemployment and GDP data will be negative throughout 2024. However, this will not be enough to change radically wrong policies.
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The article European economy disaster: 2024 will be recession with pro-cyclical fiscal and monetary measures comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/disastro-economia-europea-il-2024-sara-recessione-con-misure-fiscali-e-monetarie-pro-cicliche/ on Wed, 03 Jan 2024 10:00:41 +0000.