Europe could be drifting in to a downturn as its biggest economies, Germany and France, fight political and economic woes at home.
Business activity in the manufacturing and services industries in both countries — Europe’s largest and second-largest economies, respectively — declined further in September, data showed Monday.
In Germany, composite purchasing manager’s index (PMI data) measuring business activity in both sectors, came in at XXXX, down from XXX in August. In France, meanwhile, the composite PMI fell in September to an eight-month low of 47.4 from 53.1 in August.
In the euro zone as a whole, the PMI data showed a decline from XXX last month to XXX, in September.
PMI data, a closely-watched gauge of economic activity in the region, are the latest figures to confirm a continuing state of decline in Europe’s traditional growth drivers, with both Germany and France tackling political upheaval and economic uncertainty at home.
In Germany, Chancellor Olaf Scholz’s center-left Social Democratic Party (SPD) narrowly held on to power in his home region of Brandenberg in this weekend’s state election, just about keeping the far-right Alternative for Germany (AfD) at bay.
A defeat to the AfD could have had major repercussions for Germany’s leadership given the sharp rise of the far-right’s popularity among parts of the German electorate, with the AfD winning its first state election in Thuringia at the start of the month, and coming a very close-second in Saxony in a separate vote.
The rise of the AfD has accompanied fierce debates over immigration and integration and concerns over a once-booming economy that has been flirting with recession for well over a year.
Germany is expected to grow just 0.3% in 2024, according to the Bundesbank while the European Commission’s spring forecast is even more pessimistic, predicting just 0.1% growth. Once Europe’s poster-child for growth, Germany is now likened to the “sick man” of Europe by economists.
“The German economy continues to struggle for momentum, fuelling concern that the headwinds are structural rather than just cyclical,” J.P. Morgan euro area economist Greg Fuzesi said in a note Friday, entitled “Checking in on the German patient.”
“It is certainly easy to list many challenges: Chinese growth and competition, higher energy prices, the green transition, transformation in the car sector, population ageing and a backlog in public infrastructure investment,” he said, noting that there is also a perceived inability of the three-way coalition government to tackle these challenges, “which weighs on confidence.”
In France, meanwhile,
A plague on both houses
Ian Bremmer, founder and president of the Eurasia Group consultancy, noted earlier this month that the center was “imploding in the European Union’s two largest economies” with similar issues plaguing both countries.
“In France, the far left and far right outperformed in the snap parliamentary election called by President Emmanuel Macron … but are now being cut out of the unstable minority government led by the center-right’s Michel Barnier, meaning their constituencies are angrier, while their leaders take no responsibility for governing their way out of the troubles. The arrangement keeps Macron in power for now, but only makes the extremes more powerful in upcoming elections,” he noted in emailed comments.
Similar political developments are taking place in Germany, Bremmer said, with political wins for the AdD and the issues that propelled its rise including strong anti-migrant sentiment, economic populism, and opposition to support for Ukraine, predicted by Bremmer to only continue to grow in popularity.
“The political buffer remains a strong European Union with largely continuous leadership — and so there’s no longer growing efforts at exit … but domestic policies are heading against the establishment, [and are] part of a broader fragmented globalization trend,” Bremmer said, adding that there was “much to watch here.”