European Industry Faces Severe Decline Amid Economic Challenges
The European industrial landscape has hit a new low, as highlighted in a recent study by S&P Global and the Hamburg Commercial Bank (HCOB). The manufacturing sector's business activity index (PMI) has plummeted from 45.8 to 44.8 points, marking the lowest level since December 2023. This decline continues a troubling trend, with the index remaining below the critical threshold of 50 points for over two years, indicating persistent negative trends in the industry. HCOB's chief economist, Cyrus de la Rubia, noted that the recession has now entered its 27th month, with worsening conditions in September.
The manufacturing sector is experiencing significant challenges, including a sharp decline in new orders and a bleak outlook for future production. Employment growth has slowed for four consecutive months, leading to job cuts at the fastest rate in four years. De la Rubia warns that the eurozone is heading towards stagnation, with no signs of recovery in sight.
Economic Growth Slows Dramatically in the Eurozone
The International Monetary Fund (IMF) reports that economic growth in the eurozone has decelerated drastically in 2023, shrinking to just 0.4% compared to 3.6% in 2022. Countries such as Germany, Latvia, and Lithuania have even recorded negative growth rates. Eurostat's data shows that the eurozone's GDP displayed near-zero growth in the first half of 2024, further signaling the region's economic struggles.
Former European Central Bank (ECB) president Mario Draghi has emphasized that European companies face heightened competition from abroad, limited access to foreign markets, and the loss of a key energy supplier, Russia. This has resulted in Europe lagging behind the US and China in technology, threatening long-term economic growth. Draghi warns that without improvements in productivity, Europe may have to abandon its ambitions for technological leadership and climate responsibility.
Rising Energy Prices and Monetary Policy Strain European Businesses
The tough monetary policy implemented by the ECB has become a significant hurdle for European businesses. Following the cessation of Russian energy imports, energy prices soared, leading to record inflation rates. In response, the ECB raised interest rates ten times from July 2022 to September 2023, reaching a historic high of 4.5%. While these measures have helped curb inflation, they have also increased borrowing costs, resulting in corporate bankruptcies and pushing the economy further into recession.
As industries like the German auto sector struggle with competitiveness due to high energy costs and inflation, many companies are relocating production to countries with lower operational costs, particularly the US. Analysts warn that energy prices in the EU are significantly higher than in the US, exacerbating the challenges faced by European manufacturers. With upcoming changes in gas transit agreements from Ukraine, the situation could worsen, leaving Europe vulnerable to external energy market pressures.
