EU economy survived ‘terrible prophecies’, now faces trade with China: EU’s

The European Union has successfully avoided the “terrible prophecies” that threatened its economy in recent years, but must still contend with Russia’s war in Ukraine and a tenuous trade relationship with China, outgoing European Commissioner for Economy Paolo Gentiloni said Saturday.

The bloc’s economy underwent “overall a weak growth, but nothing of the terrible prophecies that we heard in the last two or three years: recessions, blackouts, divergence, divisions in Europe in front of Russia’s invasion,” Gentiloni said in an interview with CNBC’s Steve Sedgwick at the Ambrosetti Forum at Cernobbio, on the shores of Italy’s Lake Como.

A former prime minister of Italy, Gentiloni has served as the European Commissioner for Economy under EC President Ursula von der Leyen since December 2019. The European Commission is responsible for the 20-nation euro zone’s economic strategy and legislation — such as tariffs — while the European Central Bank oversees the region’s monetary policy and interest rate decisions.

Gentiloni will not be returning for a second term as commissioner following Von der Leyen’s tumultuous re-election as president — but he has laid out the economic picture that awaits his imminent successor.

“The economy is growing, slowly, but growing. And the risks of differences among the European Union, that was very high when the pandemic happened, are very limited,” he noted. “The bad part of the story is that if we don’t raise out capacity in terms of competitiveness, if we don’t make enormous progress in what we call the capital markets union, and if we don’t address the challenge of defense … if we don’t do that, well, the new situation of the world will appear very difficult for Europeans.”

Resurging from the Covid-19 pandemic, Europe has been battling a cost-of-living crisis and high-inflation environment exacerbated by Russia’s February 2022 invasion of Ukraine and energy supply tightness following sanctions against Moscow. The euro zone’s economy has expanded in the first half of this year, with flash figures showing better-than-expected gross domestic product growth of 0.3% in the three months to the end of June, compared with the previous quarter.

In its spring forecasts, the European Commission projected the EU’s GDP will swell by 1% in 2024 and by 0.8% in the euro area, with respective growth of 1.6% and 1.4% in the two regions in 2024. At the time, the Commission flagged growth on the back of accelerated private consumption, declining inflation and a strong labor market, but also broader geopolitical risks amid ongoing conflicts in Ukraine and the Middle East.

Amid a drop in inflation, the ECB in June took the first step to ease monetary policy since 2019, trimming the central bank’s key rate to 3.75%, down from a record 4% where it has been since September 2023. As of Friday, markets had fully priced in another ECB rate cut in its forthcoming meeting of Sept. 12.