Ethiopia has attempted to transition to democracy twice. First in 1991, when a new government overthrew a dictatorial military regime. Second in 2018, when Abiy Ahmed took over as prime minister after protests against a repressive government.
political elites committed to tolerance, compromise and respect for democratic rules and practices
independent political institutions
international organisations, such as the African Union and the UN, being willing to force the country’s political elites to uphold democratic values.
In my view, based on my research, Ethiopia does not meet any of the preconditions.
Instead, democratic governance is made almost impossible by its poverty, culture of solving political differences with conflict and violence, absence of strong political institutions, and polarisation.
A democratic government in Ethiopia would help ensure people live in a country that respects human rights and dignity. It would help unlock accountability, stability and economic growth.
The new government made radical reforms. It allowed political parties, radio and media communications to be free. It encouraged private publications and permitted public demonstrations.
But it didn’t take long for the new government to become authoritarian. It persecuted political competitors. Elections were held regularly, but they were not free and fair. Human rights and political freedoms were violated. Freedom of political communication was restricted.
He began a second attempt at moving Ethiopia towards democracy. As The Guardian newspaper in the UK described it:
Something extraordinary is happening in Ethiopia … authoritarianism and state brutality appear to be giving way to something resembling democracy.
Again, this didn’t last. Instead, political order has worsened. The country went through a two-year civil war from 2020 to 2022 between the federal government and the Tigray People’s Liberation Front. Another guerrilla war started between the federal government and an Amhara youth group named the Fano shortly afterwards.
What democratic transition takes
No country has become democratic without at least some of the four preconditions in place. And they are not equally important. For instance, Ghana may not have a strong economy, but it has political elites who play by the rules of democratic governance.
Economic growth: if a society is economically advanced, generally, the people want democracy. This is because an undemocratic and unstable government threatens their economic security. As a result, citizens won’t take part in activities that go against democratic consolidation.
Ethiopia is one of the poorest countries in the world. While there is no magic number for this, one study found that a country with US$10,000 per capita income generally has a higher chance of adopting competitive elections. Ethiopia’s per capita income is US$1,011.
Economic growth is the foundation of strong political and civic institutions. These are important for transiting to and consolidating democracy.
But economic growth needs time. Ethiopia’s constant political instability has hurt its potential for economic development. In the two decades before 2018, its economy grew strongly, reducing the national poverty rate from 39% to 24%. Political instability and other factors since then had increased poverty rates to 32% by 2021.
Political elites: if political elites are committed to deliberating, compromising and cooperating, a country can successfully transit to democracy. One study found that when political elites are divided, the country will be authoritarian. The current civil war in Sudan offers an example of what can happen when political elites battle for power.
In Ethiopia, political disagreements often lead to violence or a government effort to silence and destroy the opposition. In 1991, when the Ethiopian People’s Democratic Front and other political groups couldn’t find common ground, the ruling elite eliminated dissenters. This allowed it to rule the country alone for 28 years. Similarly, when political elites couldn’t deliberate, compromise and cooperate in the second attempt, war broke out.
Political institutions: strong political institutions – such as an independent judiciary, police and electoral agency – support democratic transition. They also help sustain it. Political institutions prevent authoritarian leaders from persecuting political competition, and help solve any conflicts between competing elites.
External pressure: the best example of this was seen in 2022. The civil war between Tigray and the Ethiopian government ended when an African Union-led effort in South Africa forced the two sides to agree. It’s difficult, however, to transition to democracy by relying on external pressure, which would need to be constant and consistent. No country in Africa has been able to become and stay democratic based on external pressure.
What next
Democratic transition can only succeed in Ethiopia when at least one of three things occurs.
First, the country’s economy needs to grow for a substantial amount of time. Second, its diverse ethnic and religious identities must be integrated through policies that encourage the de-escalation of ethnic conflict. Third, society and, more specifically, the political elite need to commit to tolerance, compromise and respect for democratic principles.
All that will take a long time to achieve. Meanwhile, the country has two unfavourable choices: support a non-democratic government to consolidate political order and then gradually help it achieve democratic goals. Or attempt another transition, which may lead to anarchy and widespread inter-community violence. An untimely democratic transition would destroy political order.
With this in mind, Ethiopia’s political elites need to embrace discussion, debate and compromise. External forces can be a support by getting the political elite to move in this direction.
This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Terefe Gebreyesus, Griffith University
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Terefe Gebreyesus does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
TOKYO (Reuters) -Shinjiro Koizumi, launching a bid to become Japan’s next prime minister, pledged on Saturday to focus on revitalising the economy by boosting wages and productivity to counter rising prices.
Koizumi, seen as a frontrunner in the ruling party’s leadership race, said Japan must shift the focus of economic policy from beating deflation to one better suited to an era of inflation.
“Japan’s economy is in a transition phase from deflation to inflation,” Koizumi told a news conference announcing his bid for president of the Liberal Democratic Party.
“We must have wage growth accelerate at a pace exceeding inflation, so consumption becomes a driver of growth,” Koizumi said, adding that the economy would be his policy priority.
On monetary policy, Koizumi said he hoped the Bank of Japan would work in lock step with the government to achieve stable prices and solid economic growth.
Koizumi and veteran fiscal dove Sanae Takaichi are seen as the top contenders in the October 4 party race after Prime Minister Shigeru Ishiba’s decision this month to step down.
The next LDP leader is likely to become prime minister as the party is by far the largest in the lower house of parliament, although the LDP lost its majorities in both houses under Ishiba, so the path is not guaranteed.
Koizumi said if he were to become prime minister, his government would immediately compile a package of measures to cushion the economic blow from rising prices, and submit a supplementary budget to an extraordinary parliament session.
“While being mindful of the need for fiscal discipline, we can use increased tax revenues from inflation to fund policies for achieving economic growth,” he said.
The LDP race has drawn strong attention from market players and led to a rise in super-long government bond yields on the view the next leader could boost fiscal spending.
Investors have also focused on the candidates’ view on monetary policy, as the BOJ eyes further hikes in still-low interest rates. Takaichi had criticised the BOJ’s rate hikes in the past but made no comment on monetary policy at a news conference on Friday.
Koizumi said that if chosen as prime minister, his government would slash tax on gasoline, increase tax exemptions for households and take steps to raise average wages by 1 million yen ($6,800) by fiscal 2030, Koizumi said.
He also pledged to increase government support on corporate capital expenditure to boost Japan’s manufacturing capacity. “We need to build a strong economy backed by growth in both demand and supply,” Koizumi said.
($1 = 147.9400 yen)
(Reporting by Leika Kihara; Editing by William Mallard)
BOSTON — Rising labor costs and a stagnant workforce are threatening Massachusetts’ status as a leader in innovation and economic growth, according to a new report from an independent tax watchdog group.
The Massachusetts Taxpayers Foundation new Competitiveness Index, released earlier in the week, found that while the state benefits from the “symbiotic relationship” between a highly educated workforce and key economic sectors such as health care and higher education, it also faces significant challenges related to cost and demographic shifts.
Those include the state’s high cost of energy, housing, and childcare, as well as a declining labor force, aging population, and increasing rates of outmigration, the report’s authors said.
“Massachusetts has long been a leader in innovation and economic productivity, but our ability to maintain this status is under threat,” said Doug Howgate, the foundation’s president.
The foundation ranked the state’s competitiveness standing on a broad set of 26 key metrics, ranging from economic health, population and labor force trends to business, employment, and investment factors as well as resident’s quality of life.
Among the key findings: Massachusetts’ talent and innovation are its biggest strength, with the state ranked first nationally in terms of adult residents with a bachelor’s degree, and first and second in performance among public school students in reading and math, respectively.
But the state’s high cost of living and cost of doing business is a “major competitive disadvantage,” according to the report, with energy, unemployment insurance and taxes near the bottom of national rankings, the report authors said.
Child care and housing costs, as well as commute times, also make Massachusetts a challenging place to raise a family, according to the report.
The authors said the COVID-19 pandemic exacerbated preexisting demographic challenges and pointed out the state has seen a 2.4% decrease in its labor force since 2018, a trend they said is a “serious risk” to the state’s long-term economic growth.
The state also ranks 45th in the nation for domestic outmigration, with many residents relocating to lower-cost states such as New Hampshire, the report noted.
Gov. Maura Healey and legislative leaders have focused on boosting the state’s competitiveness in response to previous reports showing an exodus of people from the state in recent years. Healey argues that a lack of housing, among other factors, is impacting the state’s ability to attract and maintain businesses and families.
But an economic development bill that would set aside hundreds of millions of dollars in bonding and tax credits and reauthorize the state’s life sciences initiative to boost competitiveness has been stuck in a six-member committee since the July 31 end of formal legislative sessions.
The bill, a key plank of Healey’s first term agenda, was approved by the House and Senate but differences between the two bills still need to be worked out.
The MTA’s new index, created with the Massachusetts Competitive Partnership and the University of Massachusetts at Amherst’s Donahue Institute, will be updated yearly to give policymakers, business leaders, and the public “a clear, data-driven understanding of how Massachusetts measures up against other states.”
“If Massachusetts is going to be serious about improving our competitiveness and enhancing what our state offers to residents and employers, we need to start with shared understanding of where we stand and where we want to go,” Howgate said.
Jay Ash, president and CEO of the Massachusetts Competitive Partnership, said the MTA report “provides a roadmap for the policies and strategies that can help us reverse these trends and build a stronger, more resilient economy.”
“Massachusetts is a great state, but to maintain our competitive edge, we need to address the fundamental issues driving up costs and driving out talent,” he said.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com
Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets cites elevated inflation rates and slowing growth in Australia as proof that the easing path of the RBA will be more gradual, with rate cuts starting next year. Additionally, he examines the BOJ’s policy normalization path, saying that a rate hike would help to strengthen the yen in the long-term, but it would not be a “smooth ride” higher.
Analysts said concerns over economic growth will likely be the biggest factor leading up to another sell-off.iStock; Rebecca Zisser/BI
Last week’s market sell-off was potentially just a taste of what’s to come, JPMorgan says.
Growth concerns will likely be the next big trigger, analysts said.
The market this week is back in the Goldilocks zone after a handful of encouraging data points.
The abrupt sell-off that sparked the stock market’s worst loss in two years might have been a preview of what’s to come, according to JPMorgan.
Analysts at the bank said the combined worries of decelerating economic growth and the carry trade unwind were too much for the market to handle at once.
Since then, though, the stock market has clawed back all of its losses and found itself basking in the glow of positive economic updates this week, leading many on Wall Street to conclude the event was an overreaction to a momentary blip in the data.
“Many market participants are dismissing the recent blowup of various crowded trades as a fluke or flash crash, but we see it as more of a dress rehearsal for what’s to come,” JPMorgan analysts said in a Thursday note.
The sell-off this month came as US unemployment jumped, and accelerated as the Japanese market sank 12.4% in its biggest fall since “Black Monday” in 1987. An unwind of the so-called yen carry emerged as the big culprit rocking global equities.
Investors had borrowed yen at low rates in Japan for the last two years, leaving them flailing and rushing to sell to meet margin calls after the Bank of Japan’s surprise rate hike.
While massive, the analysts predict that carry trade concerns won’t be the trigger of future volatility, as many investors aren’t likely to rush back into the strategy after getting caught off-guard this month.
“The carry trades could eventually become a problem again, but with investors getting burned, not everyone will be reinstating these trades, so it ought to be more difficult to hit the old highs,” the analysts said.
“Instead, we see the reemergence growth risk as the likely trigger,” they added.
Europe, with its rich tapestry of history and culture, is not just a testament to human civilization but also a hub of immense wealth. Drawing from my extensive exploration of European economic landscapes, I’ve been captivated by the varied and innovative economic strategies employed across this diverse continent. In this blog post, I’m excited to share my personal insights and the latest data on the richest countries in Europe as of 2024.
My journey into understanding the economies of Europe has often led me to focus on Gross Domestic Product (GDP), a crucial metric for assessing a nation’s economic health. This measure, representing the total value of all goods and services produced within a specific timeframe, reveals much about a country’s economic prowess. The World Population Review’s data shows that in 2020, the combined GDP of the six leading European economies each exceeded $1 trillion, cumulatively amounting to a colossal $13.833 trillion but let’s also take a look at the years of 2022 and 2024, and see how it compares to 3 years ago with data from World Bank.
Key Takeaways
Overview: These countries, each with their unique economic strengths and strategies, collectively represent the diverse and dynamic economic landscape of Europe in 2024 and represent the wealth of Europe: Germany, United Kingdom, France, Italy, Russia, Spain, Netherlands, Turkey, Switzerland, Poland, Sweden, Belgium, Norway, Ireland, Austria, Denmark, and Romania.
Small Nations, Big Impact: The economic success of smaller European countries like Monaco and Liechtenstein, often driven by niche sectors like finance and tourism, is remarkable. Their ability to leverage unique strengths despite their size is a powerful reminder that in economics, as in life, size isn’t everything.
Renewable Energy and Sustainability Focus: The emphasis on renewable energy and sustainability in countries like Denmark and Spain is not just about economic numbers but reflects a deeper commitment to the planet’s future. This shift towards green energy is a significant step in balancing economic growth with environmental responsibility.
Europe’s Economic Resilience and Innovation: The overall economic landscape of Europe, with its mix of industrial might, financial acumen, and innovative sectors, demonstrates a continent that is constantly evolving and adapting. This resilience and capacity for innovation are crucial as Europe faces future challenges like climate change, technological advancements, and global economic shifts.
Europe’s Economic Titans: A 2024 GDP Analysis
Germany – $4.07 trillion
United Kingdom – $3.07 trillion
France – $2.78 trillion
Italy – $2.01 trillion
Russia – $1.84 trillion
Spain – $1.4 trillion
Netherlands – $991.11 billion
Turkey – $905.99 billion
Switzerland – $807.1 billion
Poland – $688.18 billion
In my exploration of Europe’s economic landscape, I’ve been particularly intrigued by the diverse ways these countries generate wealth. Here’s a closer look at the top 10 wealthiest European countries in 2024, based on their GDP as reported by the World Bank, and my personal insights into their economic strengths.
1. Germany: Engineering Excellence and Export Prowess
Germany’s economic strength is deeply rooted in its world-class engineering and manufacturing sectors. The country’s focus on high-quality exports, particularly in the automotive industry, is a major contributor to its wealth. As highlighted by Deutsche Welle, Germany’s export-oriented economy is a key factor in its economic success. While my extensive travels, when I was visiting Germany, you could just breath the air, and see that the quality of life here is among the best on the Old Continent.
The UK’s economic landscape is remarkably diverse. London’s role as a global financial hub is central to the UK’s economic strength. The country’s commitment to sectors like pharmaceuticals and technology also plays a crucial role, as noted in reports by the Financial Times.
France’s economy is a fascinating blend of traditional industries like luxury goods and tourism, and innovative sectors such as technology and renewable energy. The luxury sector, including brands like LVMH, is a significant economic driver, as detailed in publications like The Economist. Among my multiple visits to the country of wine and love, you could just look at its beauties and see that life here must be on another level.
Italy’s rich cultural heritage is a major attraction for tourists, contributing significantly to its economy. Additionally, its fashion and automotive industries are renowned globally. Italy’s luxury fashion sector, as reported by Reuters, is a testament to its economic strength.
Russia’s immense natural resources, especially its oil and gas reserves, form the backbone of its economy. The nation’s emphasis on exporting these resources has significantly influenced its economic standing on the global stage. This strategy has not only bolstered Russia’s GDP but also positioned it as a major player in the global energy market says the World Bank. The country’s success in leveraging its natural resources is evident in its status as one of the world’s top oil producers and exporters, thing u can’t not notice while u visit this majestic place.
Spain’s economy is significantly enhanced by its dynamic tourism sector, which is a major contributor to the nation’s GDP. The country’s rich cultural heritage, diverse landscapes, and pleasant climate make it a favorite destination for millions of tourists each year. Spain’s increasing investment in renewable energy represents a strategic shift towards more sustainable economic practices as per OECD. This commitment to green energy is not only diversifying Spain’s economic base but also positions it as a forward-thinking leader in environmental sustainability within Europe.
Key Industries: High-Tech Exports, Agriculture, Energy
The Netherlands’ economy is notably propelled by its emphasis on high-tech exports, including advanced machinery and technology products, which are in high demand globally. The country’s innovative approach to agriculture, characterized by high efficiency and sustainability, sets a global standard according to the Netherlands Foreign Investment Agency (NFIA). The Netherlands’ strategic trade policies, fostering both innovation and international commerce, have been instrumental in its economic success, making it a significant player in the global market.
8. Turkiye: Diverse Economy and Strategic Location
Turkey’s diverse economy and strategic location as a bridge between Europe and Asia play a crucial role in its economic success. The country’s textile and automotive industries are particularly noteworthy. During my summer visits to this beautiful county, the well-being and hospitality of its people breathe the quality air of life.
Spain’s economy is significantly bolstered by its thriving tourism industry, which attracts millions of visitors annually, drawn to its rich cultural heritage, beautiful landscapes, and warm climate. Additionally, Spain’s increasing emphasis on renewable energy marks a strategic shift towards sustainable economic practices according to the International Energy Agency (IEA). This commitment to green energy not only diversifies the nation’s economy but also positions Spain as a leader in sustainable development within Europe.
10. Poland: Emerging Economic Power
Key Industries: Manufacturing, IT Services, Agriculture
Poland’s growing economy is marked by its strong manufacturing sector and emerging IT services industry as it was noted by the EU Council. The country’s economic policies have been instrumental in its recent growth.
Sweden’s economy is characterized by a strong emphasis on technology and innovation. The country is known for its advanced industrial base, with key sectors including telecommunications, automotive, and pharmaceuticals. Sweden’s commitment to research and development, as well as its robust welfare state, contribute to its high standard of living and economic stability Like any other Scandinavian country, during my visits, I was overwhelmed with hospitality and their way of life, you could just see prosperity in the air.
Belgium’s economy benefits from its central location in Europe and its highly developed transport network noted by Business Belgium. The country has a diverse industrial and commercial base. Key sectors include manufacturing, particularly in machinery and equipment, as well as a strong service sector dominated by financial services and international trade.
Norway’s economy is heavily influenced by the oil and gas sector, which accounts for a significant portion of its GDP. The country also has a robust maritime sector and is one of the world’s largest exporters of seafood. Norway’s wealth fund, derived from its oil revenues, is the largest sovereign wealth fund in the world.
Ireland’s economy is known for its strong growth, driven by the technology and pharmaceutical sectors. The country is a significant hub for multinational corporations, particularly in the tech industry, due to its favorable corporate tax rates and skilled workforce.
Austria’s economy is well-balanced with a mix of industrial, service, and agricultural sectors. The country is known for its high quality of life and strong social market economy. Key industries include machinery, metallurgy, and tourism.
Denmark’s economy is characterized by a high degree of flexibility and a focus on renewable energy and sustainability. The country has a strong agricultural sector and is a world leader in wind energy production. Denmark’s social welfare system and business environment are also notable.
Romania’s economy has seen rapid growth in recent years, driven by its industrial and service sectors. The country has significant energy resources, including oil, gas, and coal. Romania’s IT sector is also growing rapidly, making it an emerging hub for technology in Eastern Europe according to the ITA. I just Love the energy of that Balkan nation, during my visits, to the area of Transilvania, you could see how they made from scratch something that you can be proud of.
Key Industries
Energy (Oil, Gas, Coal)
Information Technology
Manufacturing
GDP vs. GDP Per Capita
Europe’s Wealthiest Nations in 2024: A Ranking by GDP Per Capita
In 2022, Europe’s landscape of wealth was dominated by a mix of small, affluent micronations and robust, larger economies. The top ten richest countries, as measured by GDP per capita in current US dollars according to the World Bank, present a fascinating picture of economic prosperity.
This list is headlined by Luxembourg, followed closely by other predominantly Northern European nations as it was stated on the World Atlas article. Interestingly, smaller territories like Bermuda, the Cayman Islands, and Greenland also showcased impressive economic performance, likely influenced by their smaller populations and, in some cases, their roles as international tax havens.
1. Luxembourg: The Crossroads of European Prosperity
Economic Overview: Luxembourg, a beacon of wealth in Europe, boasts a remarkable GDP per capita of $146,259. This landlocked nation is celebrated for its high living standards and robust economy.
Revenue Sources: Luxembourg thrives as a financial hub, with its strategic location enhancing its appeal in international business, transport services, and logistics.
Economic Insights: The country’s political stability and efficient taxation system have cultivated a fertile ground for economic growth and foreign investment according to IMF.
2. Ireland: The Celtic Tiger’s Roar
Economic Overview: Ireland, with a GDP per capita of $139,844, exemplifies economic resilience and growth. Known for its hardworking populace and stable governance, Ireland continues to prosper.
Revenue Sources: Ireland’s economic surge is fueled by favorable business taxation policies and EU membership, attracting global companies and bolstering employment stated by the EU.
Economic Insights: The Irish spirit of creativity and innovation has been pivotal in driving the nation’s economic prosperity and cultural richness.
3. Switzerland: The Summit of Financial Success
Economic Overview: Switzerland, with a GDP per capita of $87,522, is synonymous with wealth and economic stability. The nation’s progressive policies and skilled workforce are key to its success.
Revenue Sources: A leader in banking, manufacturing, and technology, Switzerland benefits from a tax system that promotes savings and investment according to the US GOV.
Economic Insights: The country’s commitment to research, development, and political neutrality has solidified its position as a global economic powerhouse.
4. Norway: The Northern Light of Prosperity
Economic Overview: Norway shines with a GDP per capita of $82,496, underpinned by its vast natural resources and commitment to innovation and education.
Revenue Sources: The nation’s wealth is significantly derived from its oil reserves, hydropower, and minerals.
Economic Insights: Norway’s focus on transparency, corporate governance, and a skilled labor force has made it an attractive destination for foreign investment as you can see in the IMF statemant.
5. San Marino: The Hidden Gem of Enterprise
Economic Overview: San Marino, with a GDP per capita of $74,970, is a testament to the power of strategic economic planning and government initiatives.
Revenue Sources: The nation’s prosperity is driven by low taxation, strong international investment, and advanced industries.
Economic Insights: San Marino’s focus on education, infrastructure, and technological advancement has positioned it as a hub for innovation and business growth.
6. The Netherlands: The Dutch Engine of Economic Might
Economic Overview: The Netherlands, boasting a GDP per capita of $72,363, is a paradigm of economic advancement and quality of life stated by the World Atlas.
Revenue Sources: Its success stems from a diversified industrial base, a flourishing services sector, and a strategic position in global trade.
Economic Insights: The nation’s robust infrastructure, skilled workforce, and comprehensive welfare system underpin its economic strength and societal well-being.
7. Denmark: The Scandinavian Beacon of Economic Harmony
Economic Overview: Denmark, with a GDP per capita of $72,167, is a model of economic efficiency and social welfare.
Revenue Sources: The country’s prosperity is fueled by a sound banking system, innovation, and a highly educated population.
Economic Insights: Denmark’s extensive welfare system, supported by high taxation, ensures a high standard of living and continuous economic growth.
8. Iceland: The Arctic Oasis of Economic Stability
Economic Overview: Iceland, with a GDP per capita of $69,811, stands out for its robust economy and sustainable growth.
Revenue Sources: The nation’s economic stability is anchored in its high savings rate, prudent banking policies, and a thriving fishing industry.
Economic Insights: Iceland’s focus on sustainable practices and resilience in the face of global challenges underscores its economic success according to the Link Springer.
9. Austria: The Alpine Powerhouse of Innovation
Economic Overview: Austria, with a GDP per capita of $69,399, is a testament to the strength of a diversified and well-managed economy.
Revenue Sources: The country’s wealth is built on natural resources, strategic location, and a commitment to fiscal responsibility.
Economic Insights: Austria’s investment in innovation, infrastructure, and a business-friendly environment has made it a competitive force in Europe as stated by Newsweek.
10. Andorra: The Pyrenean Peak of Economic Growth
Economic Overview: Andorra, with a GDP per capita of $67,735, showcases a unique economic model that blends tourism and strategic fiscal policies.
Revenue Sources: The country’s prosperity is bolstered by its tourism sector, low taxes, and attractive conditions for foreign investment.
Economic Insights: Andorra’s strategic location and strong legal framework for property rights have made it an appealing destination for business and trade.
European Economy’s Resilience Amid Global Challenges
The European economy demonstrated remarkable resilience in the first quarter of 2024, defying global challenges. This period was marked by moderate growth, fueled by a combination of lower energy prices, easing supply constraints, and a robust labor market.
These factors collectively dispelled fears of a recession. The start of 2024 exceeded expectations, leading to an optimistic revision of growth forecasts for the EU economy.
The projections now stand at 1.0% for 2024 and 1.7% for 2024, surpassing the winter interim forecast figures of 0.8% and 1.6%, respectively. The euro area mirrored this positive trend, with GDP growth forecasts adjusted to 1.1% for 2024 and 1.6% for 2024.
Inflation Trends and Economic Adjustments
Inflation forecasts have been revised upwards due to persistent core price pressures. The euro region anticipates inflation rates of 5.8% in 2024 and 2.8% in 2024. Despite the ongoing conflict in Ukraine and the energy crisis, the European economy has successfully averted a recession. This success is attributed to the swift diversification of energy sources and reduced gas consumption.
The European Commission’s “Spring 2024 Economic Forecast” highlights these achievements. However, challenges persist, as wage growth lags behind inflation, potentially impacting private consumption. High inflation may lead to tighter financing conditions.
The European Central Bank and other central banks are expected to conclude their interest rate hikes soon, but recent financial sector turbulence could complicate access to credit, slowing down investment growth, especially in residential sectors.
EU’s Energy Strategy and Market Response
The EU has effectively reduced its reliance on Russian gas, benefiting both businesses and consumers. However, the financial sector’s instability poses risks to credit access, potentially slowing investment growth. The Guardian, quoted the European Commission on May 15, reported:
“The EU economy is managing the adjustment to the shocks unleashed by the pandemic and Russia’s aggression of Ukraine remarkably well. Last year, the EU successfully managed to largely wean itself off Russian gas.”
S&P Global’s Economic Outlook for the Eurozone
Looking at the S&P Global’s “Economic Outlook Eurozone Q2 2024” report indicates a solid start for the eurozone economy in 2024 but warns of a potential mild recession. The GDP growth forecast for 2024 has been revised down from 1.4% to 1.0%, with a return to potential growth not expected until 2025. Inflation is projected to reach its target by early 2025, with core inflation following later in the year.
The European Central Bank may maintain higher interest rates longer, potentially reaching a 3.50% deposit facility rate by summer. While restrictive monetary policy will impact domestic demand, real positive interest rates are anticipated in 2024. Consumer spending is expected to improve, supported by government measures, wage increases, and disinflation.
External demand should benefit from China’s reopening, and public investment could mitigate the cyclical slowdown and enhance long-term GDP. The overall outlook is complex but not dire.
Investment Trends in Uncertain Times
In light of the uncertain economic forecast, investors are turning to European companies like Novo Nordisk A/S (NYSE:NVO), ASML Holding N.V. (NASDAQ:ASML), and Novartis AG (NYSE:NVS) to safeguard their investments.
Impact of the Russia-Ukraine Conflict on European Countries
The Russian invasion of Ukraine has significantly impacted the European Union, particularly in the areas of energy and food markets stated by European Consilium. The EU countries have been closely coordinating actions to ensure energy supply and maintain affordable prices. Here are some key points from the information gathered:-
The war’s impact extends beyond energy markets, affecting global food security and affordability. The EU’s common agricultural policy ensures food availability, but the reduction in imports from Ukraine impacts feed prices and the food industry. The EU is working to counter these challenges and support global food security.
In terms of mobility, the conflict has affected the movement of people and goods across the EU, with implications for fuel supplies, prices, and logistical challenges according to European Parliment. The EU has taken measures to support Ukrainian refugees and ensure the resilience of transport systems during this crisis.
Wealthiest European Nations by 2024 GNI Per Capita (Atlas Method)
Several non-country regions also show strong performance in this category, such as Bermuda ($117,098), the Cayman Islands ($91,393), and Greenland ($54,471). This can be attributed to various factors, including the ease with which per-capita figures can be influenced in smaller populations and the fact that many of these places are (or have been) global tax havens, potentially inflating GDP figures artificially also stated by the World Population Review.
The last metric, Gross National Income (GNI), can be seen as a counterpart to GDP according to Brookings. While GDP calculates the value of goods and services produced and “exported” from a country’s economy (though most are “exported” domestically), GNI accounts for the total income “imported” into the country from these goods and services. GNI also factors in money that enters or exits the country via international business dealings, reducing the extent to which the metric is skewed by activities related to tax shelters.
Norway – $95,510
Luxembourg – $91,200
Switzerland – $89,450
Ireland – $81,070
Denmark – $73,200
Iceland – $68,220
Sweden – $62,990
Netherlands – $57,430
Finland – $54,360
10 Poorest European Nation by 2024 GDP Per Capita
Ukraine – $12,671.2
Kosovo (partially recognized) – $14,723.4
Moldova – $15,238.1
Albania – $18,551.7
Georgia – $20,113.4
North Macedonia – $20,161.8
Bosnia And Herzegovina – $20,376.9
Belarus – $22,590.6
Serbia – $23,911.2
Montenegro – $26,984.1
Comparison of Poorest European and Asian Countries
Economic Disparity: The poorest European countries, such as Ukraine, Kosovo, and Moldova, generally have higher GDP per capita compared to the poorest in Asia, like Afghanistan, Nepal, and Tajikistan. This indicates a wider economic disparity in Asia.
Regional Instability: Many of the poorest Asian countries face significant political and social instability, which has a direct impact on their economies. For instance, Afghanistan has been affected by decades of conflict, which is a key factor in its economic challenges.
Development Challenges: Both regions face development challenges, but the nature of these challenges can be quite different. In Europe, issues like transitioning economies, governance, and integration with the broader European economy are prevalent. In contrast, many Asian countries grapple with basic infrastructure needs, political instability, and extreme poverty.
International Aid and Investment: The nature and extent of international aid and investment also differ. European countries often benefit from proximity to and relationships with wealthier European nations, while Asian countries may rely more on broader international aid programs.
Urbanization and Industrialization: The level of urbanization and industrialization is another point of difference. European countries, even the poorer ones, tend to have higher urbanization and industrialization levels compared to many Asian countries, impacting economic activities and opportunities.
My Methodology
My study aimed to analyze the Richest Countries Of Europe by leveraging comprehensive data and resources primarily from the World Bank. The World Bank, known for its extensive and reliable global data, provided a robust foundation for our analysis.
Data Collection
World Bank Database Access: I accessed the World Bank’s extensive database, which offers a wide range of global economic and development data. This database is recognized for its accuracy and comprehensiveness, making it an ideal primary source for our research.
Selection Criteria: Data relevant to our study was selected based on latest stats that World Bank provides. This ensured that our analysis was focused and relevant to our research objectives.
Supplementary Sources: While the World Bank data formed the core of our research, supplementary data from other credible sources, were also considered to provide additional perspectives and support.
FAQ
How has the COVID-19 pandemic affected the economies of these European countries?
The COVID-19 pandemic has had a significant impact on all economies globally, including those in Europe also stated by the World Bank. The extent of the impact varies by country, depending on factors like economic structure, government response, and healthcare infrastructure. For instance, countries heavily reliant on tourism, like Spain and Italy, faced substantial challenges.
What role does the European Union play in the economies of its member states?
The European Union (EU) plays a crucial role in shaping the economies of its member states through policies on trade, agriculture, and regional development. The EU’s single market facilitates free movement of goods, services, capital, and labor among member states, enhancing economic integration and growth.
How are European countries addressing climate change and its economic implications?
Many European countries are at the forefront of addressing climate change, with policies focusing on reducing carbon emissions and promoting renewable energy. Countries like Denmark and Germany are leading in wind energy, while Norway’s investment in electric vehicles is notable. These initiatives also open new economic opportunities and job creation in green industries.
What is the significance of the technology sector in Europe’s economy?
The technology sector is increasingly important in Europe, with countries like Ireland, Finland, and Sweden becoming hubs for tech companies and startups. This sector drives innovation, economic growth, and competitiveness on the global stage.
How do smaller European countries like Monaco and Liechtenstein achieve such high GDP per capita?
Smaller European countries often have specialized economies that focus on niche sectors like finance (Liechtenstein) or tourism and luxury services (Monaco). Their small populations also mean that high revenues translate into very high GDP per capita figures.
What challenges do European economies face in the coming years?
European economies face several challenges, including aging populations, the need for sustainable energy transitions, managing immigration, and maintaining economic competitiveness in a rapidly changing global landscape.
How does Brexit impact the UK’s economy and its relations with other European countries?
Brexit has significant implications for the UK’s economy, affecting trade, investment, and labor movement between the UK and EU countries according to the UK Times. It necessitates new trade agreements and has led to adjustments in economic policies and relations with both EU and non-EU countries.
Are there any emerging economic sectors in Europe to watch out for?
Emerging sectors in Europe include green energy, biotechnology, and artificial intelligence (AI). These sectors are expected to drive future growth and innovation.
How do European countries balance economic growth with social welfare?
Many European countries, like Sweden and Denmark, are known for balancing economic growth with extensive social welfare programs. This balance is achieved through progressive taxation, comprehensive social services, and policies focused on income equality and quality of life.
Can Europe maintain its economic position in the face of rising economies like China and India?
Europe faces the challenge of maintaining its economic position globally. This requires continued innovation, investment in education and technology, and strategic trade and diplomatic relations. Europe’s ability to adapt to changing global dynamics will be key to its future economic standing.
Conclusion
The economic landscape of Europe is as diverse as its cultural heritage. From the industrial might of Germany to the financial prowess of Luxembourg, these countries demonstrate a range of strategies for achieving economic success. As we look towards the future, understanding these economies provides valuable lessons in resilience, innovation, and economic planning.
Disclaimer
Please note that the insights and data presented in this blog post are based on my personal observations and interpretations, supplemented by various online sources. The information provided is intended for general informational purposes and should not be considered as financial advice. The economic landscapes and data are subject to change, and I encourage readers to consult additional sources for the most current information. The views expressed are my own and do not necessarily reflect the official policy or position of any agency or company.
Stocks closed the week with mixed results as debate about when, or if, the Federal Reserve will cut interest rates continued to be top of mind for investors.
For the week, the Nasdaq Composite (^IXIC) rose more than 1%, while the S&P 500 (^GSPC) was near flat. The Dow Jones Industrial Average (^DJI) fell more than 2%. All three indexes were still near record highs.
After a quiet week on the economic data front, a key reading of the Fed’s preferred inflation gauge is set to greet investors in the week ahead. A second update on economic growth in the first quarter and a reading on consumer confidence are also on the economic schedule.
On the corporate front, earnings season is officially winding down, with Salesforce (CRM), Costco (COST), Dollar General (DG), and Best Buy (BBY) highlighting a lighter schedule of quarterly reports.
Markets will be closed on Monday for the Memorial Day holiday.
Rate debate
A hotter-than-expected reading on US economic output, combined with a hawkish tone from Fed officials in the minutes of the central bank’s May meeting, prompted investors to scale back expectations for interest rate cuts again. Investors are now pricing in fewer than two cuts for the year, and debate has shifted to whether or not the Fed will make its first cut by September.
As of Friday, markets were pricing in a 50% chance the Fed doesn’t cut in September, a noted shift from the 70% chance investors had priced in a month ago, per the CME FedWatch tool.
Goldman Sachs’ economics team pushed back its call for the first Fed cut from July to September on Friday but noted the “timing of the first cut remains a difficult question.”
Goldman’s chief US economist David Mericle reasoned that his team still views these cuts as “optional” given the strength of the economy seen in data like last week’s hotter-than-expected business activity reading. All else equal, signs of strength in the economy “lessen the urgency” for the Fed to cut, Mericle reasoned.
Mericle added that while Goldman expects inflation to be “much improved” by September, it will still likely be above the Fed’s 2% target, adding to the optionality.
With earnings season largely over, Truist co-chief investment officer Keith Lerner told Yahoo Finance the discussion around the Fed, inflation, and economic data will once again take center stage for markets in the near term.
“That just makes for a more volatile market,” Lerner said.
Federal Reserve Chair Jerome Powell holds a press conference following the central bank’s two-day policy meeting in Washington, May 1, 2024. (REUTERS/Kevin Lamarque/File Photo) (Reuters / Reuters)
A fresh check on prices
Inflation’s trajectory remains crucial to the Fed’s rate-cutting timeline, and markets will get an update on any progress on Friday with the release of the Personal Consumption Expenditures (PCE) index.
Economists expect April’s “core” PCE, the Fed’s preferred gauge that excludes the volatile food and energy categories, clocked in at an annual gain of 2.8%, flat from March’s increase. Over the prior month, economists expect “core” PCE rose 0.3%, also in line with last month’s change.
Another economic growth update
US economic growth for the first quarter of 2024 came in far weaker than economists had expected. On April 25, the Bureau of Economic Analysis’s advance estimate of first quarter US gross domestic productshowed the economy grew at an annualized pace of 1.6% during the period, missing the 2.5% growth expected by economists surveyed by Bloomberg.
The secondary reading is slated for Thursday, and economists believe after down revisions to retail sales data in February and March, the GDP number will fall to 1.3% in this reading. However, Bank of America US economist Michael Gapen wrote in a note to clients that this shouldn’t be an ominous sign about the health of the US economy.
“Final sales to domestic purchasers (GDP less trade and inventories) should remain strong.” Gapen wrote. “The bottom line is that the economy moderated somewhat in the first quarter, but it remains on a stable footing overall.”
Entering the week, the S&P 500 had been pacing for growth of 5.7%. After Nvidia’s report, the index is now pacing for growth of 6% in the first quarter.
And, importantly, strategists believe Nvidia’s outsized impact on earnings will decline throughout the year, supporting a broadening of the stock market rally.
Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance that the first stage of the AI cycle has already been happening, with earnings growing at companies like Nvidia (NVDA) as tech giants like Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) invest in the growing technology. But the rewards are starting to expand, with recent rallies in sectors like Utilities and Energy.
“We don’t think it’s just about Nvidia anymore,” Kwon said. “Things are broadening out … to power, commodities, utilities, things like that.”
Kwon noted in a recent research note that Nvidia drove 37% of the S&P 500’s earnings growth over the past month. In the next 12 months, it’s expected to represent just 9%.
The case for S&P 6,000
A solid earnings backdrop for the rest of the year is one of several factors many strategists are citing as they revise up their year-end targets for the S&P 500. But Deutsche Bank chief equity strategist Binky Chadha told Yahoo Finance while people are “talking bullish,” equity positioning hasn’t shifted much in the past three months. Deutsche Bank’s measure of positioning shows investors are “overweight” equities but not to the “extreme” levels seen in 2021 and 2018.
This is one of several reasons Chadha sees “upside risks” to his updated call for the S&P 500 to end 2024 at 5,500. Chadha believes there could be more room to run for stocks, particularly given that he feels consensus isn’t currently pricing in outperformance for the US economy.
Chadha highlights that expectations for the US economy have really just shifted from an incoming recession to at or slightly below normal trend growth. If that consensus continues to move higher, and the US economy once again grows more than expected this year amid what some believe could be a productivity boom for the US labor force, it’s not hard to see the S&P 500 hitting 6,000, per Chadha.
“We’ve come a long way, but we don’t seem to have gone all the way,” Chadha said.
Weekly Calendar
Monday
Markets are closed for the Memorial Day holiday.
Tuesday
Economic data: S&P CoreLogic Case-Shiller National Home Price Index year-over-year, March (+6.38% prior); Conference Board Consumer Confidence, May (96 expected, 97 prior); Dallas Fed manufacturing activity, May (-15 expected, -14.5 prior)
Economic data: MBA Mortgage Applications, week ending May 24 (+1.9% prior); Richmond Fed manufacturing index, May (-7); Federal Reserve releases Beige Book
Earnings: Abercrombie & Fitch (ANF), Advance Auto Parts (AAP), American Eagle (AEO), BMO (BMO), C3.ai (AI), Chewy (CHWY), Dick’s Sporting Goods (DKS), HP (HPQ), Okta (OKTA), Salesforce (CRM)
Thursday
Economic data: First quarter GDP, second estimate (1.3% annualized rate expected, +1.6% previously); First quarter personal consumption, second estimate (+2.1% expected, 2.5% previously); Initial jobless claims, week ended May 25 (218,000 expected, 215,000 previously); Pending home sales, month-over-month, April (-0.6% expected, +3.4% previously); Wholesale inventories month-over-month April preliminary (-0.1% expected, -0.4% previously)
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President Joe Biden’s economic agenda is achieving one of his principal goals: channeling more private investment into small communities that have been losing ground for years.
That’s the conclusion of a new study released today, which found that economically strained counties are receiving an elevated share of the private investment in new manufacturing plants tied to three major bills that Biden passed early in his presidency. “After decades of economic divergence, strategic sector investment patterns are including more places that have historically been left out of economic growth,” concludes the new report from Brookings Metro and the Center for Energy and Environmental Policy Research at MIT.
The large manufacturing investments in economically stressed counties announced under Biden include steel plants in Mason County, West Virginia, and Mississippi County, Arkansas; an expansion of a semiconductor-manufacturing plant in Schuylkill County, Pennsylvania; a plant to process the lithium used in electric vehicle (EV) batteries in Chester County, South Carolina; an electric-vehicle manufacturing plant in Haywood County, Tennessee; and plants to manufacture batteries for EVs in Montgomery County, Tennessee; Vigo County, Indiana; and Fayette County, Ohio.
These are all some of the 1,071 counties—about a third of the U.S. total—that Brookings defines as economically distressed, based on high levels of unemployment and a relatively low median income. As of 2022, the report notes, these counties held 13 percent of the U.S. population but generated only 8 percent of the nation’s economic output.
Since 2021, though, these distressed counties have received about $82 billion in private-sector investment from the industries targeted by the three major economic-development bills Biden signed. Those included the bipartisan infrastructure law and bills promoting more domestic manufacturing of semiconductors and clean energy, such as electric vehicles and equipment to generate solar and wind power.
That $82 billion has been spread over 100 projects across 70 of the distressed counties, Brookings and MIT found. In all, since 2021 the distressed counties have received 16 percent of the total investments into the industrial sectors targeted by the Biden agenda. That’s double their share of national GDP. It’s also double the share of all private-sector investment they received from 2010 to 2020. Funneling more investment and jobs to these economically lagging communities “is really just at the core of what [Biden] is trying to accomplish,” Lael Brainard, the director of Biden’s National Economic Council, told me. “The president talks a lot about communities that have been left behind, and now he is talking a lot about communities that are coming back.”
This surge of investment into smaller places is a huge change from previous patterns that have concentrated investment and employment in a handful of “superstar” metropolitan areas, Mark Muro, a senior fellow at Brookings Metro and one of the report’s authors, told me.
“As the rich places have been getting richer, the social-media/tech economy was something that was happening somewhere else for most people,” Muro said. “Clearly, this is a different-looking recovery that is occurring in different places and has a tilt to distressed communities right now.”
One of those places is Fayette County, in south-central Ohio, about equidistant from Dayton, Cincinnati, and Columbus. Fayette’s population of roughly 28,000 is predominantly white and rural with few college graduates. Its median income is about one-fourth lower than the national average, and its poverty rate is about one-fourth higher.
Early in 2023, Honda and its partner LG Energy Solution broke ground on a massive new plant in Fayette to build batteries for Honda and Acura EVs. The Honda project has already generated large numbers of construction jobs, as has a massive Intel semiconductor-fabrication plant under construction about an hour away, outside Columbus, in Licking County. “The trade associations for electrical workers, plumbers, whatever it might be, they are going to have jobs in the state of Ohio for years,” Jeff Hoagland, the CEO of the Dayton Development Coalition, told me. “These are huge facilities. The Honda facility is the size of 78 football fields.”
Honda is already advertising to fill some engineering jobs, and once the plant is operational in late 2024 or early 2025, it expects to hire some 2,200 people. Most of those jobs will not require college degrees, Hoagland said. Many more jobs, he added, will flow from the plant’s suppliers moving to establish facilities in the area. “There are companies already buying up land,” Hoagland told me.
Hoagland said he has no doubt that the federal tax incentives in the big Biden bills for domestic production of clean energy and semiconductors were central to these decisions. The federal incentives have been “100 percent critical, and I know that firsthand from Intel and from Honda,” Hoagland said. “Those companies needed those [incentives] to get into the full implementation of their strategy to rebuild that manufacturing, that supply-chain base, in the United States. Now we are seeing all these companies come back to the heartland in Ohio to do manufacturing.” Yet another firm, Joby Aviation, announced in September that, with support from federal clean-energy loan guarantees, it plans to construct a factory near Dayton to build electric air taxis.
Encouraging manufacturers to locate their facilities in the U.S. rather than abroad has been the central goal of the tax incentives, loan guarantees, and grants in the clean-energy, semiconductor, and infrastructure bills. But the Biden administration has also been using provisions in those bills, as well as other programs, to try to steer more of those domestic investments specifically into distressed communities.
As the Brookings/MIT report notes, the Inflation Reduction Act’s clean-energy tax credits provide extra bonuses of 10 percent or more to companies that invest in low-income communities. An Energy Department loan-guarantee program favors companies that locate clean-energy investments in communities that lost jobs when fossil-fuel facilities shut down. In a speech last month, Brainard highlighted a $1 billion Transportation Department program that funds infrastructure improvements to “reconnect” neighborhoods that have been isolated from job opportunities by highways or other transportation infrastructure. (Many of those places are heavily minority communities.)
Similarly, under the semiconductor bill, the administration is awarding substantial funds for “regional innovation engines” through the National Science Foundation, as well as “tech hubs” that require communities to organize businesses, schools, and government to develop coordinated plans for regional growth in high-tech industries. The winners of these grants include projects that are based in places far beyond the existing large metro centers of technological innovation, such as Louisiana, Wyoming, North Dakota, South Carolina, and Oklahoma. “Those [programs] are spreading innovation investment to clusters all around the country rather than being concentrated just in a few huge metros,” Brainard told me.
Joseph Parilla, the director of applied research at Brookings Metro, told me that the large manufacturing facilities being built in response to the new federal incentives naturally would flow toward the periphery of major metropolitan areas where many of these distressed counties are located. But Parilla believes the tax incentives and other programs that the Biden administration is implementing are also “having a pretty significant impact” in driving so many of these investments to smaller, economically strained places.
Biden has made clear that he considers steering more investments to the places lagging economically both a political and policy priority. Even in forums as prominent as the State of the Union address, he often talks about the importance of creating jobs that will allow young people to stay in the communities where they were born. Biden has also, as I’ve written, rejected the belief of his two Democratic predecessors, Bill Clinton and Barack Obama, that the most important step for expanding economic opportunity is to help more people obtain postsecondary education; instead, Biden conspicuously emphasizes how many jobs that do not require four-year college degrees are being created in the projects subsidized by his big-three bills. “What you’ll see in this field of dreams” are “Ph.D. engineers and scientists alongside community-college graduates,” he declared at the 2022 Ohio Intel plant ground-breaking.
But it’s not clear that the economic benefits flowing into distressed communities will produce political gains for Biden. In 2020, despite his small-town, blue-collar “Scranton Joe” persona, Biden heavily depended on the big, well-educated metro areas thriving in the Information Age: Previous Brookings Metro research found that, although Biden won only about one-sixth of all U.S. counties, his counties generated nearly three-fourths of the nation’s total economic output.
The outcome was very different in the economically distressed counties. Brookings found that in 2020, Trump won 54 of the 70 distressed counties where the new investments have been announced under Biden. Some Democratic operatives are dubious that these new jobs and opportunities will change that pattern much.
Partly that’s because Democrats face so many headwinds in these places on issues relating to race and culture, such as immigration and LGBTQ rights. But it’s also because of the risk that without unions or many local Democratic officials to drive the message, workers simply won’t be aware that their new jobs are linked to programs that Biden created, as Michael Podhorzer, the former AFL-CIO political director, has argued to me.
Jim Kessler, the executive vice president of Third Way, a centrist Democratic group that has studied the party’s problems in small-town and rural areas, agrees that even big job gains won’t flip small red places toward Biden. But even slightly reducing the GOP margin in those places could matter, he told me. “Some of these swing states have vast red areas, and he needs to do well enough in those areas,” Kessler said. Pointing to new jobs in previously declining places, Kessler said, could also provide Biden a symbol of economic recovery that resonates with voters far beyond those places.
The Brookings and MIT authors expect that Biden will have many more such examples to cite as further investments in industries including clean energy and semiconductors roll out. “The map is not yet finished,” the report concludes. “There are hundreds of distressed counties with assets similar to those that have attracted investment and have not yet been targeted.” One of the most tangible legacies of Biden’s presidency may be a steady procession of new plants rising through the coming years in communities previously left for scrap. Whether voters in these places give him credit for that will help determine if he’s still in the White House to see it.
WASHINGTON (AP) — Just a quarter of business economists and analysts expect the United States to fall into recession this year.
And any downturn would likely result from an external shock — such as a conflict involving China — rather than from domestic economic factors such as higher interest rates.
But respondents to a National Association of Business Economics survey released Monday still expect year-over-year inflation to exceed 2.5% — above the Federal Reserve’s 2% target — through 2024.
RealPage software is used to set rental prices on 4.5 million housing units in the U.S. A series of lawsuits allege that a group of landlords are sharing sensitive data with RealPage, which then artificially inflates rents. The complaints surface as housing supply in the U.S. lags demand. Some of the defendant landlords report high occupancy within their buildings, alongside strong jobs growth in their operating regions and slow home construction.
Germany’s central bank lowered its growth forecasts for the country’s economy for the next two years due to lower global demand, according to a twice-yearly report published Friday.
The Bundesbank now expects gross domestic product growth at 0.4% and 1.2% for 2024 and 2025, down from 1.2% and 1.3%, respectively, under previous forecasts made in June.
The bank penciled in for GDP to fall 0.1% in 2023 as a whole, and also predicts growth at 1.3% in 2026 in the fresh forecasts.
Weak foreign demand is the main drag on the country’s key industrial sector, while restrained private consumption and higher financing costs are dampening investment, it said.
However, the economy will benefit from a robust labor market, strong wage growth and falling inflation that should help bring about a recovery in household spending, it added.
“From the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed,” Bundesbank President Joachim Nagel said.
This comes as inflation is set to fall faster than previously expected. The Bundesbank sees harmonized annual inflation–based on European Union metrics–at 2.7% and 2.5% in 2024 and 2025, respectively, down from the 3.1% and 2.7% it predicted in June.
“Monetary policy tightening is increasingly yielding results,” Nagel said.
However, inflation is still set to be 2.2% in 2026, above the 2% target of the European Central Bank, which has recently raised rates at an unprecedented speed. The ECB held rates at a record high at its meeting this week.
Meanwhile, the latest turmoil related to the German government’s budget–which for 2024 was only agreed to this week–won’t significantly alter the fiscal and macroeconomic outlook, according to the Bundesbank.
However, there is still uncertainty regarding future fiscal policy, in particular for 2025 and in terms of the country’s transition to cleaner energy, it said.
The U.S. economy continues to grow despite the 5.5% benchmark federal funds interest rate set by the Federal Reserve in 2023.
The Fed’s leaders expect their interest rate decisions to eventually slow that growth.
The increase in borrowing costs that stems from Fed decisions does not affect all consumers immediately. It typically affects people who need to take new loans — first-time homebuyers, for example. Other dynamics, such as the use of contracts in business, can slow the ripple of Fed decisions through an economy.
“It might not all hit at once, but the longer rates stay elevated, the more you’re going to feel those effects,” said Sarah House, managing director and senior economist at Wells Fargo.
“Consumers did have additional savings that we wouldn’t have expected if they had continued to save at the same pre-Covid rate. And so that’s giving some more insulation in terms of their need to borrow,” said House. “That’s an example of why this cycle might be different in terms of when those lags hit, versus compared to prior cycles.”
A 1% interest rate increase can reduce gross domestic product by 5% for 12 years after an unexpected hike, according to a research paper from the Federal Reserve Bank of San Francisco.
“It’s bad in the short term because we worry about unemployment, we worry about recessions,” said Douglas Holtz-Eakin, president of the American Action Forum, referring to the paper’s implications for central bank policymakers. “It’s bad in the long term because that’s where increases in your wages come from; we want to be more productive.”
Some economists say that financial markets may be responding to Federal Reserve policy more quickly, if not instantaneously. “Policy tightening occurs with the announcement of policy tightening, not when the rate change actually happens,” said Federal Reserve Governor Christopher Waller in remarks July 13 at an event in New York.
“We’ve seen this cycle where the stock market moved more quickly in some cases, more slowly in other cases,” said Roger Ferguson, former vice chair of the Federal Reserve. “So, you know, this question of variability comes into play, as in how long it’s going to take. We think it’s a long time, but sometimes it can be faster.”
Watch the video above to see why the Fed’s interest rate hikes take time to affect the economy.
After the U.S. unemployment rate climbed to 3.9% in October, stoking fears that the labor market might finally be starting to crack under the weight of the Federal Reserve’s interest-rate hikes, economic data released Friday showed that unemployment retreated to 3.7% in November.
That means the Sahm rule, an indicator devised to sniff out a recession long before one is officially declared, is now even further from triggering, after nearly brushing up against the threshold last month.
And according to the rule’s creator, former Federal Reserve economist Claudia Sahm, perhaps it won’t trigger, at least not during this cycle.
“I am more optimistic today that it doesn’t trigger,” Sahm told MarketWatch during a phone interview Friday.
What’s the Sahm rule, and why should we care about it?
Wall Street and social media were abuzz with talk of the Sahm rule last month as the rising unemployment rate sparked a debate about whether a recession had begun.
The increase brought the Sahm rule indicator to 0.30, according to data available on a Federal Reserve branch website, bringing it closer to triggering than at any time during the past two years. It also sparked a brisk conversation among professional economists and amateur market watchers about what the Sahm rule is, how it works and why investors should care about it.
After Sahm declared that the rule hadn’t triggered, some on social media accused her of misrepresenting her own rule, said the economist, who now runs her own consulting business.
She was surprised by this, she told MarketWatch, since she thought the rule’s simplicity was one of its most important features.
It was initially devised with lawmakers in mind, intended to become an automatic mechanism to send out stimulus checks more quickly as a recession begins, thus helping to shield workers from some of the worst financial consequences.
But the debate has helped her realize that perhaps the rule’s dynamics aren’t clearly understood by all.
To try to remedy this, she published a step-by-step guide explaining how the Sahm rule is calculated, or at least how Sahm and the Fed calculate it. Economists are free to devise their own variations on the rule. Here are some key points:
The Sahm rule uses the three-month average of the monthly unemployment rate, instead of taking the latest rate in isolation.
The current average is then compared with the lowest three-month average from the past year. Right now, that stands at around 3.5, Sahm said.
The 12-month low is subtracted from the current three-month average, and if the difference is 0.5 percentage point or greater, it means the rule has triggered. The rule is based on history and it has a strong precedent, meaning that almost every time unemployment has risen past this threshold, a recession has ensued.
The snowball effect
The logic undergirding the rule is pretty straightforward, Sahm said: The rule is grounded in the notion, supported by historical data, that once employment starts to rise, it often snowballs.
Typically it increases by anywhere between 4 and 6 percentage points during a recession, Sahm said.
But just because the rule has held in the past doesn’t mean it always will. Sahm has previously said that she wouldn’t be surprised if the rule were to break because of pandemic-related distortions in the global economy.
She affirmed on Friday that she still believes this to be the case, although she doubts the rule will trigger this cycle.
That is largely because, as Sahm sees it, the rise in the unemployment rate has been driven not only by slowing job creation, but by workers returning to the workforce, a sign that supply-and-demand dynamics in the U.S. labor market are coming back into balance, and that maybe employers won’t need to be as precious about hiring in the future.
“If [the rebalancing] happens fast enough, then we won’t trigger. But if it slows down, then maybe we’ll trigger, but we’ll likely see unemployment move sideways before coming back down,” Sahm said.
Labor Department data showed the U.S. economy added 199,000 jobs in November, surpassing economists’ expectations for 190,000 new jobs. The number was also higher than the 150,000 created during the previous month.
Germany’s economy contracted 0.1% from July to September, confirming prior estimates, as Europe’s largest economy languishes in a likely recession, according to data from the country’s statistics office released Friday.
It matched expectations of economists polled by The Wall Street Journal. GDP contracted 0.4% on year, on a price…
The U.K. economy stagnated in the third quarter for the first time this year, after slight growth in September offset a decline at the start of the quarter.
Gross domestic product was flat between July and September compared with the previous three-month period, when the economy grew slightly, as it had in the first quarter, figures from the Office for National Statistics showed Friday.
Economists had expected GDP to decline slightly, according to a poll carried out by The Wall Street Journal, though the flat growth was against an August figure that was revised down slightly to 0.1% growth from 0.2% previously.
In September, the economy grew 0.2%, driven mainly by services growth. This helped offset a 0.6% decline in July.
Compared with the same quarter a year ago, the U.K. economy grew 0.6%, the figures showed.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
In the U.S., 516 publicly listed firms have filed for bankruptcy from January through September 2023. Many of these firms have survived for several years with surging debt and lagging sales.
“The share of zombie firms has been increasing over time,” said Bruno Albuquerque, an economist at the International Monetary Fund. “This has detrimental effects on healthy firms who compete in the same sector.”
“A really healthy, well-capitalized banking system and financial sector is one of the most important factors in ensuring that unhealthy firms are wound down in a timely way rather than being propped up,” said Kathryn Judge, a professor of law at Columbia University.
Economists say that zombie firms may become more prevalent when banks or governments bail out unviable firms. But the Federal Reserve says the share of firms that are zombies fell after the Covid-19 emergency stimulus measures were implemented. The Fed says banks are refusing to keep weak firms in business with favorable extensions of credit.
The Fed economists point to healthy balance sheets at U.S. firms, despite the increasing weight of interest rate hikes. The effective federal funds rate was 5.33% in October 2023, up from 0.08% in October 2021.
“The biggest implication of the rapid rise in interest rates that we’ve seen the last five or six quarters, actually, is that it reestablished cash,” said Lotfi Karoui, chief credit strategist at Goldman Sachs. “That actually puts some constraints on risk assets.”
The Fed says it thinks interest rates will remain higher for longer. “Given the fast pace of tightening, there may still be meaningful tightening in the pipeline,” Fed Chair Jerome Powell said at an Economic Club of New York speech Oct. 19.
Watch the video above to learn more about the Fed’s battle with unviable zombie firms in the U.S.
Some firms sustain their businesses by taking on more debt that they can repay. Economists call them zombie companies. When compared to their peers, zombies are smaller in size and deliver lower returns to investors. These companies distort markets, keeping resources from their fundamentally sound competitors. Banks and governments keep zombie firms alive with bailout loans. As the Federal Reserve resets the economy with higher interest rates, many zombie firms are filing for bankruptcy.
(Bloomberg) — Markets have grown more pessimistic about the outlook for US economic growth, and if that continues in a substantial way it may offer a chance to buy stocks, according to Goldman Sachs Group Inc.
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The under-performance of cyclical equities this month signals concern that the recent tightening of financial conditions will stymie economic growth, Goldman strategists led by David Kostin wrote in a note Friday. At the same time, since the firm’s view is that the US economy will remain relatively resilient, companies in sectors like financial services, semiconductors and materials may still fare relatively well.
“Although we expect headwinds to discount rates and balance sheets to persist, we would view a substantial further downgrade to the growth outlook as a buying opportunity,” the strategists wrote.
This comes after the 10-year Treasury yield rose above 5% on Oct. 23 for the first time since 2007 as the Federal Reserve keeps rates higher for longer to ward off inflation. RBC strategist Lori Calvasina said the same day that the broader market is unlikely to find its footing until the surge in yields ends. Kostin warned earlier in the month that higher rates might be affecting US profits, and strategists at places like Morgan Stanley and JPMorgan Chase & Co. have cautioned that the earnings outlook appears to be deteriorating.
Kostin sees the S&P 500 ending the year at 4,500, slightly above the average 4,370 among strategists tracked by Bloomberg. The gauge closed Friday at 4,117.37, down 10% from its 2023 high reached in late July. Just days before it reached that peak, Kostin said the benchmark’s high valuation was reasonable and might rise further into year-end.
The U.S. economy has not only defied widespread predictions of a sharp slowdown. It’s grown even faster.
But that doesn’t mean a recession is far away. The U.S. has often experienced fast growth shortly before the bottom fell out.
Let’s start with the good news.
Gross domestic product, the official scorecard of the economy, looks likely to top 4% or even 5% annual growth in the third quarter. The government will release its preliminary estimate on Thursday morning.
Economists polled by The Wall Street Journal predict 4.7% GDP in the third quarter.
Other top forecasters see even faster growth. S&P Global estimates 5.6% GDP and the Atlanta Federal Reserve GDPNow forecast projects 5.4%.
How fast is that? GDP only topped 5% once from 2010 to the start of the pandemic in early 2020.
This is not what was supposed to happen.
After solid 2%-plus growth in the first and second quarters, the economy was widely expected to slow down in response to rapidly rising interest rates.
The Federal Reserve has jacked up borrowing costs in the past year and a half to try to tame inflation, a strategy that typical depresses consumer spending and business investment. Those are the dual engines of the economy.
To some extent the Fed has succeeded. Home sales and construction, for instance, have tumbled due to the highest mortgage rates in decades. And manufacturers have taken a hit as customers curtailed purchases of goods and big-ticket items.
The annual rate of inflation, meanwhile, has tapered to 3.7% as of September from a 40-year high of 9.1% in 2022.
Still, spending and investment have not dropped off nearly as much as expected. And there are two reasons for that.
The first is a strong and ultra-tight labor market, with unemployment hovering just below 4%. Most Americans who want a job have one, and as a result, they have been able to keep spending. Travel, recreation, leisure and hospitality have been the big winners.
S&P Global estimates a flush of consumer spending in the third quarter will account for just over half of the growth.
The industrial side of the economy, for its part, has been the beneficiary of tens of billions of dollars in subsidies from the Biden administration to support green energy and bring home more manufacturing.
The U.S. has also ramped up military aid to Ukraine and has to replace outgoing equipment, weapons and ammunition.
All the government money has helped to keep manufacturers from falling too far down the well. Government outlays could add as much as 0.6 percentage points to third-quarter GDP.
Making the third quarter look even better, the U.S. trade deficit fell sharply and is likely to add 1.0 percentage point or more to GDP.
A small rebound in the production of inventories, or unsold goods, would be the icing on the cake.
So the economy is doing great, right? Maybe not.
Consumers probably can’t keep spending at their current pace since their incomes are barely rising faster than inflation. Businesses are proceeding cautiously because of higher borrowing costs. And banks are more reluctance to lend.
Other restraints on the economy include higher gasoline prices and a surge in long-term interest rates that make it far more expensive to buy houses, cars, appliances and the like.
That’s why many forecasters believe the economy start to soften in final months of 2023. S&P Global, for instance, initially projects 1.7% growth in the fourth quarter.
Nor does the third quarter’s heady growth rate suggest there is no reason to worry about a recession. The economy has expanded rapidly just before the onset of prior recessions.
The economy grew at solid 2.5% pace right before the 2007-2009 Great Recession, for example. And GDP grew a frothy 4.4% in the first quarter of 1990 just several months before a recession started.
Many of the same economic headwinds, it turns out, are still in place that led to widespread Wall Street predictions of recession earlier in the year.
Indeed, some forecasters such as the Conference Board still insist a short recession is likely in 2024. Other economists are also on guard.
“I still believe a recession is coming — though far less severe than the 2008-2009 event,” said chief economist Steve Blitz of TS Lombard.
