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Eurozone economy slows amid trade tensions and uncertainty

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Eurozone economy slows amid trade tensions and uncertainty

by usiscc
December 4, 2019
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Eurozone economy slows amid trade tensions and uncertainty
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Welcome to a new series of Real Economy. As we enter winter, news for the economy follows the same mood, as growth is slowing down. But sometimes challenges raises new opportunities. A very good example is Greece which is now ready to do business with China and we meet the new head of the IMF Kristalina Georgieva to see if this stormy economic weather can be reverted.

But first, let’s see what is going on in the world and how it impacts our own European house.

Brussels has cut its growth forecasts for the eurozone to its lowest level since the peak of the financial crisis and sees no improvement in 2020. Why? Because of persisting uncertainties.

U.S and China are at a war of tariffs since March 2018. And the main European country that has been caught in the trade crossfire between the U.S. and China was Germany which is an export powerhouse with sales amounting to almost half the economy. Automobiles and industrial machinery are leading the way.

However, since 2017, its growth is slowing.

China, a key trading partner for Germany, has weakened its demand for foreign goods because of its own economic slowdown.

And as Germany has extended its supply chain in Central and Eastern Europe, countries like Hungary, Slovakia, and Poland now start to feel the pain as the slowdown is touching the entire EU economy.

The significance of Piraeus Port, Athens

Under pressure from the U.S., China is set to be more open to trade with new allies. And Athens has rolled out the red carpet.

In 2016, the Piraeus port became the symbol of China’s “Belt and Road Initiative”, when Cosco, a state-owned sea-freight giant became a majority stakeholder of the twenty-five century-old port. Between the acquisition of 67% of the port and together with planned revenue and investments, the deal is worth more than a billion euros. It’ll bring the port into the 21st century and make it the biggest one on the Mediterranean sea.

“We want this investment to be developed sooner and this, of course, will affect the local economy. Job creations, will have a great impact on the national economy for Greece as a whole,” said Ioánnis Plakiotákis, Greek Minister of Maritime Affairs (Minister for Shipping and Island Policy.

From China’s point of view, the Piraeus port’s strategic location justified the massive investment.

With goods travelling between Asia and Europe by sea through the Suez canal, the Piraeus port is conveniently located as the first major gateway to continental Europe.

“We are not serving China here, we are serving trade,” said Tassos Vamvakidis, Commercial manager, Piraeus Container Terminal S.A. “Any trade which comes from the Suez canal, either from China, from India, Australia, will be served here, ten days earlier than if they went all the way around to the north European ports.”

Injection of cash provides local jobs

The impact of Chinese investments goes beyond new cranes and more containers at the port. Cooperation with deep-pocketed state-owned Cosco has also flooded the once crisis-ridden area with cash and money from taxes.

Giorgos Gogos, secretary-general of Piraeus port dockworkers union said, “There are more people working. But the problem is that they’re working with worse conditions, and with less income.”

Caution from Europe

In order to make future trade relations profitable for everyone, the European Commission called last spring for closer scrutiny, when it comes to investments in strategic sectors as well as for more cooperation in China/EU trades deals.

Given trade relations between China and the US remain frosty, Beijing looks to invest in Europe. The purchase of the port of Piraeus by Cosco will provide valuable experiences for the future, bringing the East and West closer.

But Brussels which described China as a “systemic rival,” noted China’s ambitions to become a leading global power and has urged EU member states to work as a whole when it comes to partnering with the world’s second-largest economy.

Interview with the IMF (International Monetary Fund) Managing Director, Kristalina Georgieva

What can Europe do to avoid stagnation?

“What we see as a way to act in Europe: 1. Much more decisive investment in competitiveness for Europe and R&D (Research and Development). Europe has to aim high in all countries to make sure that it can compete with Asia and the US in the future. Climate policy: I would put my very strong view that it is that moment in history when Europe can provide leadership to the world. Investing in low-carbon, climate resilience growth can stimulate a more dynamic growth path for Europe. And of course, place Europe on the cutting-edge for what inevitably is going to be the future of the whole world.”

There are trade tensions going on between the U.S. and China, are there now opportunities opening up for Europe?

“This year, we assess trade to grow only by 1.1%. This is basically saying the trade engine of growth is idle. We actually put a price tag on how costly trade tensions are. And we concluded that by 2020, the cost on the world economy would be 700 billion dollars, this is 0.8% of global GDP. Not trivial. And when with this aggregate what is in that cost, the smaller part comes from tariffs, directly, the bigger part is uncertainty so what we are advocating for is to bring closure between US and China on an agreement that would lift confidence, but longer-term, a trade truce is not enough. We need sustainable trade peace. And we believe that Europe has a very strong stake in that because Europe is primarily an open export-oriented economy, so (Europe needs to) speak up.”

If this doesn’t happen soon do you think Europe will head into recession?

“For now, we don’t see conditions to get that bad, but we are worried that a prolonged period of trade uncertainty is going to be very bad for growth.”

So Europe is not at the dawn of a crisis but there are still areas that Europe could invest in, in order to improve its climate change policies and investment to R&D.

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