Page 27 - bne IntelliNews monthly magazine October 2024

bne October 2024 Cover story I 27
Eurozone: Composite PMI
cautious about the outlook for demand and, by extension, investing than their US counterparts. It is worth noting
that crises tend to sap productivity as management is forced to spend less time innovating and more time 'fighting fires',” says Oxford Economics.
By contrast Russia is now investing heavily. The Kremlin has reversed its Putinomics, that effectively ran an austerity budget for the last decade, hoarding cash and paying down external debt while it built up the military, to pouring money into fixed investment and spending freely, especially on the military.
Businesses starting to downsize
The European deindustrialisation began with companies that directly bought Russian gas as a major input or used a lot of energy, representing about a tenth of Europe’s GDP, but now the malaise is spreading further afield.
In September Germany’s VW announced it will close plants in Germany for the first time in its 87-year history and is scaling back its EV ambitions. In a double whammy for Berlin, US chip-maker Intel has also decided to put plans for a new €30bn German gigafactory on ice and other new plants in Poland, Ireland, Spain, France and Italy. A question mark also hangs over a mooted Tesla gigafactory in Berlin as demand for the cars softens, but the company’s gigafactory in Shanghai is going gangbusters.
The steel sector is also in trouble. Germany’s steel industry employs about 80,000 workers, but most producers have reduced output due to high energy costs, a growing glut due to weakening Germany’s car sales and falling machinery demand that is exacerbated by Russian sanctions, formerly a major client; pre-war machinery made up 45% of all Russia's imports, predominately from Germany. The story is the same in Germany’s chemical industry, where a brief uptick faded away in August as the economy teeters on the edge of recession.
Nearly a third of major car plants from Europe’s five largest automakers were
September’s Eurozone composite PMIs paint a bleak picture
Germany: Ifo business survey
German’s falling IFO index shows economy is stuck in doldrums
– 5% of the EU's GDP and significantly higher than the 1-2% spent on post- World War II recovery. But even Draghi admits that change will not be fast.
It remains to be seen how long this
new reality will last and if or when European economies can adjust to the new realities. In theory the revolution in clean energy could provide the cure for Germany’s Russian gas addiction, but on this score the global green energy champion China is already way ahead of Europe – two thirds of all solar panels in existence are in China – which will reap
the benefits of “free” energy long before Europe does. And the lack of minerals and other inputs in “deficit Europe”
can never be solved. Europe has to turn to innovation and services as the only long-term option to retain its leading position, says Draghi.
“One reason why eurozone investment may have lagged is that it suffered from two major regional crises – the fiscal crisis in the early 2010s and, more recently, the Russian energy crisis. Accordingly, since 2010 there have been more reasons for eurozone firms to be
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