Page 60 - bne IntelliNews monthly magazine December 2024

60 Opinion
bne December 2024
COMMENT
Political, economic and security headaches Trump Europe’s mounting problems
Ben Aris in Berlin
The re-election of Donald Trump as US President could become a major headache for Europe that is already struggling to keep its head above recessionary water. Trump’s return will likely bring a nationalistic “America First” approach back to the forefront, with policies that could batter Europe’s growth prospects while amplifying security concerns, said Angel Talavera, head of Europe economics at Oxford Economics in a note on November 8.
To add to the bad news, the German governing “traffic light” coalition collapsed after Chancellor Olaf Scholz sacked finance minister Christian Lindner, who belongs to the rival Free Democratic Party, paving the way for elections in early 2025 and probably leaving Germany without a budget for part of next year.
The political firestorm hits as the latest data shows that European economies are continuing to lose ground, especially Germany.
“Data releases this week continued to paint a gloomy picture for the industrial sector, especially in Germany, where production remains depressed. Short-term prospects remain negative, and we do not expect an imminent turnaround, but
Eurozone: Industrial production
A European recession, uncertainty on Trump's tariff programme, underin- vestment in defence and now the collapse of the German government are all compounding Europe's mounting difficulties. / bne IntelliNews
we think a more positive backdrop in 2025 should help foster a modest recovery,” said Talavera.
In contrast, as bne IntelliNews reported, Russia’s economy
is flourishing for now, although growth and consumption
are expected to slow sharply next year as Russia’s economy
is cooling as the military Keynesianism boost wears off. Russia and China are global manufacturing powerhouses.
Oil sanctions are a spent cannon and technology sanctions have failed, although financial sanctions on Russia are more effective, but have yet to affect Russia’s trade. Some analysts and market participants are anticipating the possible easing of some of these sanctions under Trump as he could generally disengage from the global economy.
Tariff Fortress America
Trump’s talk of a Fortress America behind a high tariff wall could severely hurt European business already reeling from the polycrisis. In the coming years, Trump’s tariff ambitions, particularly on key trade partners like China and the EU, threaten to erode market confidence and disrupt supply chains across Europe’s open economy.
“Trump's return is bad news for Europe, given his nationalistic, America-first approach and his desire to impose widespread tariffs across the globe, something that is of particular concern to the open European economy,” said Talavera. “But the impacts of Trump's return on the economy are highly uncertain at this point. Aside from the unpredictability of his character, which makes forecasting policy changes extremely challenging, some of his proposed measures will provide a substantial fiscal boost to the US economy, which would have positive spillovers for Europe.”
Talavera reassures that if the tariffs are imposed, they would likely start to have a significant impact from 2026, rather than next year, so the impact on 2025 figures will likely be smaller than assumed.
“A new presidency by Donald Trump will put the EU under pressure in many areas. As the USA is an important trading
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