The European Union is in trouble as France and Germany’s growth forecasts have plummeted in the latest disaster for the eurozone.
The Organisation for Economic Co-operation and Development (OECD) has revised its growth forecasts for two of the European Union‘s economic powerhouses, France and Germany, in a move that signals increased challenges for the European economy in 2024.
The updated projections, released on Monday, show a downward adjustment for both nations, with France’s GDP expected to increase by 0.6 percent (down 0.2 points from November forecasts) and Germany’s growth forecast lowered to 0.3 percent, a decrease of 0.3 points from previous estimates.
This adjustment contributes to a broader reduction in the OECD’s growth outlook for the entire eurozone, now anticipated to be 0.6 percent in 2024, down from the 0.9 percent forecast made in November 2023. The slowdown in the European economy comes amid global uncertainties and specific challenges affecting the region.
While the OECD has downgraded the eurozone’s growth outlook, it has at the same time increased the global growth forecast for 2024 to 2.9 percent, up from the previous estimate of 2.7 percent in November 2023. However, concerns are raised regarding the impact of ongoing Houthis attacks in the Red Sea, disrupting global trade and potentially leading to a rise in inflation.
The conflict in the Red Sea has already prompted some shipping companies to reroute via Africa and the Cape of Good Hope, a longer and costlier alternative.
The OECD warns that this shift, combined with persistent disruptions, could further escalate inflation and impact the prices of goods, exacerbating challenges already affecting European production lines.
The OECD report emphasises the potential consequences of shipping cost increases, noting that if they prove persistent, they could contribute to a rise in inflation by up to 0.4 percentage points in 2024 in developed countries.
While acknowledging potential challenges, the OECD sees a possibility of a sustainable economic recovery driven by lower inflation and central bank interest rates. The report suggests that, if persistent, the rise in shipping costs could push up inflation in 2024 but expects inflation to return to target levels in most G20 countries by the end of 2025.
The organisation also keeps a watchful eye on geopolitical tensions, particularly in the Middle East, as any widening or escalation of conflicts could lead to greater shipping disruptions, exacerbate supply bottlenecks, and contribute to increased energy prices, negatively impacting global growth.
As the global economic landscape faces uncertainties, the OECD underscores the importance of a sustained and coordinated effort to reinvigorate trade, improve supply chain resilience, and address shared challenges for a more resilient and prosperous global economy.