Review: European Economy Fears Dragging Down Global Economy

The euro zone, which faces the threat of deflation and recession, may fall into a "prolonged economic stagnation" and drag the global economy.

　　 prospect Bleak

The European Commission released the autumn economic outlook report 4 this month, sharply reducing the euro area economic growth expectations. The report shows that compared with the spring report 6 months ago, the euro zone economic growth in 2014 was expected to fall from 1.2% to 0.8%, with Germany and France slowing down to 1.3% and 0.3% respectively this year, and Italy's economy will grow negatively. The European Union's report also reduced the euro area inflation rate in 2014 to 0.5% from 0.8% which was forecast 6 months ago. It is estimated that inflation will only increase slightly to 0.8% next year.

The European Commission believes that the EU economy is not only "extremely weak" compared with other developed economies, but also inferior to the recovery period after the financial crisis.

In addition, the eurostatistical data show that the euro area economic prosperity index has declined for several consecutive months, rising slightly in October alone. The overall inflation rate in the euro area is at a low level of 0.3% and 0.4%, while the unemployment rate has remained at a high level of 11.5% for four consecutive months.

　　 Lack Investment

Xavier Tambo, director of the analysis and forecast of the French Economic Research Institute, said that the euro zone's economic growth expectations were substantially reduced, mainly due to the lack of investment in the European economy. He said that the proportion of the EU's total investment in gross domestic product (GDP) has dropped into a downward path since 2008, and public and private investment is in a weak state. In the long run, this will lead to a decline in potential economic growth.

Juncker, chairman of the new European Commission, proposed a 300 billion euro investment plan. Juncker said he plans to use public resources such as the EU budget and the European investment bank, as well as funds from EU surplus countries, to promote public and private investment.

EU officials have repeatedly stressed that countries must invest in compliance with fiscal discipline and hope that Germany will increase investment. Germany, a staunch defender of fiscal discipline, has been deeply worried about the massive debt raising, and France and Italy, the two biggest economies in debt, are unlikely to introduce large investment measures.

Therefore, how to implement investment funds and how to drive private investment through public investment is not known. Some economists say this plan is not enough to change the current economic situation.

　　 Drag on Global

In a report, Mr Tembo said that the low growth rate of Europe would drag the global economy down, because the reduction of demand in the euro area would have an impact on emerging economies, and it would also affect the United States, which is seeking economic recovery. The main risks of European economy come from four aspects, one is deflation risk, the other two is the fact that it is impossible to get out of the crisis at present. Three is the high unemployment rate and four is the heavy debt burden.

"These factors may lead to a slow decline in prices in the euro area for a long time, which is very similar to the deflation in Japan," said Mr Tembo. "Europe is likely to face the risk of" long-term economic stagnation ". Moreover, Russia's economic sanctions against the European Union are also one of the reasons for the gloomy economic prospects of the euro area, because the poor performance of the German economy in the EU economic locomotive is closely related to these sanctions measures.

Analysts agree that the EU's policy of increasing investment and quantitative easing will show the effect. It is necessary to break the existing economic policy to make the European economy truly emerge from the crisis. The EU's current fiscal discipline policy stipulates that the deficit of governments in the euro area should not exceed 3% of GDP in that year, and public debt should not exceed 60% of GDP.

"However, fiscal discipline has been written into the European Union as a law, so it is difficult to change. Obviously, the European economy has fallen into the trap set by its own budgetary policy," said tramp.