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Is Europe prepared for a global economic shock? Warning from OECD

Is Europe prepared for a global economic shock? Warning from OECD

July 17, 2019 | SQUARED DIRECT – According to Financial Times, the OECD’s chief economist, Laurence Boone, is urging Europe to loosen austerity policies and measures and to increase public expenditure to stimulate economic growth because Europe might be unable to provide monetary support to its eurozone members in case of an upcoming global economic shock. 

Possibility of a global economic shock in eurozone economies

The global economy is already weakened by the Trade War which has so far affected mostly China, Canada, and Mexico but Ms. Boone said that tensions and repercussions will eventually find their way towards Europe. She is warning that the possibility of a global economic shock is quite real and criticizes national governments of great eurozone economies like Germany and the Netherlands for not doing enough pubic investment even though they have the monetary capacity and the fiscal space to do so.

Ms. Boon further elaborated on business uncertainty needing to be addressed by a fiscal stimulus in green energy, structural reforms aimed at making the eurozone more resilient and a message of political unity, cooperation, and commitment by eurozone governments. She also suggested that European competition policy should not be restricted to European territory companies, but Europe should instead better investigate “who should invest in Europe and who should not.”  

Germany has recently released manufacturing figures for the month of May which shows an increase in industrial output. All the other major eurozone economies have also seen growth in their industrial output. However, without a better global trade outlook and with rising trade war uncertainty export-oriented goods and subsequently export-oriented economies like the eurozone will take a heavy beating.

The ECB cannot tackle matters alone by supporting crashing member state economies monetarily, it has already overstretched its abilities. Limited eurozone economic growth needs to be addressed as soon as possible through fiscal stimuli, commitment and political unity for the EU to adequately brace for a potential hit from a global economic shock. 

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