This article explores the pessimistic economic outlook for Europe in 2025, citing factors such as political fragmentation, stalled growth, high energy prices, and a lack of technological competitiveness. It contrasts European markets' underperformance with the optimism in US markets and highlights the risks to European growth.
The writer is a financial journalist and writes the Wealth of Nations newsletter. As 2024 draws to an end, it is hard to be optimistic about Europe . Its politics become ever more fragmented and polarized. Germany may be without a stable government until at least after elections in late February, France may have to wait until 2027 when President Emmanuel Macron’s term ends. Growth has stalled, unemployment is expected to rise.
The economy has been held back by burdensome regulation, high energy prices, weak demographics, growing competition in manufacturing sectors and a failure to keep pace with Chinese and American technological advances. Much of the continent is grappling with excessive debt even as governments are under pressure to deliver big increases in defence spending. The consensus forecast is for growth of just 1.1 per cent next year. Some are even gloomier: Bank of America expects growth of just 0.9 per cent in 2025. Even this assumes that Donald Trump imposes only modest tariffs on Europe on his return to the White House. Risks to growth are overwhelmingly to the downside, according to the latest European Central Bank survey of independent economists. This pessimism is reflected in markets. European stocks may be trading at close to record highs but they have sharply underperformed US equities. The Euro Stoxx 600 index now trades at a record 40 per cent discount to the S&P 500 index based on next year’s forecast earnings. While US households have never been more optimistic about stocks and US fund managers have never held less cash, global fund managers are underweight European equities and no one expects them to outperform other markets in 2025, according to the latest Bank of America survey of investors. Yet so much pessimism also sets a very low bar for upside surprises. What could go right in Europe in 2025 that could lift the mood? Several things spring to min
EUROPE ECONOMY GROWTH POLITICS INVESTMENT
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