Beata Javorcik, the chief economist at the European Bank for Reconstruction and Development (EBRD), has outlined two major concerns for Europe in 2025: the ongoing global conflicts and the fragmentation of the global economy. As Europe braces for further developments on proposed U.S. trade tariffs, these issues loom large over its economic outlook.
"The unwinding of globalisation is going to have negative consequences for the global economy," Javorcik warned. This sentiment underscores the potential setbacks Europe might face as it navigates through long-standing challenges such as Brexit, the U.S.-China trade war, and Russian sanctions.
Europe's economic resilience is further tested by diminished trade flows, particularly with China and Turkey attempting to fill the void left by European trade losses. However, Javorcik notes this is not a direct replacement, leading to lower knowledge flows which could hinder growth prospects.
Multinational companies exiting the Russian market have halted new foreign direct investment (FDI) there, highlighting the economic strain Russia faces from prolonged sanctions. Javorcik emphasized that these factors contribute to an uncertain future for Europe's economic landscape.
"Europe will not be able to maintain its standards of living if it continues on its current path," Javorcik cautioned. Her optimism, however, shines through when discussing the potential of emerging European services, particularly in the IT sector. Eastern European countries are well-positioned as attractive suppliers of ICT services due to their proximity to Western Europe, shared time zones, and compatible data protection regimes.
"The fact that many of them are in Schengen, in the same time zone, have the same data protection regime as the Western European countries bodes well for greater exports of services," she remarked. This strategic advantage positions Eastern Europe as a burgeoning hub for service exports, despite broader economic challenges.
Javorcik also stressed the importance of addressing warnings from Mario Draghi's 2024 report on The Future of European Competitiveness. Ignoring these could jeopardize Europe's ability to sustain its living standards. She believes potential shocks in 2025 might serve as a crucial wake-up call.
"But paradoxically, the shocks that Europe may experience in 2025 may focus minds and lead to action. It may be a now or never moment for Europe," Javorcik stated, urging proactive measures to avert economic decline.
Another pressing issue is the potential impact of U.S. Federal Reserve policies on emerging markets. "Should the U.S. Federal Reserve have to keep interest rates high for longer, this will translate into higher borrowing costs for emerging markets," she explained. Many developing countries are already grappling with significant debt burdens accrued during the pandemic.
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