EU’s Economic Step Back Amid Industrial Policy Lapses

Key Points:

• EU Economic Decline: Weak industrial policy causes the EU to lag behind the US and China.
• Global Industrial Policies: Over 2,600 new policies in 2023 highlight their importance.
• EU Initiatives Criticized: Green Deal and Net Zero Industry lack focused innovation support.
• UK Economic Recovery: UK grew 0.7% in Q1 2024, showing recovery signs.

The European Union’s economy is experiencing a significant downturn, largely attributed to the absence of a robust industrial policy. This stagnation has left the EU lagging behind competitors such as China and the United States. Despite substantial investments aimed at mitigating economic backwardness, the efforts seem insufficient. A report titled “Industrial Policy: Old Dog, New Tricks?” by Allianz Trade suggests that the current policies are ineffective and fail to address the core issues.

2,642 Global Economic Policies in Focus

In today’s economic climate, industrial policy has become more crucial than ever. In 2023 alone, 2,642 industrial policies were implemented worldwide. These policies often include subsidies to local industries and businesses. The United States has set a notable example with its Inflation Reduction Act (IRA) and CHIPS and Science Acts, designed to bolster domestic industrial sectors.

The European Union has reacted with astonishment to what it describes as protectionist measures by other nations, considering them violations of World Trade Organization (WTO) rules. In response, the EU has introduced initiatives like the Green Deal and regulations for a Net Zero Industry. However, these efforts have faced criticism for their broad objectives, which can lead to a diluted focus. Additionally, the EU’s commitment to technology neutrality has resulted in less targeted support for innovation than the more strategic approaches seen in the US.

Europian Stocks: DAX Up 0.3%, FTSE 100 Rises 0.4%, CAC 40 Falls 0.4%

European stocks are showing mixed trends, with most indices experiencing modest gains. Positive regional economic data and political climate have contributed to this upward movement. Investors are also keenly anticipating key US inflation numbers. The DAX index is up by 0.3%, the FTSE 100 has risen by 0.4%, while the CAC 40 has dipped by 0.4%.

The UK economy has shown resilience, with a growth rate of 0.7% in the first quarter, surpassing the initial estimate of 0.6%. This marks a 0.3% increase from the previous year, again beating the initial forecast of 0.2%. The UK emerged from a shallow recession at the start of 2024, indicating a positive economic trajectory.

June Inflation: France at 2.1%, Spain at 3.4%

Inflation in France has seen a slight decline, with June figures showing a 2.1% annual economic growth, down from 2.3% the previous week. Similarly, Spain’s inflation rate for June stands at 3.4%, down from 3.6% the previous week.

In the US, there is anticipation surrounding the release of the monthly PCE reading, the Federal Reserve’s preferred inflation measure. The Fed has indicated that it requires more data to ease monetary policy before making decisions.

National Economic Rally Leads with 37%, Macron Bloc at 20%

France is gearing up for the first round of parliamentary elections on Sunday. Polls indicate a potential shift in voter preferences, with the National Rally garnering up to 37% of the popular vote, an increase of 2% from the last poll. President Emmanuel Macron’s centrist bloc is 20%, while the New Popular Front Leftwing Alliance has 28%.

Nike has projected a weaker economic outlook, with an unexpected drop in fiscal 2025 revenue due to declining demand for sneakers. This forecast has raised concerns about the company’s future performance.

The second quarter of 2024 saw a decline in global mergers and acquisitions, with a 21% drop to 7,949 deals. However, the total deal volume increased by 3.7% to $769.1 billion. There is a general sentiment of confidence that transaction activity will pick up in the latter half of the year.