2024-08-06 03:59:12
The difficulties of the automotive industry immediately affect investors in our country
The data published last week on the economy of the EU countries for the first half of 2024 definitely surprised economists. This is not the first time this has happened, but the bad thing is that the surprise is unpleasant.
Statistically speaking, the EU as a whole and the Eurozone in particular have already escaped the spiral of inflation – from nearly 11.1% a year and a half ago, it has tamed to 2.6%.
To a large extent, the credit for this goes to the European Central Bank, which has raised interest rates several times, and the institution headed by Christine Lagarde can be congratulated – it has succeeded.
If we look at the European average, economic growth is also there: for the second quarter in a row, the EU and the Eurozone recorded 0.3% GDP growth on an annual basis, which means that at least there is no recession.
But the devil here is that the largest economy in the EU – the German one – cannot recover from the recession. And in the second quarter, it has not been able to get out of negative economic growth and shows a 0.1% drop in gross domestic product.
The second largest economy, France, has somewhat escaped the recession and has an average growth of 0.3% for the region.
The surprise comes rather from the fact that the economies of southern member states such as Spain, Portugal, Greece and to some extent Italy show promising signs of growth. And since statistics deal with arithmetic averages, so does the continent’s economy
to appear in relatively good health. Which is too fragile though
Austria is technically in recession because there was zero economic growth in the second quarter, and Sweden saw a 0.8% decline.
Of the northern countries, only the figures for Ireland are for 1.1% growth, but they are widely considered to be distorted due to the concentration there of the European branches of multinational companies.
Economists see several reasons why the continent’s traditionally lagging south is showing better economic results now. This is partly due to the EU’s Recovery and Resilience Fund, which was set up at the height of the pandemic.
While the big member states have absorbed the money and have already forgotten about this aid, Southern Europe is only now doing so. And Bulgaria is still at the “second tranche” stage, which will in all probability be heavily cut.
On the other hand, Southern Europe simply does better when inflation is slightly higher than usual. Because
rising prices make the heavy debts of these economies more bearable
In addition, Northern Europe was much more affected by high gas prices following Russia’s invasion of Ukraine.
There are also a number of other circumstances. One is that tourism in southern countries represents a larger share of their economies than in northern countries. And he pulled ahead as soon as the pandemic was over, and to a large extent that now extends to other industries as well.
From Bulgaria’s point of view, however, what is worrying is the state of the German economy, which is quite closely related to ours. Germany is the largest importer of Bulgarian goods and services and the largest real investor in our country.
And there they are definitely getting hit from many directions. The supply of cheap Russian energy to the German market stopped just as its main export market, China, fell into a marked decline.
Germany was already in recession at the start of the pandemic and its energy-intensive industries such as pharmaceuticals and the automotive sector
have been experiencing difficulties for a long time
Industrial production slowed to a four-year low.
The German auto industry faces additional difficulties as it must make the transition from internal combustion engines to electric car production just as China is poised to flood the world with its subsidized electric cars.
Industrial giants such as BASF, Mercedes-Benz Group and Volkswagen announced weaker-than-expected forecasts last quarter. A further rise in inflation, if it happens, could make the situation even worse.
The negative effects of the German automotive industry are reflected almost instantly on Bulgaria in particular. Last week, for example, it became clear that the German Leoni
will close its factory by the end of the year
for automotive cables in Pleven, which is the largest employer in the entire area.
The reasons have nothing to do with the local economy. It is about the optimization of the entire production of the German group, which will lead to the closing of its plants in other countries as well.
But 1,300 people remain unemployed in Pleven, which is quite a shock for the local labor market.
All this currently presents a conundrum for the ECB. It has already started lowering interest rates, in June, for example, the base rate was reduced by 25 points to 3.75%, but it is not at all certain whether at its meeting on September 12 it will make another reduction, as the market expects.
This would accelerate economic development, but overly aggressive policy easing
could reignite the inflation that still persists
Setting a common monetary policy for the twenty individual countries in the Eurozone is difficult enough in good times, and when there is such wide economic divergence, the task becomes almost impossible.
If there is any economic recovery in Europe at all, it is driven largely by domestic consumption. It’s just that Europeans have jobs – unemployment is at its lowest levels in decades.
Lower energy prices boosted their purchasing power. At the same time, however, productivity, as measured by GDP per worker, has fallen straight to 2022. If it does not start to rise, Europe is likely to fall behind the US, and it is no coincidence that the IMF predicts that European GDP per person will fall from 68% of American in 2019 to 66% in 2029.
The situation is more or less the same in Bulgaria. Macroeconomist Lachezar Bogdanov, for example, argues that while low unemployment and rising wages are a somewhat objective factor,
the credit expansion in our country is too big
and affects market demand by inflating it. This is where the growth of the economy comes from, but according to Bogdanov, even a slight cooling of lending at this moment will have adverse consequences. Or as he puts it, “credit is currently the fuel of our economy.” While industrial production and exports are falling.