Moldmaking Opportunities in Europe
Use this data and analysis to help develop a strategic vision for what foreign markets you should explore to grow your sales beyond the U.S.
The European Union (EU) is the second largest economy in the world, generating a gross domestic product (GDP) in 2013 of $15.8 trillion or approximately 23 percent of the world’s GDP. It had been the world’s largest economy, but the United States regained that position, producing $16.7 trillion in economic output last year. This was the first year since the financial crisis that the EU was not in first place. Together, the EU and the U.S. generate 37 percent of the world’s economic output of $87.18 trillion.
The EU is a politico-economic union of 28 states that are primarily located in Europe and includes Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, Sweden and the United Kingdom. It has established a single market across the territory of all its members. In addition, 18 of its member states have also joined a monetary union known as the Eurozone or Euro area, which uses the Euro as a single currency. According to Credit Suisse Global Wealth Report 2012, the EU owns the largest net wealth in the world, estimated to equal 30 percent of the $223 trillion global wealth. Of the top 500 largest corporations measured by revenue, 161 have headquarters in the EU.
On June 17, 2013, the beginning of negotiations between the EU and the U.S. on the Transatlantic Trade and Investment Partnership (TTIP) agreement was announced. TTIP seeks to remove trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the U.S. In addition to reducing tariffs across all sectors, the EU and the U.S. want to tackle barriers behind the customs border, such as differences in technical regulations, standards and approval procedures. These barriers often unnecessarily cost time and money for companies that want to sell products in both markets.
During the May election for the European Parliament (EP), Europeans voted overwhelmingly for the moderately conservative European People’s Party (EPP) and the moderately left-of-center Socialists and Democrats (S&D). Voters also preferred new Eurosceptic national parties over the traditional liberal (free market), green, far left, and conservative and reformist candidates. Now as many as 30 percent of the members of the EP can be labeled as Eurosceptic, although in all likelihood only 20 to 25 percent of them might promote consistently anti-integration policies.
This EP election result could likely impact TTIP negatively, as traditional pro-American political forces might be more hesitant to support the treaty. Given the EP’s continuing increased scrutiny of commission-initiated proposals, the timetable for the treaty’s conclusion is likely to shift much further into the future.
Although the advanced European economies are expected to resume growth this year, economic growth in Europe is stumbling again, despite the fact that the manufacturing sector is showing signs of strength. Advanced economies, according to the International Monetary Fund (IMF), include Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Norway, Portugal, San Marino, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland and the United Kingdom.
Domestic demand in the Euro area has finally stabilized and moved into positive territory, with net exports also helping to end the recession. High unemployment and debt, low investment, persistent output gaps, tight credit and financial fragmentation in the Euro area still serve as drags on the recovery, however. Downside risks arise from incomplete reforms, external factors and even lower inflation. Since early 2011, Eurozone quarterly GDP growth has not once surpassed 0.3 percent. It grew just 0.8 percent over the last four quarters. Fiscal austerity clearly weighs on overall spending, and private demand continues to suffer from consumer malaise.
Although the Euro area has finally emerged from recession, the overall European recovery is uneven across countries and sectors. The Euro area includes Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, the Slovak Republic, Slovenia and Spain. Pockets of stronger growth are mingled in with stagnant or declining output elsewhere. Growth remains largely export-led, although there has been a small resurgence in domestic demand in France, Spain and Germany. Private investment, however, has still not rebounded across the Euro area. Longer-term concerns about productivity and competitiveness linger, despite important reforms in several countries.
The weakness is exacerbated by deepening regional disparities in economic performance. Italy, Finland and the Netherlands languish in effective recessions, while Poland, Germany and the UK move forward amid improving fiscal balances and rising consumer confidence. This will invariably create tensions, especially within the Eurozone, where common rules on monetary policy and fiscal guidance must support policymaking.
Domestic demand is anemic with consumers still keeping purse strings tight, even in countries with expanding income such as Poland, the UK and Sweden. Uncertainty over policy, including at the EU level, looms large over this situation. Over-all GDP rose 0.3 percent in the entire EU in the first quarter and 0.2 percent in the Eurozone—both lower than expectations.
At the same time, manufacturing production rose in each of the past five months and is running just over 3 percent ahead of a year ago in the EU and just under 3 percent in the Eurozone. Only parts of Scandinavia’s industrial sector remain in recession. The core central European four (the Czech Republic, Hungary, Poland and the Slovak Republic) plus Romania are growing annually at rates of around 8 percent or better.
The Manufacturing Alliance for Productivity and Innovation (MAPI) forecasts manufacturing production to advance this year by 2 percent in the Eurozone and 5.5 percent in the CEE3 (the Czech Republic, Hungary and Poland), and by 2.6 percent and 5.4 percent, respectively, in 2015. This year, GDP is slated to advance 1.1 percent in the Eurozone and 2.4 percent in the CEE3, and 1.4 percent and 2.9 percent, respectively, in 2015.
In looking forward to 2015, only a marginal improvement in Europe’s manufacturing production is forecast. The CEE3 and Sweden will experience manufacturing growth rates of 4.5 percent or more, while Germany and Austria should expand at a rate of about 3 percent each. Downside risks include a possible disruption of gas deliveries resulting from political tensions between Russia and Ukraine, as well as an unanticipated panic around Europe’s financial system.
Growth decelerated in emerging and developing Europe in the second half of 2013 as the region contended with large capital outflows. According to the IMF, emerging and developing European countries includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, Lithuania, Former Yugoslav Republic of Macedonia, Montenegro, Poland, Romania, Serbia and Turkey. Despite positive spillovers from advanced Europe, here the recovery as a whole has weakened in 2014. Fragilities in the Euro area, some domestic policy tightening, rising financial market volatility and increased geopolitical uncertainty stemming from developments in Ukraine have weighed heavily on the region, putting these risks at the forefront.