Eurozone’s Economy Outpaced China and U.S. in 2022
The currency-area grew at a faster clip than its global peers, reversing traditional positions
The currency-area grew at a faster clip than its global peers, reversing traditional positions
The eurozone economy grew faster than China and the U.S. last year, underlining how the fading Covid-19 pandemic continues to scramble traditional patterns of global growth.
Figures released by the European Union’s statistics agency Tuesday showed the currency- area’s economy grew at an annualised rate of 0.5% as higher energy costs weighed on household spending. This translated into 3.5% growth in gross domestic product for 2022 as a whole, a faster rate than seen in either China or the U.S.
This is unusual. For decades, the big three engines of the global economy have had a pretty stable ranking: China grew fastest, followed by the U.S. and then the eurozone. This all changed last year because of the staggered manner in which major economies reopened in the wake of the pandemic.
Figures released Thursday showed the U.S. economy grew by 2.1% in 2022, a sharp slowdown from the 5.9% rate of expansion recorded in 2021. Earlier this month, China’s statistics agency released figures that showed the world’s second-largest economy grew by 3%, down from 8% the previous year.
The last time that the combined national economies that make up the eurozone grew at a faster pace than that of either China or the U.S. was in 1974. The U.S. economy has typically outpaced Europe’s over recent decades largely because its population has grown more quickly. More recently, the U.S. has led Europe in the development of fast-growing technology sectors.
Last year’s unusual growth ranking largely reflects the impact of the Covid-19 pandemic on the world economy, with the timing of lockdowns and re openings leading to big swings in growth, as well as high rates of inflation.
It is an effect that is unlikely to last. As China abandons its zero-Covid policy, it is likely to reclaim its position as the fastest-growing of the big three economic areas. And the war in Ukraine is having a bigger impact on the economy of Europe than that of the U.S. or China, as the slowdown in the last quarter of 2022 testifies.
“2022 was just a weird, weird year,” said European Central Bank President Christine Lagarde during a panel at the World Economic Forum’s annual meeting in Davos earlier this month. “Those are not normal numbers, this is not the usual ranking that you have.”
In the eurozone, the influence of the pandemic on the economy was so strong last year that it offset that of Russia’s invasion of Ukraine and the surge in energy prices it prompted.
While China experienced a series of lockdowns in pursuit of its zero-Covid policy, the eurozone enjoyed its first full year without tight restrictions, and a boost to activity that the U.S. had experienced a year earlier.
The big three economies locked down hard in 2020. But the U.S. reopened more fully from early 2021, outpacing the eurozone and China in the first three months of that year in particular. The eurozone’s reopening boost started later, and carried over into the first half of 2022 as its key tourism industry rebounded.
This year is likely to see the pandemic continue to have a big impact on growth—this time in China. The country lifted many of its zero-tolerance pandemic controls in early December in an abrupt change of course. While that led to an increase in Covid-19 infections and deaths, it also opened the door to a sharp economic rebound in the world’s second-largest economy.
For this year, the United Nations expects China’s economy to grow by 4.8%. It expects both the U.S. and the eurozone to slow, to 0.4% and 0.2% respectively. If it is correct, the normal growth ranking will be restored, although at lower-than-normal rates of growth. And from 2024, the pandemic’s impact is set to wane, unless a more deadly, rapidly-spreading coronavirus variant emerges.
“By 2024 we should be out of the woods,” said Hamid Rashid, head of the U.N.’s global economic monitoring unit. “We are still having the lingering impact of the pandemic in 2022 and 2023.”
High inflation rates, partly a legacy of the pandemic, are also expected to fade by 2024. Inflation rates began to surge in early 2021 as the reopening of the U.S. and other economies led to a surge in demand for goods and services at a time when global supply chains were still impaired.
According to a measure of supply-chain pressures compiled by the Federal Reserve Bank of New York, the blockages caused by the pandemic reached a peak at the end of 2021, and then eased steadily through the first nine months of last year. But that improvement in supply chains stalled in the final three months of 2022 as China imposed lockdowns to counter fresh outbreaks of Covid-19. Supply chains seem set to continue their slow return to prepandemic conditions in 2023 after the zero-tolerance strategy was abandoned.
Rates of inflation around the world appear to be easing, but it has taken unusually aggressive action by global central banks to get to that point. The Federal Reserve has raised interest rates by more than 4 percentage points since March, the largest move in a single year since 1980. The European Central Bank has moved at a slower pace, pushing up its policy rate by 2.5 percentage points starting in July, but that is the fastest increase since it was founded in 1998.
Both central banks are expected to raise their key interest rates this week, with the ECB likely to tighten more than the Fed. Further increases in borrowing costs will affect businesses and households not just in the U.S. and Europe, but around the world.
“The global effects are real, but they are not taken into account by the systemically important central banks,” said Mr. Rashid at the U.N., “it is harder for developing countries to borrow and invest.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
China’s economic recovery isn’t gaining the momentum money managers are awaiting.
Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.
Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.
And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.
Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.
Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.
Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.
She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.
“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.
“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”
Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.
The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual