Qatar National Bank of Qatar, QNB, expected great potential for economic growth in the European Union during the next few years as a result of the great shift in the financial position of the European Union, in addition to the continued monetary facilitation and positive investor expectations.
In its weekly report, Qatar National Bank, QNB / indicated that the European Union has been suffering from large winds as a result of a series of deep and wide negative economic shocks over the past few years, including the repercussions of (Kovid-19), the Russian-Ukrainian war, economic slowdown in China, and political incompatibility on increasing measures of economic motivation or boldly responding to structural challenges.
The report said: While the euro area was able to avoid stagnation after the Kofid-19 pandemic, this economic bloc remained in a stagnation-like state, meaning that its economic growth was much lower than its capabilities, with many member states, such as Germany, the Netherlands and Austria, registered an official stagnation or zero growth for a few quarters. It should be noted that the performance of the European Union was much lower than the performance of the United States.
Moreover, as a result of the prevailing circumstances earlier this year, analysts and economists expected more weak in the performance of the European Union in the future, as the Bloomberg consensus still indicates a long-term growth less than 2% recorded before the Kofid-19, including expectations to achieve growth of 1.3 percent in 2025, and 1.5 percent in 2026.
Qatar National Bank QNB / optimism about the growth of the European economy in the short and medium term attributed to three main reasons, the first of which is that negative political and geopolitical events, such as the rise of extremist political parties and disputes within the NATO with the United States, led to the creation of a “inflamed front” that requires taking unusual financial measures by political leaders.
He pointed out in the report to the goal of Friedrich Mirz, the leader of the new coalition government in Germany, to mobilize most of the major political parties in Germany to reduce the strict budget rules and obtain approval on a huge program to spend on defense and infrastructure, which still requires constitutional amendments.
This was also followed by parallel movements at the level of the European Union to expand the national budget and allow member states to increase their defense expenditures significantly without activating “excessive deficit procedures”, which led to the liberation of more than 800 billion euros in five years under the slogan “Re -Arming Europe”.
The report pointed out that such measures show a major change in the position of fiscal policy within the European Union, from a restricted policy to motivation, which indicates a significant increase in total demand and activity.
He also explained that a large part of the superior economic performance of the United States in recent years against the European Union is attributed to the most facilitated financial policies, as the United States has stimulated its economy with a preliminary deficit by 2.5 to 3 times for the European Union deficit. More financial flexibility in Germany and the European Union would allow the bloc to stimulate its economy more while treating the current defense and infrastructure gaps, which enhances growth.
The second reason mentioned in the report represented in the start of the European Central Bank to facilitate the facilitation course in June 2024, and it is expected that more interest rate discounts will be enacted this year. This comes against the background of successful normalization of inflation and inflation expectations, which are currently approaching 2% targeted by the European Central Bank.
The basic interest rate on deposits has already been reduced by 150 basis points of its peak of 4 percent, and the market expects more discounts by 50 basis points by the end of the year, bringing the basic interest rate to 2 percent. Over time, this matter is supposed to reduce the intensity of the financial conditions, reduce credit costs, and supports both investment and consumption. Therefore, monetary policy should also support regional growth.
Upon consuming the third reason, Qatar National Bank QNB / European Markets sign observed a significant increase in growth expectations, which are manifested in a mix of “climbing” indicators represented in high stock prices, long -term returns and currency value. Indeed, since the beginning of the year, the Stoxx 600 / for European shares increased by 7.9 percent, while German bond revenues increased for 10 years by 50 basis points, and the euro rose by 5.8 percent against the US dollar.
This is an indication of the strong investor confidence in Germany and European Union plans to reliably strengthen regional defense, and through this process, also support growth.
The stock markets, in particular, indicate positive expectations for profit growth and a noticeable improvement in business conditions. This is more important in light of the pressure on American stock indicators, and the threat of the new American administration to launch a “commercial war” against many competitors and allies, including the European Union.