Is Europe On The Brink Of Recession?

The latest economic numbers from the U.S. suggest the American economy is still booming. But while the U.S. has been mostly immune to an economic slowdown in Europe, it may not be able to shrug off a full-fledged economic recession.

Some experts now believe that a eurozone recession is coming as soon as 2019. Several factors are troubling European economists that could ultimately make a recession unavoidable.

Central Bank Tightening

Europe is lagging behind the U.S. in recovering from the aftershocks of the last financial crisis. While the U.S. Federal Reserve is raising interest rates, the European Central Bank is preparing to end its quantitative easing asset purchase program in 2019.

This program has been helping support asset prices in the EU for years, but that crutch will soon be removed from the EU economy.

Brexit

The UK has formally said it will be leaving the EU as of March 29, regardless of whether an acceptable exit deal has been reached. This so-called “hard Brexit” would be a worst-case scenario for the European economy, creating chaos and uncertainty for international companies doing business with the UK.

Of course, the UK could always vote to extend the hard Brexit deadline if a deal is not reached, but companies are likely to be conservative with their spending until they find some clarity on the situation.

Italian Recession?

All of Europe may not yet be in recession territory, but Société Générale economists recently lowered their 2019 Italy GDP growth forecast from 1.2 percent to 0.5 percent. Italy is also expected to have a deficit of 2.7 percent of GDP this year.

Not only does Italy’s situation put a strain on eurozone economics, it also breeds resentment among other European nations that feel they are supporting the struggling economies of Italy and Greece.

German Slowdown

Europe can handle bearing the brunt of struggling smaller nations, but the latest numbers from Germany suggest red flags in Europe’s largest economy. German industrial production was down 1.9 percent in November, and exports fell by 0.9 percent.

The German economy shrank by 0.2 percent in Q3 of 2018, and it narrowly dodged a recession in Q4 by reporting flat GDP growth in a quarter that had one extra calendar day compared to last year.