European Central Bank board member Piero Cipollone reported in Corriere della Sera (an Italian daily newspaper)
My poor translation and summary (Google wouldn’t help out!) … if I got it wrong let me know in the comments (in English or Australian please 😉 )
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Structural Crisis in European Industry:
- Europe faces difficulties competing with China on manufacturing prices.
- European industrial productivity lags behind the U.S., driven by gaps in technology and finance.
- Over-reliance on external tech solutions (e.g., Big Tech from the U.S.) reduces the value-added by European firms.
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Innovation and Scalability Deficits:
- Europe is losing ground in innovation and scalability due to fragmented markets and a defensive, nationalistic approach.
- This issue has persisted since the late 1990s with the rise of the internet and is now at risk of worsening with artificial intelligence.
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Fragmented Internal Market:
- The lack of a unified European market creates inefficiencies, equivalent to imposing a 44% tariff on goods and a 110% tariff on services within the EU.
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Investment Deficit:
- The eurozone saves more than it invests (a 3% current account surplus).
- Investing this surplus could fund long-term economic growth and innovation.
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ECB Economic Revisions:
- GDP growth projections for the euro area have been revised down three times since June, with a cumulative reduction of nearly 1% for 2024–2026.
- Uncertainty about U.S. trade policies under Donald Trump could further dampen investments and consumption.
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Consumer Behavior:
- Despite rising disposable income, consumption recovery has been slow due to cautious spending by households rebuilding savings after pandemic-related shocks.
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Investment Weakness:
- Private investments have declined and are projected to grow only marginally by 2026.
- Public investments, such as recovery plans, are insufficient to counter weak private sector demand.
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Monetary Policy Recommendations:
- Cipollone advocates for monetary policy that supports the economy operating at its potential, rather than over-compensating for future inflation risks.
- Suppressing demand to prevent inflationary shocks could erode long-term economic potential.
- Rising Gas Prices:
Gas prices for 2025 are forecast to be 25% higher than 2024 levels, potentially impacting medium- to long-term inflation.
Updated forecasts in March 2025 will reassess these impacts.
This article was written by Eamonn Sheridan at www.forexlive.com.
