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US Economy Vs Europe Economy 2023

An alarming trend of disparate economic growth between Europe and America is alarming, so this Policy Brief investigates both traditional and novel ways of measuring it.

Under purchasing power parity, total European output lags behind that of the United States; however, when adjusted for working time by measuring output per hour worked, Europe quickly closes the gap.

United States

The US economy continues to expand at a healthy pace despite high energy prices, driven by solid consumer spending, manufacturing structures investment revival and higher state and local government spending. Exports should benefit from lower dollar values and faster global growth while imports are restrained by weakening domestic demand.

U.S. inflation has declined faster than in most other advanced economies due to differences in how core CPI (excluding food and energy ) is measured: while many countries exclude owners’ equivalent rent from measurement, the United States includes it in theirs. Yet the US economy has outshone expectations across three key dimensions – increasing economic output, labor market resilience and slowing inflation; an astounding feat given all its challenges.

European Union

Following its post-pandemic expansion, the EU economy experienced a decline beginning in 2022 and only moderate growth for three quarters in 2023 – partly driven by rising energy costs that particularly burdened low-income households.

Consumer spending should recover with rising real wages, while investment should expand thanks to strong corporate balance sheets and loosening production restrictions.

The EU’s current account surplus is projected to make a comeback this year and next, although global economic prospects remain dim. Rising interest rates could erode business confidence further and hinder exports; consequently, Europe’s chances for growth depend heavily on external demand.

Germany

Germany’s economy will experience a slight downturn this year before rebounding by 2024, according to forecasts by five institutes that advise its government. This outlook is more positive than was suggested earlier.

Germany’s revised projections are proof of how successfully Europe’s largest economy has fared since Russia suspended natural gas deliveries across much of Europe last winter, including to Germany. Warmer weather and efforts to secure new supplies of liquefied natural gas helped prevent an energy disaster which many had anticipated.

But high inflation, caused by central banks’ rapid and steep rate hikes to combat prices, has reduced household spending and inhibited industrial activity, ultimately slowing the economy in 2023 but rebounding again as inflation declines in 2024.

France

Even as its second quarter performance weakened, France managed to avoid technical recession due to strong household consumption and soft consumer price landing. These gains may lessen over the remainder of 2023 and into 2024.

Due to households retaining considerable savings built up during the pandemic that haven’t yet been spent and tight fiscal policy by government.

Furthermore, France’s efforts to curb energy prices may result in lower than average tax revenues during 2023 and 2024, which may limit household spending while heightening inflationary pressures; as a result, this year the French economy may expand less quickly than its US counterpart.

Italy

Italy’s economy is predicted to experience a temporary slowdown between 2023-2024 due to higher interest rates and prices that have reduced consumption, although its long-term growth potential should improve as implementation of Next Generation EU investments increases. Furthermore, Italy currently boasts the lowest household and corporate debt among G7 nations.

Germany and France, on the other hand, are more vulnerable to cyclical slowdowns. Both economies rely heavily on exporting machinery and manufactured goods and have been especially hard hit by reduced global demand – leading to higher energy import prices and weakening terms-of-trade resulting in slower core inflation rates for these countries.

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