‘Now or never moment’: Is it all economic doom and gloom for Europe in 2025?

euronews (in English)

“If you don't move forward, you fall off the bike,” is the warning from the European Bank for Reconstruction and Development’s chief economist, Beata Javorcik.

Transcript

00:00Central banks have to tread carefully.

00:02It may be a now or never moment for Europe.

00:05If you don't move forward, you fall off the bike.

00:13Welcome to The Big Question, the series from Euronews,

00:17where we speak to some of the most influential people in the world of business.

00:22I'm Angela Barnes, and I am joined by Ljarta Javorcik,

00:27the chief economist for the European Bank of Reconstruction and Development.

00:33Thank you ever so much for joining us on The Big Question.

00:35It's a pleasure to have you with us on the show.

00:37Thank you for having me.

00:39So first of all, if we could just start off by talking about

00:42what are the economic risks in 2025 that you are most concerned about?

00:48First, conflict. The war in Ukraine is still raging.

00:52We have a ceasefire in the Middle East, but that's not the same as peace.

00:57And of course, the situation in Syria is far from stable.

01:00Second, fragmentation of the global economy.

01:03I mean, this process has been going for quite a while.

01:06In 2016, we had the Brexit referendum,

01:09which rolled back integration of services sectors between the UK and the EU.

01:16Then in 2018, the US-China trade war has started.

01:20In 2022, sanctions on Russia were imposed.

01:24And certainly, unwinding of globalization

01:28is going to have negative consequences for the global economy.

01:39For Europe's competitiveness, what do you foresee this year for Europe?

01:42How far away are they from catching up with the likes of China and the US?

01:47Well, if you read the Draghi report, the diagnosis is rather stark.

01:53Europe will not be able to maintain its standards of living

01:56if it continues on its current path.

01:59But paradoxically, shocks that Europe may experience in 2025

02:04may focus minds and lead to action.

02:08It may be a now or never moment for Europe.

02:11Donald Trump's tariffs for Europe could be hugely detrimental, for example.

02:16Well, it's difficult to predict.

02:19It matters whether every country will be subject to the same tariff and every industry.

02:24But we cannot control what's happening in terms of other countries' policies.

02:30So therefore, I think Europe should focus on what's within our control,

02:35namely finding sources of competitiveness within the single market.

02:39What about Russian sanctions?

02:41How have they impacted its economy in 2024?

02:44Do you think its fortunes will change course with Donald Trump in power?

02:49Western sanctions imposed on exports to Russia

02:52have led to a dramatic drop in European sales to Russia.

02:58Some of that trade has been replaced by exports from other countries,

03:02namely China and Turkey,

03:05though probably the technological content of those exports is different.

03:10And you see in the data that foreign affiliates located in those countries

03:15choose not to supply the Russian market.

03:18So sanctions have been taking a toll on Russian productivity

03:23by depriving Russia of sophisticated technologies embodied in capital goods.

03:29Moreover, there has been an exit of Western multinationals.

03:34No new FDI is flowing to Russia.

03:37And that means lower knowledge flows.

03:39So these are the effects that are not visible immediately.

03:44They work slowly, but they certainly are beginning to take a toll on the Russian economy.

03:50Now, inflation and monetary policy, let's talk about that.

03:53How do you see inflationary pressures evolving in 2025?

03:56And what measures should central banks take

04:00to keep inflation in check without stifling economic recovery?

04:04So let me talk about emerging markets where my institution, the EBRD, is active.

04:10We have seen quite a fast process of disinflation by historical standards,

04:16though inflation remains one percentage point above the pre-COVID level.

04:22Of course, performance of countries has been uneven.

04:25And some countries, such as, for instance, Turkey,

04:28are still facing a very high inflation.

04:32In Europe this year, if you believe futures markets,

04:36we are going to see an uptick in prices of natural gas.

04:40And that's certainly going to put inflationary pressures.

04:45So I think central banks have to tread carefully

04:48and react to the data as the data comes in.

04:52Are you keeping an eye on oil prices too?

04:54Is that something that is of particular concern?

04:58Well, oil prices are very important as an indicator for assessment of any economic activity.

05:05Though, of course, if you believe that the US is going to increase production of oil,

05:10that could actually lead to lower oil prices.

05:13So that would put a downward pressure on inflation.

05:17And let's talk about technology and digital transformation.

05:20How do you think technological advancements, particularly in AI and automation, of course,

05:26how do you think that will shape the workforce and labour markets in 2025?

05:30Well, technological progress translates into structural changes in the economy.

05:36If you think about Europe,

05:38Western European countries are much more exposed to AI eliminating some jobs.

05:46In Eastern Europe, it's more automation of manufacturing

05:49that will have an impact on the production process.

05:53What sectors in emerging markets do you expect to see the most growth in 2025?

05:58So I'm very optimistic about services in emerging Europe.

06:04Quite a few countries in emerging Europe have succeeded at importing ICT services.

06:11And the fact that many of them are in Schengen in the same time zone,

06:15that they have the same data protection regime as the Western European countries,

06:21bodes well for greater exports of services.

06:25Moreover, as companies are considering their carbon footprint,

06:29they are discovering that carbon emissions embodied in services they buy

06:36constitute a big chunk of that carbon footprint.

06:38So proximity of Eastern European countries

06:42makes them more attractive as suppliers of ICT services.

06:47And I just want to talk to you as well, lastly, about EU integration.

06:50What is your outlook for the economic integration of countries

06:54in the Balkans and Eastern Europe for 2025?

06:57Well, it is in the interest of the European Union

07:00to have stable and prosperous neighbours.

07:04It is in the interest of accession countries

07:07to use the accession process as an anchor for reforms.

07:11And we've seen how well that has worked

07:14in the first wave of accession that finished in 2004.

07:19So the EU needs to show a credible path

07:23for these countries to join the community,

07:27while these countries have to exert effort

07:31to match the standards that are expected.

07:34It's a bit like with riding a bicycle.

07:36You need to make progress,

07:38because if you don't move forward, you fall off the bike.

07:40Well, thank you ever so much for your insights.

07:43It's been fantastic to have you on the show.

07:45And thank you very much all for watching this episode of The Big Question.

07:49And don't forget, you can catch all our shows

07:51on the Euronews YouTube channel

07:52and on our website, euronews.com.

07:54Head over to the business page.

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