Politicians and businesses have been warning about the lack of growth in Europe for quite some time. The weaker euro is certainly providing a much-needed boost to European exports – but can we rely on a weak currency to bolster the region’s long-term economic health?
No. Europe needs to seize opportunities in emerging markets and capitalise on trade agreements looming on the horizon to return to a stronger, more sustained growth.
Exporters in Europe should set their sights on emerging markets with growing middle classes and plans for large-scale infrastructure investment. Demand for capital goods over the next 15 years, particularly in emerging markets, bodes well for companies that manufacture and trade in machinery and transport equipment.
European businesses could also stand to benefit if they set their sights on markets which will benefit from the international trade agreements currently being debated or pending ratification. As HSBC’s Trade Forecast shows, renewed progress in trade liberalisation could reignite global trade. It is up to European businesses to be responsive, productive and agile, to make the most of any opportunities.
Let us remember that trade liberalisation – including international trade agreements like the Information Technology Agreement (ITA) – has had a considerable positive impact on global trade in the period leading up to the global financial crisis. Some estimates say these international trade agreements contributed around 20 per cent of the global growth experienced between 1994 and 2004.
The opportunity for Europe’s exporters is clear
Consider that two-way trade with Europe and the US is expected to grow faster than the global average, and that the EU is currently the second largest trading partner to the Association of South-East Asian Nations (Asean) – as well as its biggest foreign investor. Completing these potential trade agreements, such as the Transatlantic Trade and Investment Partnership (TTIP) or a free trade deal between the EU and Asean, which is currently being explored, is clearly in Europe’s interest.
TTIP, for example, could help harmonise regulatory standards that act as barriers to the free flow of trade and investments between the US and the EU, as well as removing simple trade tariffs. Small and medium enterprises (SMEs) could benefit significantly, and some estimates suggest TTIP could raise transatlantic GDP by up to $210 billion a year.
The opportunity for Europe’s exporters is clear, and HSBC’s latest trade forecast report shows why we can be cautiously optimistic on Europe. Several European economies are getting a short-term boost from the weaker euro and benefiting from cyclical upturns in their markets, such as in the UK, France and Ireland. But we must remember these upturns look positive only when compared to the low base from which Europe is emerging – near-zero growth rates and a recession in many of the continent’s countries since 2009.
Ultimately significant risks remain that world trade will continue to undershoot expectations. The United Nations recently cut its global growth forecast for 2015 to 2.8 per cent – and is just one of many multinational organisations to sound the alarm on the global economy.
Trade liberalisation and re-directing our focus on markets like India and those in Asean can provide the growth opportunities that would provide a major boost to European exporters and the larger European economy. Europe cannot rely on a weak euro to make its exports competitive forever.
Tim Reid is the co-head for commercial banking Europe, HSBC.