By: Joshua Finley

 

Economically speaking, Europe has been slower in recovering from the COVID-19 pandemic than the United States. The reasons for this are multifaceted, but the fact remains that whereas the U.S. has now surpassed its pre-pandemic economic trajectory, Europe still has a big (and growing) hole to dig out of.

 

Investors and economic experts based in Europe, including venture capital firms such as Target Global, are thus closely watching the continent’s economic outlook for 2025 and beyond. Economic activity in major European markets like France and Germany will determine the shape and pace of the continent’s recovery — and whether it can avoid another recession.

 

“Europe continues to grapple with economic uncertainty, with major markets like Germany experiencing contraction in recent quarters, driven by factors such as inflation, energy prices, and global supply chain disruptions,” says Yaron Valler, co-founder of Target Global. “As 2025 approaches, it will be a pivotal year for the continent, as it faces crucial decisions regarding fiscal policy, energy transition, and the resilience of its industrial base. The trajectory of Europe’s recovery will largely depend on how effectively it addresses these intertwined challenges.”

 

Here’s what observers like Target Global believe 2025 could bring for the European economy.

 

Falling Interest Rates and Inflation Could Bring Some Relief

Inflation in the Eurozone has been persistent and “not satisfactory,” according to European Central Bank president Christine Lagarde. Yet inflation finally appears to be cooling off in Europe, giving the ECB some flexibility to lower its central borrowing rate by year-end 2025, per a Vanguard prediction.

 

This could bring some relief to struggling European consumers while spurring business investment across the continent. However, Vanguard says the outlook is only for incremental increases in the growth rate at year-end 2024.

Austerity Measures May Cap Recovery Potential

The ECB’s growth forecast has ticked down from earlier in the year due to the lingering effects of tight fiscal policy across the continent. 

 

“The impulse from consumption is somewhat weaker than foreseen in the June projections, with incoming data and recent surveys pointing to still subdued consumer confidence and elevated household saving intentions,” the ECB says.

 

However, this delayed rebound is expected to be short-lived, as the ECB foresees real growth by 2026.

Unemployment Rates Are Likely to Remain Elevated

Vanguard’s analysis shows a persistently high unemployment rate across Europe into 2025. The rate may even rise as marginally attached workers come off the sidelines. Needless to say, higher unemployment is a check on economic growth.

Large “Core” Economies Could Drag Overall Growth

Another unfavorable condition for the continent-wide economy is the poor performance of core European economies, notably Germany. Europe’s largest economy is officially in recession today and will most likely negatively affect growth through 2025. This contrasts with the above-average performance of “peripheral” European economies like Portugal.

Let’s Hear It for the Prognosticators

Europe faces unprecedented amounts of uncertainty due to political upheaval, armed conflict, and technological disruption that’s set to change how people and businesses operate and interact.

 

In such an environment, making predictions about the future, even the coming year, seems a bit foolish. Such predictions are, unfortunately, more likely to be wrong, or at least off the mark, than to be clearly or even directionally correct.

 

However, the continued smooth functioning of governance, the economy, and indeed society depends on experts willing to make predictions — and thus to be wrong about what’s coming around the curve. Let’s take a moment to applaud these experts who put themselves out there, for they all provide us with an important service.

 

 

Published by Mark V.