Should Canada Join the EU?

 

World-System (1960-2100): Six Forecasts for the EU

 

The Trump II Administration has recently threatened to impose substantial tariffs on the European Union (EU). Economists in the EU have recently downgraded their forecasts for growth (here) and additional tariffs (if enacted) are expected to hurt the EU even further. 

Notes

• Was the EU Wrecked by Austerity? No.
• Is Another EU Recession Likely? Maybe.
• Is the EU Heading for a Steady State Economy? Maybe!

World-System (1960-2100): Is the EU Heading for a Steady State?

 

Google AI says no!

Based on the available information, it's not accurate to say the EU is definitively heading for a steady-state economy in the sense of a non-growing economy with stable population and consumption. While there's a strong emphasis on sustainable development and a shift away from a purely growth-focused model, current policies still project and even aim for economic growth within the EU. 

Here's a breakdown of the EU's approach to the economy and how it relates to the concept of a steady-state economy:

EU economic outlook and growth

• Subdued Growth: The eurozone's economic outlook for 2025 and 2026 is projected to be slow, with expected growth rates of 1% and 0.9% respectively, according to Deloitte. The European Commission forecasts slightly higher growth for the EU as a whole, at 1.1% in 2025 and 1.5% in 2026.
• Factors Affecting Growth: Uncertainty from trade policy and geopolitical conditions are key challenges impacting business sentiment and investment.
• Growth Drivers: Less restrictive monetary policies, increased public spending (including NextGen EU Funds and defense investments), stable labor markets, robust income growth, and lower interest rates are expected to support economic activity and consumer spending. 

Shift towards sustainable development

• 2030 Agenda for Sustainable Development: The EU is committed to implementing the 2030 Agenda and its 17 Sustainable Development Goals (SDGs), both within the EU and globally.
• European Green Deal: This is a key initiative aiming to make the EU climate-neutral by 2050, promoting a modern, resource-efficient, and competitive economy, according to Eurofound. It emphasizes decoupling economic growth from resource use.
• Circular Economy Action Plan: This plan aims to transition to a fully circular economy by 2050, reducing pressure on natural resources and creating sustainable growth and jobs. It includes measures for sustainable product design, waste reduction, improved recycling systems, and fostering innovation in circular business models. 

Connecting to the "Steady State Economy" concept

• Focus on decoupling growth from resource use: The EU's policies, particularly within the framework of the European Green Deal and the circular economy, emphasize decoupling economic growth from resource consumption and environmental impact, according to the European Parliament. This aligns with some principles of a steady-state economy, which seeks to minimize the environmental footprint.
• Promoting sustainable practices: The EU is implementing regulations and incentives to encourage sustainable production and consumption patterns, including stricter rules on product design, waste management, and resource efficiency. These actions are aimed at improving well-being within planetary boundaries.
• Not abandoning growth entirely: While aiming for more responsible growth, the EU is not advocating for a complete cessation of economic growth, but rather a shift towards a more sustainable model. This is distinct from a traditional "steady-state economy" which implies constant levels of capital and population. 

In conclusion, the EU is working towards a more sustainable and resource-efficient economy, actively implementing policies to decouple economic growth from environmental impact and promoting circular economy principles. However, it is not accurately characterized as heading for a steady-state economy in the classic sense of a non-growing economy. Instead, the EU aims to achieve economic growth within ecological limits and in a socially just manner. 

Is Another EU Recession Likely?

Concerns are developing (here) that the European sovereign debt crisis could trigger another recession that spreads from the EU area to the US. In an appearance before the US Congress yesterday, US Fed chair Ben Bernanke warned more government action would be needed to prevent a recession in the US. The transmission for this recession would be the banking systems of both the EU and the US which are heavily interconnected.

My business-as-usual (BAU) GDP forecast for the EU is presented above. Actual GDP is displayed as a solid line while the attractor value is the dashed red line with the 98% bootstrap confidence intervals displayed in green and blue dashed lines. After 2003, the EU bubble began developing and peaked in 2007 followed by a crash in 2009 to very low levels in 2010. The model suggests that forces will began pushing the economy back to its attractor value but that does not mean that that future shocks (such as a Greek default) could not push the EU to improbably low GDP levels.

The European Economic Commission's forecast for 2010-2012 (here) suggest that:

The European Commission's autumn forecast foresees a continuation of the economic recovery currently underway in the EU. GDP is projected to grow by around 1.75% in 2010-11 and by around 2% in 2012. A better than expected performance so far this year underpins the significant upward revision to annual growth in 2010 compared to the spring forecast. However, amid a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of the year and in 2011, but to pick up again in 2012 on the back of strengthening private demand.

The graph above displays the EEC's confidence interval for GDP growth rates. The EEC forecast suggests a small probability of negative growth rates after 2011.
The annualized growth rate of the BAU attractor for GDP in the EU is displayed above. My forecast is for a continually decreasing growth rate approaching zero after 2060.

The definition of economic depression (here) is a little squishy (a drop of more than 10% in GDP lasting for three to four years). In terms of attractor models, the EU economy has been underperforming ever since 2009. The rate of return to the modest growth rates predicted by the BAU GDP attractor will depend on future financial and non-financial shocks to the EU economy.