"The WTO has become less effective"
Mr. Robertsen, the Eurozone economy contracted in the third quarter and could do this in the last quarter of this year as well. Do you expect a recovery in 2024 or is there a risk of a longer recession?
A recession in 2024 should be avoided. However, we do not expect any real recovery. Economic growth is likely to be weak. We have lowered our forecast of economic growth from 0.8% to 0.5 to 0.6%. Credit growth to both households and firms has stalled but also because the full impact of previous rate hikes has likely not fed through to the real economy yet.
Why has the economy in Europe recently been significantly weaker than in the US?
On the one hand, the US has significantly stimulated private consumption through higher fiscal spending. This did not happen in the Eurozone. On the other hand, the United States are significantly less dependent on exports and economic relations with China than Europe.
Is it bad news for Europe that not only political relations with China are tense, but the economy in China is also not running smoothly?
Yes, the fact that consumption in a key market for Europe is weak is a problem for the export sector. And this could also lead to a development that confronts Europe with new challenges.
Which development have you in mind?
China is currently in the process of developing from an emerging country into a mature economy. Therefore, domestic consumption and exports are becoming more important for the country. To stimulate these areas, the government could cut prices through subsidies. China has historically been good at selling products at significantly lower prices. We are currently seeing this with electric cars – and this could soon also be the case with chemical products and machines.
This affects the German automotive industry, which plays an important role in the country's economy. The German economy is weak at the moment and there is a risk of a recession in 2024. Is Germany again the sick man of Europe, as it is sometimes said?
That's a good headline. That's why some media or economists like to use it. But it doesn't apply just to Germany. Europe more broadly is at risk of suffering a prolonged economic slowdown due to weak demand and elevated prices for basic consumer goods, such as energy. Europe historically could count on China as the consumer of last resort but now all the major economies of Europe must contend with the fact that China is not only a consumer of European products but also a competitor in those sectors. However, Germany has risks that could become structural. The high level of bureaucracy prevents dynamic decisions. But they are especially important in a changing world.
One of these current changes is the increasing politicization of global trade, which is leading to first signs of fragmentation. What are the reasons for this development?
There are a number of reasons for this. Due to strong economic growth in the past, China has now become a competitor to the West, which is leading to tensions. Then the USA has become significantly more protectionist under US-President Donald Trump, which Joe Biden essentially continued. In addition, the disrupted supply chains during the pandemic have shown states that it is risky to be too dependent on individual countries.
While supply chain diversification reduces dependency, it also leads to higher inflation because restructured production is less efficient or more expensive than the old one. How high do you is think this effect?
I don't think you can say that this will make all prices higher. This is certainly true for some industries, but not for others.
Do you have any examples of this?
Semiconductors produced in the US or Europe instead of Taiwan are more expensive. This is mainly because labor costs are lower in Taiwan and Taiwan’s manufacturers have achieved significant economies of scale of production. Global food prices could rise in the future due to chain disruptions because of geopolitical tensions. In the automotive industry, however, I expect prices to fall due to a significant buildout of global capacity.
You already mentioned Donald Trump. What impact would a re-election of Trump next year have on the politicization of the global economy?
Trump's foreign policy is inconsistent. Therefore, it would increase political uncertainties globally. In addition, a success for Trump could lead to the USA toughening its tone towards Europe. This is not a prediction, just a possible scenario. But Trump has already described NATO as obsolete in the past.
A strong World Trade Organization (WTO) is needed, especially in a world in which international economic cooperation is getting weaker. But critics say WTO is getting less relevant. Why is that?
The WTO has become less effective in recent years, but not because it has done anything wrong. In a bipolar world, it is more difficult to agree on a common framework for global trade than in the previous unipolar world led by the USA. The current development towards a multipolar world will further paralyze the WTO.
Wouldn’t the WTO then need to be reformed?
In theory, yes. However, I fear that the debate about the form of the reform could last a very long time, perhaps 10 years. During this time, the WTO could be even more ineffective. Furthermore, in a multipolar world it will be very difficult to agree on a reform.
