Behind the economic collapse of the UK lies the fact that the entire European economy is in decline. However, due to a series of operations by the UK, especially the reforms following Tesla's rise to power, the UK has been pushed into an economic quagmire. In fact, apart from the UK, the entire eurozone is facing the plight of the Russia-Ukraine conflict, energy crisis, high inflation, monetary tightening, and economic recession, especially the "engine of Europe" Germany, which may experience economic contraction next year. The GDP growth forecasts for the eurozone and the EU have both been revised downward, while inflation indicators are expected to be universally increased. The eurozone is facing a "severe winter"!

01 The European Union's economic recession has arrived

After the collapse of the UK economy became known, the eurozone economy also lost momentum!

On November 11, in the latest European Autumn Economic Forecast Report, the European Commission bleakly warned that the European economic recession has arrived, and the peak of inflation has been postponed to the end of this year. The eurozone is facing a "severe winter."

Due to the post-pandemic era's demand for a rebound and the strong performance of the service industry, the eurozone's GDP growth forecast for this year is still acceptable, increasing from the July estimate of 2.6% to 3.2%, and the EU's economic growth forecast has also been revised upward from 2.7% to 3.3%. However, the growth forecasts for the eurozone and the EU in 2023 have both been revised downward to 0.3%, a significant drop of more than 1 percentage point from the July estimate! Among them, the report expects that both the EU and the eurozone will fall into economic contraction (i.e., negative GDP growth) in the fourth quarter of this year and the first quarter of 2023, and economic activity will continue to shrink in the first quarter of next year.

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The EU pessimistically predicts that Europe is facing the plight of falling into a recession this winter, and next year the "engine of Europe" Germany may experience economic contraction, while inflation indicators are expected to be universally increased, and it will not be reduced to the ECB's target in 2024.

This year, the EU's inflation rate will rise to 9.3%, and the eurozone's will be 8.5%; next year, the inflation rate will decrease somewhat but will remain high, with the EU's inflation rate reaching 7.0% and the eurozone's reaching 6.1%. In addition, the report expects European employment growth to stagnate in 2023, with the unemployment rates in the eurozone and the EU expected to rise to 7.2% and 6.5%, respectively, in 2023.

These are not only downward GDP trends but also high inflation and rising unemployment rates. This series of data is sufficient to illustrate that the EU and the eurozone economies have lost momentum! The economy is entering a cold winter!

02 Why has the EU economy lost momentum?

So, what is the reason behind this? Undoubtedly, it is the Russia-Ukraine conflict, energy crisis, high inflation, and monetary tightening!In fact, when discussing the British economic issues previously, it was already mentioned that the Russia-Ukraine conflict and the Federal Reserve's previous massive money printing led to a significant increase in the prices of oil, natural gas, and other energy sources! We know that Europe is a region heavily dependent on the import of oil and natural gas, and Russia is an important exporter of these resources. The Russia-Ukraine conflict has, on one hand, further tightened the supply constraints for oil and natural gas in the Eurozone, causing energy prices to soar. Particularly in Europe, where the industrial sector requires a substantial amount of energy to drive its operations, this undoubtedly poses a challenge to the region!

The surge in energy prices, in turn, has driven high inflation, which, when uncontrollable, leads to tightening and interest rate hikes. However, these tightening and interest rate hikes are undoubtedly a test for the financial markets. Tightening financing conditions and a blow to business confidence will inevitably lead to a downturn in the capital markets, with stock markets, bond markets, and currency markets all experiencing sell-offs, and the economy is bound to enter a downturn!

Therefore, this series of factors has undoubtedly led to an expected economic downturn in the EU, the Eurozone, and most member states. Since these influencing factors are difficult to dissipate in the short term, an economic downturn is expected. The lives of the public have also been affected, with unemployment and large-scale protests emerging!

03 The locomotive Germany is also put on hold

In this recession within the EU, Germany, known as the "European locomotive" and the largest economy in the region, has also been put on hold!

We know that the three major powers in Europe are Germany, the UK, and France. Now that the UK has exited the EU, this has accelerated the UK's economic decline. After all, the EU is a community of shared destiny, and there are still many benefits for the UK within this circle. The UK's exit will also impact the cohesion of the Franco-German axis, so this is, in fact, a step backward!

Currently, in the EU, the economies of Germany and Sweden are expected to contract by 0.6% next year, the largest contraction among EU countries. Only Ireland, Malta, Romania, and Bulgaria are expected to have GDP growth rates exceeding 1% next year, while all other countries are less than 1%. Therefore, even Germany, the leader of the EU, has fallen, which undoubtedly shows the weakness of the EU economy!

Germany's Gross Domestic Product (GDP) is still expected to grow by 1.6% this year, but it will fall by 1% next year. The German Institute for Economic Research believes that the German economy is already in recession, and the fundamental reason for the recession is the Russia-Ukraine conflict, rising energy prices, and shortages of important raw materials and primary products, which severely impact the very successful German economic model of importing cheap energy and primary products from Russia and exporting high-value products to the world while benefiting from globalization.

We know that Germany is a typical old industrial country and a true manufacturing powerhouse. The pillar industries include: automotive and automotive parts industry, electronics and electrical industry, machinery manufacturing industry, chemical industry, and renewable energy industry. Especially in the fields of automotive, machinery, and other high-end manufacturing sectors, Germany has a very obvious competitive advantage. Germany is a world leader in automobile manufacturing, with Mercedes-Benz, BMW, Volkswagen, Audi, and Porsche popular worldwide. Moreover, high-end cars such as Maybach and Bentley have brought tremendous economic benefits to Germany!In Germany's GDP, the manufacturing sector accounts for a significant proportion, with even higher added value of products. Since 1995, the share of manufacturing in Germany's GDP has remained essentially between 21% and 22%. Globally, this places Germany second only to China, roughly on par with Japan, and significantly higher than major developed countries like the United States.

As a representative industry of German manufacturing, the automotive industry holds an important position in Germany's economy. Moreover, nearly half of Germany's GDP comes from exports, and since the 1970s, the influence of German automotive exports has been on the rise. Data from 2022 shows that manufacturing accounts for 22.93% of Germany's GDP, while the automotive industry represents 9.8% of the GDP, nearly half of the manufacturing sector. Therefore, the automotive and industrial sectors are the foundation of Germany.

The current energy crisis and inflation have already threatened Germany's manufacturing industry!

Although Germany's industrial order books are still filled, new orders have decreased, especially after the Nord Stream pipelines were sabotaged, making Germany's energy crisis even more severe. After all, this is a key supply route for Germany's energy needs. In the short term, Germany has energy reserves, but this cold winter will also be challenging!

Experts from the German Economic Institute say: If supply shortages are alleviated, industry will become an important pillar of the economy in the coming months. Thus, industry is the lifeblood of Germany, but now, it is clear that this lifeblood is under threat!

04 How to survive the economic winter

High inflation, rising living costs, sluggish consumption, monetary tightening, decreased willingness to invest among businesses, unemployment among workers, and reduced product output - this series of crises has already pushed the economy into a vicious cycle, and industries in Germany and Europe may even be forced to relocate!

This is also the reason why Germany can withstand pressure from the West and step out of its borders to negotiate trade with China. The industry is already in the process of relocation. Companies like Volkswagen, BMW, and Siemens that are brought to the table are all looking for cooperation! Especially BMW, which has already planned to establish a factory in China. This is an industrial relocation under the energy crisis and a form of self-help for Germany.

In addition, Germany has chosen to cooperate with BYD and CATL. Germany's largest taxi company, SIXT, signed a contract with BYD for 100,000 electric vehicles, and both parties will jointly promote the electrification transformation of the global car rental market. Meanwhile, Germany's petrochemical giant BASF has also announced plans to invest in establishing production lines in China.

In the face of the energy crisis, what is urgently needed now to sustain the European economy is the new energy industry. In fact, Germany is at the forefront of this area. Germany's renewable energy industry is also a major pillar industry. Germany not only considers the development of renewable energy as an important strategic choice to ensure energy security, diversify energy supply, and replace energy sources but also views it as an important measure to reduce carbon emissions and address environmental issues caused by the consumption of fossil fuels.Against the backdrop of an energy crisis, the vigorous development of wind and solar power becomes extremely important. Previously, the United States, in order to develop its own photovoltaic industry, suppressed our photovoltaic industry by implementing "double anti" policies. However, this also led to the lag in the development of its own new energy industry. Therefore, under pressure, the policy has already begun to shift, choosing to liberalize!

Germany and other European countries, under pressure, also need to consider accelerating the development of new energy and gradually getting rid of their dependence on traditional energy, especially by vigorously developing new energy vehicles. Under the current environmental and climate goals, the development of new energy is the general trend, and with the superimposition of the energy crisis, it is even more undeniable!

In terms of automobiles, the European Union itself has a solid foundation. As for switching to the field of new energy vehicles, although it is difficult for a big ship to turn, there is still an opportunity! As for photovoltaics, wind power, etc., although there are many pressures, for example, in photovoltaic installation, there is a lack of workers, and due to land and environmental protection issues, there is a lack of land. But if we stick to it all the time, how can we turn the crisis into an opportunity?

In summary, in the short term, the economic expectation is still downward, after all, the problem cannot be solved in the short term, just as mentioned earlier, the Federal Reserve now has the possibility of inflation peaking, and inflation may fall in the future, but it takes time to repair inflation. The United States, which holds the initiative, still needs to wait until next year's midterm, and Germany and other European Union countries, under the background of the energy crisis, need a longer time than the United States!

It can be foreseen that economic recession is an inevitable thing. From the fourth quarter to the first quarter of next year, the European Union and the Eurozone will basically be in a downward trend. Of course, as I mentioned in the previous content, this is a global recession, but the European Union will be more severe under the influence of the energy crisis!

Of course, the recession will not last forever. After the first quarter, this recessionary trend may slow down, which depends on the European Union's response measures! Especially under the background of the economic deceleration of Germany, the locomotive of the European Union, whether to continue to be in a stalemate in the Russia-Ukraine conflict? Whether to go against globalization? Whether to pay attention to many issues in the process of European economic integration, etc., these are all crucial to the future of the European Union!

Otherwise, the future of the Eurozone and the European Union may be in turmoil!