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:start Source: GlobalData

Despite global challenges, the European economy shows resilience, driven by lower energy prices, reduced supply constraints, improved consumer sentiment, and a strong labor market. During the first quarter (Q1) of 2023, the EU expanded by 0.1% on a quarterly basis following a contraction of 0.2% in the fourth quarter (Q4) of 2022. Based on all these factors, the region’s risk score decreased from 33 in Q4 2022 to 32.9 in Q1 2023 out of 100, reveals GlobalData, a leading data and analytics company.

In the 20th update version of GlobalData’s “Global Risk Report Quarterly Update – Q1 2023,” among the 41 countries evaluated in the European region, 17 countries were identified in the very low-risk zone, 13 countries in the low-risk zone, 10 countries under manageable risk, one country under high risk.

EU’s overall inflation rate eased to 7.1% in May 2023 from a peak of 11.5% in October 2022. Food inflation declined to 15% in May 2023 from a high of 19.5% in March 2023, while energy inflation dropped to (-)0.3% in May 2023 from its previous peak of 41.1% in June 2022.

Consumer confidence in the EU was bolstered by lower inflation, resulting in nine consecutive months of improvement in the consumer confidence index until June 2023, according to OECD data. However, business confidence remained weak due to high financing costs and decreased external demand, leading to five consecutive months of decline in the index until June 2023. Despite this, the labor markets in Europe remained robust, with unemployment reaching a record low of 5.9% in May 2023.

Maheshwari Bandari, Economic Research Analyst at GlobalData, comments: “Although few indicators highlight economic green shoots in Europe, economic recovery is uneven, with varying performance among countries. The region must continue its stride on tackling high core inflation, sustain growth, and ensure financial stability. If only Eurozone is considered, the region was in a technical recession with real GDP contraction in Q4 2022 and Q1 2023 and tightening monetary policy further adding to financial risks. However, factors like lower energy prices and a strong labor market offer hope for gradual improvement in 2023.”

Germany saw the swiftest rise in ranking in the Q1 2023 GCRI due to the easing semiconductor shortage, decreased energy prices, and increased demand from China. Conversely, Russia experienced a notable decline, falling three places since the last update, as the impact of extensive sanctions became evident.

Several European countries (Switzerland, Denmark, Sweden, Norway, Finland, and Germany) are on the list of the top 15 lowest-risk countries out of 153 nations in the Q1 2023 GCRI update. Meanwhile, Ukraine, Bosnia and Herzegovina, and Moldova, were the nations having the highest risk in the European region in the same update.

The migration crisis in the European Union (EU) continues into 2023, with a significant number of irregular border crossings and asylum applications remaining at high levels. According to the International Centre for Migration Policy Development (ICMPD), there was a notable increase of 64% in irregular border crossings and a 46% rise in asylum applications in 2022 among EU member states. This trend is anticipated to persist, placing continued pressure on destination countries to effectively handle the influx of refugees and irregular migrants.

Bandari concludes: “Europe is currently experiencing a slow recovery after a substantial downturn. Though there is a slight improvement in growth, financial conditions remain difficult. Achieving the 2% inflation target is still a distant goal. The energy crisis initially raised concerns, but it has also prompted positive outcomes, such as a shift towards green energy with increased efficiency and accelerated green policies.”

Notes

  • Quotes provided by Maheshwari Bandari, Economic Research Analyst at GlobalData
  • The information is based on GlobalData’s Macroeconomic database.
  • The Country Risk Index (GCRI) model analyses several political, economic, social, technological, legal, and environmental factors and calculates the amount of risk an investor accepts when doing business in each country and region worldwide. This is then represented by an overall ‘score’.

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