Europe has become the biggest source of risk for the global economy. Various EU countries have faced economic challenges and political uncertainty. The rise of hard line, right wing politics have been worrying to many. But it could be a response to the slump in the economy itself. What is ailing Europe and how is gold affected?
Over the last ten years Europe has experienced a rapid decline in industrial production. This has been due to trade wars and the reduction in the demand of products made in Europe. In 2018 alone, the Europe’s industrial production dropped by 4,2%
The U.S sanctions against Russia has cost the European Union more than $100 billion dollars. This has caused relations between the U.S and Europe to be tense. There are no signs that there will be a resolution anytime soon. The economic protectionist policy that the United States has adopted during Donald Trump’s presidency is a threat to the trade partnership between the EU and the US.
European governments can’t seem to agree on certain issues like migration. This is the reason for UK’s withdrawal from the Union which has proven to be more problematic and disturbing.
Europe’s aging population means a shortage of labour and more burden on the government’s budget. According to statistics, by 2030 nearly 24% of European people will be over the age of 65. By 2070, European countries will be spending 26.7% of their budgets on the elderly.
Europe is also not attract world-class companies. Today’s corporate giants like Amazon or Google are not based in Europe. Furthermore, the EU has failed to develop new technologies like China and the US have.
These problem weaken the economy of the Eurozone and strengthen the position of gold against the euro. The price of gold in Euros has increased by 6% in 2018
Currently, there are three countries within the Eurozone that are at risk:
Italy
The country is in debt for 2 trillion euros. This could trigger a financial crisis and plunge the country into a recession. With Italy being one of the largest countries in the Eurozone, a recession will have a negative impact on Europe as a whole.
Germany
Germany has been Europe’s main manufacturing centre. However, this country has seen very little growth in its industrial sector. The German economy only managed to grow by a rate of 1.5% because of the sharp decline in the automotive industry and a decline in exports. The IMF forecasts a further decline in Germany’s economy.
Great Britain
Brexit has been the main cause of economic uncertainty in the UK. Since the referendum for withdrawal from the EU in June 2016, the British economy has been losing £6.6 billion every quarter.
What does all of this mean for gold?
When global economic tensions rise, gold becomes stronger. We have seen how gold responded to the US trade wars with China and Mexico. If the economy does not improve in the Eurozone the demand for gold could increase even more.
This article was brought to you by the Brisbane Gold Company.
