Economies in U.S., Europe Are Taking Divergent Paths As the Fallout From the Events in Ukraine Weigh on Europe's Prospects.

"The gap between the U.S. and European economies is widening, with growth and inflation on different trajectories as the fallout from the events in Ukraine weigh on Europe's prospects.

The European Union's statistics agency on Tuesday said the combined gross domestic product of the eurozone's 20 members fell by an annualized 0.4% in the three months through September, having increased by 0.6% in the previous quarter.

This is a stark contrast with the 4.9% rate the U.S. recorded during the same period, more than double the pace of growth in the previous quarter.

Added to this are signs that consumer-price inflation is easing in Europe's single-currency area while it has increased recently in the U.S. Figures also released by Eurostat showed prices were 2.9% higher in October than a year earlier, the lowest rate of inflation since July 2021. The core rate of inflation, which excludes energy and food prices, fell to 4.2% from 4.5% in September.

Economic growth in the eurozone has lagged behind the U.S. since the global financial crisis that struck in 2008, and that gap has widened since the onset of the Covid-19 pandemic in 2020.

This divergence accelerated markedly after sanctions on Russia pushed energy and food prices sharply higher, weakening household spending in the eurozone. As a region that imports most of its energy, Europe has been harder hit by an increase in gas and electricity prices while the U.S., an energy exporter, has benefited to some extent.

And globally, a switch in spending to services from goods and a slump in international trade amid mounting geopolitical tensions hit large manufacturers and exporters such as Germany particularly hard. Eurozone governments have also spent less freely than their U.S. counterparts in supporting demand.

"The German economy is currently stagnating; the obstacles of interest rates, high energy prices and weak foreign demand are simply too great at the moment," said Geraldine Dany-Knedlik, co-head of economic policy at DIW Berlin, an economic-research institute.

The widening growth gap and the narrowing inflation gap between the eurozone and the U.S. suggest the European Central Bank's rate rises are having a greater impact on an economy that faced stronger headwinds.

"Our past interest-rate increases continue to be transmitted forcefully into financing conditions," ECB President Christine Lagarde said last week. "This is increasingly dampening demand."

Some critics of the ECB argue that by almost matching the Federal Reserve's rate rises while confronting stronger headwinds to growth from other sources, eurozone policy makers will make the growth gap even wider.

"Having fallen behind the U.S. for the past 15 years, my worry is that we may now suffer another widening of the difference in per-capita income due to a policy mistake," wrote Erik F. Nielsen, economic adviser to Italy's UniCredit Bank, in a note to clients.

Meanwhile, the eurozone's weakness is holding back other parts of the world economy. The EU's imports from China in the first eight months of this year were down 15.4% from the same period of 2022, while imports from the U.K. were down 13.7%. 

Imports from the U.S. were little changed as Europe looked to the world's largest economy to replace natural gas it no longer buys from Russia.

Energy and food prices have risen more sharply in Europe than in the U.S. since the extraordinary sanctions on Russia, reducing the ability of households to spend on other goods and services.

Households around the world have cut back on their spending on goods after splurging during the pandemic and instead have focused on the services they were denied during lockdowns. But that swing has been particularly pronounced in Europe: By August, retail sales in the eurozone were 7.5% lower than in January 2022, compared with a 1.8% drop in the U.S.

The second blow for Europe has come from higher costs for energy-intensive factories.

There are few signs that economic growth in the eurozone is set to pick up over the coming months." [1]

This political and economic disaster in the European Union is happening in a pivotal time. The world is changing all the economy while switching to new sources of energy. Bleeding money we, the Europeans, have no resources to make necessary reforms, and to find a new niche in the new world.  In the meantime we are destroying world class talents in Europe when we go through this forced deindustrialization. We will never forgive politicians of EU countries who lead us into this disaster.

1. World News: Economies in U.S., Europe Are Taking Divergent Paths. Hannon, Paul.  Wall Street Journal, Eastern edition; New York, N.Y.. 01 Nov 2023: A.9.