TalkingEconomics: Eurozone - Sino slowdown meets refugee crisis
We asses Europe's exposure to China, which could pose a risk to recovery in the region should China's economy experience a hard landing, and the economic impact of the refugee crisis in Syria.
Concerns about China have hit European markets where Germany has the highest exposure of the big four member states. Capital investment abroad is key to those exports given the breakdown of German sales abroad.
The macro impact of the European refugee crisis is positive as in the short-term it prompts fiscal spending and over the medium-term helps could help ease Europe’s demographic challenge.
To assess the direct impact of a China hard landing, or even a wider emerging markets crisis on Europe, we need to examine the share of exports to these countries:
- 9.5% of the EU’s non-EU trade goes to the seven major emerging markets that we believe are at risk of a slowdown , which amounts to 3.1% of nominal GDP.
- Germany has the largest exposure to the group and, in particular, to China. A combined 6.3% of German exports go to China and Hong Kong, the equivalent of 2.3% of German GDP.
- France, Italy and Spain also export a sizeable amount to China and Hong Kong, but as a share of GDP, each has less than 1% exposure.
Overall, Europe would see a significant hit in a China hard landing scenario.
However, our baseline view of a structural slowdown rather than a hard landing leads us to believe that exports more generally could hold up reasonably well, especially as the other developed markets still make up the lion’s share of total exports, with certain markets such as the US and UK growing at a robust pace.
Europe’s refugee crisis
From a macro perspective, the impact of arriving refugees is generally positive.
In the short-term, additional state spending on services, along with income support for migrants, amounts to a fiscal stimulus.
Also, as refugees tend to have little to no wealth upon arrival, they are likely to spend most of the resources they receive causing the fiscal multiplier effect to be relatively high.
The cost though will fall on the government’s public finances, and so deficits will be a little higher.
Over the medium- to longer-term, migration will result in a bigger working age population which will help boost GDP growth and provide an important relief to the ageing population problem that is unfolding in Europe.
For related articles:
Or view the October 2015 Economic Infographic
Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.