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.


Azad Zangana

Azad Zangana

Senior European Economist and Strategist

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China risk

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:

TalkingEconomics: Will FX falls save emerging markets?

TalkingEconomics: The macro impact of China

Or view the October 2015 Economic Infographic