“The deterioration of the global environment will hamper the growth of the open economies of the euro zone in 2020, although domestic demand, accommodative monetary policy and certain fiscal facilities will help offset the impact,” said Moody’s senior vice president Kathrin Muehlbronner.
According to the firm, given that the euro zone as a whole has limited fiscal cushions, it is “highly vulnerable” to an increase in protectionism and geopolitical risks.
In recent months, some economies that share the community currency, such as Germany or Italy, have been “especially” affected by the slowdown in world trade, and in 2020 they will only register a “moderate rebound” in their growth.
On the other hand, although domestic demand will be the main factor that will contribute to growth in the euro area, there are certain risks. Moody’s has anticipated that the decline in consumer confidence and the increase in the savings rate is a “material risk” for the manufacturing industry, something that could be spread to other economic sectors.
For the credit rating agency, the eurozone situation is delicate because there are countries with high indebtedness, which prevents them from using fiscal policy as a ‘cushion’ in case of a sharp fall in growth. In addition, in those countries where the debt is relatively low, the use of fiscal policy “is unlikely.”
The risk rating agency has also cited as one of the factors in the negative outlook the reversal of pension reforms in Luxembourg, Slovenia, Belgium and Germany. Likewise, it also warns of the risk in Spain for increasing pensions in line with the CPI, and in France, for the opposition to the reform proposed by its president, Emmanuel Macron.
“The political landscape has fragmented in many countries in the euro zone in recent years. Multiparty or minority coalition governments have agreed to the rule,” said Muehlbronner, which could cause “slow political responses” to ‘shocks’ Domestic or external.