Europe exhibited impressive economic resilience in Q2 2023, despite notable challenges. Both the Euro Area and the European Union (EU) registered annual expansion of 0.6% and 0.5%, respectively, during the quarter. This positive performance led to a slight decrease in the region’s risk score from 32.9 in Q1 2023 to 32.6 in the Q2 2023 update of the Country Risk Index (GCRI) from GlobalData, a leading data and analytics company.

In GlobalData’s ‘Global Risk Report Quarterly Update – Q2 2023’, among 41 countries evaluated in the European region, 18 countries were identified in the very low-risk zone, 12 countries in the low-risk zone, 10 were under manageable risk, one country was under high risk and no country was listed in the very high-risk zone in GCRI Q2 2023.

In Q2 2023, the EU’s inflation rate averaged 7.2%, down from 9.4% in Q1. By August 2023, it had eased further to 5.9%, though still well above the European Central Bank’s (ECB) 2% target. To combat inflation, the ECB raised the key policy rate for the tenth time since July 2022, taking it to 4.5% in September 2023.

In the past six months, Eurostat data shows a positive trend in the Consumer Confidence Indicator (CCI), while the Economic Sentiment Indicator (ESI) has seen a declining trend until August 2023. The CCI’s rise can be attributed to decreasing inflationary pressures and an improved labor market. Conversely, the ESI has followed a downward path during this same period, mainly due to ongoing concerns about elevated financing costs and decreased external demand, which have had a detrimental effect on business prospects.

Maheshwari Bandari, Economic Research Analyst at GlobalData, comments: “The latter half of the year is predicted to witness a modest upturn in consumer spending due to increasing wages and a slowdown in inflation. However, the supply of bank credit to the economy has notably decelerated, reflecting the effects of tightening monetary policies. Investment growth is not expected to see substantial improvement, mirroring its lackluster performance in the initial two quarters. Additionally, lower external demand and the decline in new export orders pose challenges for exports.”

In the Q2 2023 GCRI update, Switzerland, Denmark, Sweden, Norway, Finland, Germany, and Luxembourg were among the top 15 lowest-risk nations out of 153 countries. Within Europe, Ukraine, Bosnia and Herzegovina, and Moldova were the nations with the highest risk in the same update.

In response to the escalating challenges posed by asylum seekers in Europe, the EU introduced new asylum and migration policies in June 2023. These policies aim to streamline procedures and ensure fairness. However, concerns have risen regarding the potential haste in asylum processes and the lack of clarity in identifying “safe third countries.” Such ambiguities could have significant implications for human rights within the region.

The EU grapples with dual challenges. A surge in bankruptcies, notably in Spain, signals economic instability. Externally, China’s economic uncertainties, high core inflation, and potential trade disruptions from geopolitical tensions add complexity. These issues underline the need for vigilance and adaptability among EU policymakers and businesses to ensure regional economic stability and sustainable growth amid global uncertainties.

Furthermore, escalating environmental risks characterized by increasingly severe heatwaves have raised concerns. The UN World Meteorological Organization (WMO) issued a warning in July 2023, citing the heightened frequency and intensity of heatwaves. A UN agency report disclosed an additional 60,000 deaths in Europe the previous summer due to extreme heat.

Bandari concludes: “To navigate this intricate economic terrain successfully, it is imperative for the EU to adopt a proactive and flexible approach. By addressing both internal vulnerabilities and external uncertainties with strategic policies and resilient business strategies, the EU can better safeguard its economic well-being and fortify its position amid the evolving dynamics of the global economic landscape.”