Issues of productivity and demographics hamper European economy
The global economy has been suffering from uneven growth in recent years, yet it is extremely striking how weak Europe remains relative to the US, China and other Asian economies. This is largely due to the fact that Europe is behind on the productivity front as well as the unfavorable demographic dynamics, noted the General Director of the Foundation for Economic and Industrial Research (IOBE), Nikos Vettas on Monday.
Speaking at the 15th Limassol Economic Forum, Vettas underlined the enormous challenges facing the European economy. As he pointed out, one of the most important “drivers” of productivity is the quality of institutions and based on this factor, Europe should be a global leader.
Nevertheless this continent has very weak and inefficient links between its education system and business, compared to the US, while it has been very slow to integrate new technologies. These in turn fuel the already weak demographic profile of the continent.
“In some countries, the demographics have reached a crisis level,” Vettas stressed. As he said, in Greece 10 years ago the population was 11 million and today it is 10.5 million. “It is impossible with such a demographic profile for economic development to fare well. When the economy is doing fine, people are attracted to it. When things don’t go well, they choose to live elsewhere. And when there is not enough population, it is difficult for the economy to do well,” he added.
At the same time, he pointed out that “the reform of the economy in the sense of opening markets and modernizing the public sector are two things that Europe absolutely needs,” adding that energy, biotechnology and digitization are the three sectors that can help the continent reach peak productivity within two or three years.
As far as inflation is concerned, Vettas estimated that in Europe as well as in other economies internationally, a new normal closer to 3% levels than 2% will stabilize. This has nothing to do with monetary forces, but with the supply front, he argued.
As he explained, the need for a green transition means that prices will not be lower in the coming years, but higher. “The green transition is necessary, but in the short term it is also very expensive, as the costs and financing needs are huge,” he pointed out.
After the multiple crises of the last 15 years, the global economy has proven to be quite resilient, noted the General Director of IOBE. At the same time, however, developments and risks such as Covid and geopolitics increase the cost of production and this is one of the reasons why inflation will not decrease soon, he warned.
Risks
Speaking in a forum panel, business leaders active in Cyprus and Greece explained how they manage these risks and the danger that arises in the economy. Vasilios Hatzikos, CEO of Siemens in Greece, explained how data analysis is a very important tool in evaluating the company’s progress and identifying financial risks. As far as business risk is concerned, its identification is closely linked to the new technologies entering the market, as he pointed out, since the way it was handled 10-15 years ago has changed dramatically, while with the introduction of artificial intelligence increases the business risk.
Speaking about risk-taking in entrepreneurship, Timur Turlov, CEO of Nasdaq-listed Freedom Holding – whose stock is at an all-time high having risen more than 640% in five years – commented that it is very beneficial almost any time uncertainty is very high.
“Very few people are prepared to take a risk, and if someone is brave enough to put in the effort, talent and resources to finance a business move, it will be much more rewarding than if they didn’t take that risk,” he stressed. “They much prefer to be in a comfort zone. I prefer to take the risk more often,” Turlov added.
