Eurozone to overtake US economy in 2022, 2023

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Tourists take photos of the Eiffel Tower.

Kiran Ridley | Getty Images News | Getty Images

The eurozone will grow faster than the US economy over the next two years, Goldman Sachs analysts predicted, mainly due to a difference in government policy.

The investment bank expects the 19-member euro area to grow at a rate of 4.4% this year, compared to a rate of 3.5% for the United States. In 2023, Goldman forecasts growth in the Eurozone of 2.5% and the United States of 2.2%.

Sven Jari Stehn, Goldman’s chief European economist, said that while the situation in Europe is “difficult” in the short term, the region “has even more room to develop”.

Speaking to CNBC on Tuesday, he said there are two main factors supporting European growth.

“The blow is more manageable than last year,” he said, regarding the impact of recent Covid-19 restrictions on the euro area economy.

So far, European countries have not embarked on blanket foreclosure rules despite the new omicron variant discovered in late 2021. This has prevented any deeper economic shock in the first weeks of 2022.

In addition, European fiscal policy is expected to remain accommodative this year, unlike what some economists expect for the United States, Stehn said.

He added that the euro zone “stands out” in this area.

Eurozone governments are expected to invest significant sums of money in the years to come, after agreeing in 2020 to mine markets in search of 750 billion euros ($ 849 billion). Disbursements of these funds to a large number of EU countries began at the end of 2021 and will continue to flow through 2022, if key reforms are implemented.

However, across the Atlantic, one wonders if President Joe Biden’s “Build Back Better” will become a reality. The legislation could mean an investment of $ 1.8 trillion, but the differences between lawmakers pose a threat to the entire plan.

“After negotiations on the Build Back Better Act halted at the end of last year, the outlook for tax legislation is particularly blurry,” Goldman Sachs analysts said in a note Monday.

ECB also favorable

The best prospects for European growth are also supported by monetary policy.

The European Central Bank is expected to maintain some degree of monetary stimulus this year, although its pandemic-linked bond buying program is coming to an end.

“Growth really needs to slow in the United States to eventually bring inflation down to something like 2%,” Jan Hatzius, chief economist at Goldman Sachs, told CNBC’s Julianna Tatelbaum on Monday.

He added that “as inflation rose [in the euro zone], it has not increased as much as in the United States. ”As a result, European policymakers are“ more comfortable ”with continued monetary stimulus.

Inflation has risen sharply in recent months, both in the United States and in the euro area. US data released in December showed the cost of living to rise 6.8% in the 12 months to November, the biggest increase since June 1982. A new reading of US inflation is expected on Wednesday.

Meanwhile, the latest Eurozone figures showed inflation at a new high in December. Preliminary data showed headline inflation at 5% for the month.

With rising inflation, market participants are thinking about how companies will deal with the problem and its potential impact on their profits.

Speaking to CNBC on Tuesday, Sharon Bell, managing director of European equity strategy at Goldman Sachs, said the Euro Stoxx 600 is expected to generate lower returns than in 2021, but still “pretty good.”

“We actually have 6% profit growth for European companies, thus slightly exceeding that inflation figure,” she said.

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