Evelyn Reynolds

The Fed gets its last look this week before its policy meeting next week at inflation readings that will help determine the size of widely anticipated interest rate cuts.
Friday’s jobs report provided little clarity on the issue, so it will be left to the consumer and producer price index readings to help resolve the matter.
The focus for Fed officials has shifted, from a laser view on taming inflation to mushrooming fears over the state of the labor market.

People shop at a store in Brooklyn on August 14, 2024 in New York City. 
Spencer Platt | Getty Images

The Federal Reserve gets its last look this week at inflation readings before it will determine the size of a widely expected interest rate cut soon.
On Wednesday, the Labor Department’s Bureau of Labor Statistics will release its consumer price index report for August. A day later, the BLS issues its producer price index report, also for August, a measure used as a proxy for costs at the wholesale level.

With the issue virtually settled over whether the Fed is going to cut rates when it wraps up the next policy meeting Sept. 18, the only question is by how much. Friday’s jobs report provided little clarity on the issue, so it will be left to the CPI and PPI readings hopefully to clear things up.
“Inflation data has taken a backseat to labor market data in terms of influence on Fed policy,” Citigroup economist Veronica Clark said in a note. “But with markets — and likely Fed officials themselves – split on the appropriate size of the first rate cut on September 18, August CPI data could remain an important factor in the upcoming decision.”
The Dow Jones consensus forecast is for a 0.2% increase in the CPI, both for the all-items measure and the core that excludes volatile food and energy items. On an annual basis, that is expected to translate into respective inflation rates of 2.6% and 3.2%. PPI also is projected to increase 0.2% on both headline and core. Fed officials generally put more emphasis on core as a better indicator of longer-run trends.

At least for CPI, the readings are not particularly close to the Fed 2% long-run target. But there are a few important caveats to remember.
First, while the Fed pays attention to the CPI, it is not its principal yardstick for inflation. That would be the Commerce Department’s personal consumption expenditures price index, which most recently pegged headline inflation at 2.5% in July.

Second, policymakers are as concerned about the direction of movement almost as much as the absolute value, and the trend for the past several months has been a decided moderation in inflation. On headline prices in particular, the August 12-month CPI forecast would represent a 0.3 percentage point decline from July.
Finally, the focus for Fed officials has shifted, from a laser view on taming inflation to mushrooming fears over the state of the labor market. Hiring has slowed considerably since April, with the average monthly gain in nonfarm payrolls down to 135,000 from 255,000 in the prior five months, and job openings have declined.

A baby step to start

As the focus on labor has intensified, so has the expectation for the Fed to start rolling back rates. The benchmark fed funds rate currently stands at 5.25% to 5.50%.
“The August CPI report should show more progress in getting the inflation rate back down to the Fed’s 2.0 percent target,” wrote Dean Baker, co-founder of the Center for Economic and Policy Research. “Barring some extraordinary surprises, there should be nothing in this report that would deter the Fed from making a rate cut and quite possibly a large one.”
Markets, however, seem to have made their peace with the Fed starting out slowly.

Futures market pricing on Tuesday indicated 71% odds that the rate-setting Federal Open Market Committee will kick off the easing campaign with a quarter percentage point reduction, and just a 29% chance of a more aggressive half-point cut, according to the CME Group’s FedWatch.
Some economists, though, think that could be a mistake.
Citing the general pullback in hiring coupled with substantial downward revisions of previous months’ jobs counts, Samuel Tombs, Pantheon Macroeconomics’ chief U.S. economist, thinks the “summer slowdown probably will look even sharper in a few months’ time,” and the downtrend in hiring “has much further to run.”
“We’re therefore disappointed — but not surprised — that FOMC members who spoke after the jobs report, but before the pre-meeting blackout, are still leaning towards a 25 [basis point] easing this month,” Tombs said in a note Monday. “But by the meeting in November, with two more employment reports in hand, the case for rapid rate cuts will be overwhelming.”
Indeed, market pricing, while indicating a tepid start to cuts in September, projects a half-point reduction in November and possibly another in December.

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Economists and analysts are dubious of Trump’s promises to slash gas prices or prod interest rates lower.As he seeks to return to the White House, former President Donald J. Trump has pledged to cut Americans’ energy costs in half in the span of a year, part of a plan to reduce inflation and drive mortgage rates back toward record lows.But economists and analysts — and Mr. Trump’s own record from his first term — suggest that it is unlikely that Mr. Trump can deliver on those promises.Mr. Trump’s vow to dramatically reduce Americans’ cost of living hinges in part on his plans to quickly expand oil and gas drilling and reduce government impediments to power plant construction, which he says would slash energy bills by “more than half.” As prices fall, he regularly states, interest rates will come down, along with mortgage rates.But Mr. Trump has not cited modeling or other economic analysis to support his assertions. Economic research and historical experience suggest that presidents have only a limited effect on locally regulated electric utilities or on the cost of oil, which is a globally traded commodity.“He doesn’t really have the tools to lower oil prices enough to cut gasoline prices in half,” said Steven Kamin, a senior fellow at the conservative American Enterprise Institute and former Federal Reserve economist.In all, experts and past evidence suggest that Mr. Trump is over-promising on key economic issues related to prices and interest rates. And that fits with a pattern he established during his earlier campaigns — one in which he emphasizes big, catchy outcomes with little attention to costs or how he might make good on his pledges.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

JPMorgan Chase CEO Jamie Dimon said Tuesday he wouldn’t rule out stagflation.
Dimon’s comments come at a time when investors are turning their attention to signs of slowing growth as inflation has shown signs of cooling.
He said he worries that a raft of inflationary forces on the horizon, such as higher deficits and increased infrastructure spending, will continue to add pressure to an economy still reeling from the impact of higher interest rates.

Jamie Dimon, Chairman and Chief Executive officer (CEO) of JPMorgan Chase & Co. (JPM) speaks to the Economic Club of New York in Manhattan in New York City, U.S., April 23, 2024. 
Mike Segar | Reuters

JPMorgan Chase CEO Jamie Dimon said Tuesday he wouldn’t rule out stagflation, even with greater confidence recently that inflation is coming off its highs.
“I would say the worst outcome is stagflation — recession, higher inflation,” Dimon said at a fall conference from the Council of Institutional Investors in Brooklyn, New York. “And by the way, I wouldn’t take it off the table.”

The chief executive of the largest U.S. bank makes his comments at a time when investors are turning their attention to signs of slowing growth. Recent readings showed pricing pressures increasingly on their way to the Federal Reserve’s 2% inflation target, but reports on employment and manufacturing have revealed some signs of softening.
Investors will get some additional key data this week, with the consumer price index and producer price index coming Wednesday and Thursday, respectively.
But Dimon worries that a raft of inflationary forces on the horizon, such as higher deficits and increased infrastructure spending, will continue to add pressure to an economy still reeling from the impact of higher interest rates.
“They’re all inflationary, basically in the short run, the next couple of years,” Dimon said. “So, it’s hard to look at [it] and say, ‘Well, no, we’re out of the woods.’ I don’t think so.”
The bank leader has previously warned of an economic slowdown. In August, he said the odds of a “soft landing” were around 35% to 40%, implying a recession is the more likely outcome.

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The former president has proposed using tariffs to fund child care, boost manufacturing, quell immigration and encourage use of the dollar. Economists are skeptical.It has been more than five years since former President Donald J. Trump called himself a “Tariff Man,” but since then, his enthusiasm for tariffs seems only to have grown.Mr. Trump has long maintained that imposing tariffs on foreign products can protect American factories, narrow the gap between what the United States exports and what it imports, and bring uncooperative foreign governments to heel. While in office, Mr. Trump used the threat of tariffs to try to convince Mexico to stop the flow of undocumented immigrants across the U.S. border, and to sway China to enter into a trade deal with the United States.But in recent weeks, Mr. Trump has made even more expansive claims about the power of tariffs, including that they will help pay for child care, combat inflation, finance a U.S. sovereign wealth fund and help preserve the dollar’s pre-eminent role in the global economy.Economists have been skeptical of many of these assertions. While tariffs generate some level of revenue, in many cases they could create only a small amount of the funding needed to pursue some of the goals that Mr. Trump has outlined. In other cases, they say, tariffs could actually backfire on the U.S. economy, by inviting retaliation from foreign governments and raising costs for consumers.“Trump seems drawn to trade tariffs as a bargaining tool with other countries because tariffs have powerful domestic political symbolism, are much easier to turn on and off than financial sanctions and can be tweaked with shifting circumstances,” said Eswar Prasad, a trade economist at Cornell University.“The irony is that using tariffs to punish countries that use unfair trade practices or are trying to reduce their dependence on the dollar is likely to end up hurting the U.S. economy and consumers,” he said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Turkey, an important geopolitical player and member of NATO, has made increasing strides in its influence and leverage on the global stage.
BRICS is seen by some as a symbolic counterweight to Western-led organizations like the EU, the G7 and even NATO, although it lacks formal structure, enforcement mechanisms, and uniform rules and standards. 
Despite its decades of being aligned with Europe and the U.S., Turkey has faced consistent rejection from joining the EU, which has long been a sore spot for Ankara.

Turkish Foreign Minister Hakan Fidan attends the BRICS+ session on a two-day BRICS foreign ministers summit held in Nizhny Novgorod, Russia on June 11, 2024.
Sefa Karacan | Anadolu | Getty Images

Turkey’s request to join the BRICS alliance is a move seen as both strategic and symbolic as the Eurasian country of 85 million makes increasing strides in its influence and leverage on the global stage.
“Our president has already expressed multiple times that we wish to become a member of BRICS,” a spokesperson for Turkey’s leading AK Party told journalists earlier in September. “Our request in this matter is clear, and the process is proceeding within this framework.”

BRICS, which stands for Brazil, Russia, India, China and South Africa, is a group of emerging market countries that seek to deepen their economic ties. This year, it gained four new members: Iran, Egypt, Ethiopia, and the UAE. 
It’s also seen as a counterweight to Western-led organizations like the EU, the G7 and even NATO, although it lacks formal structure, enforcement mechanisms, and uniform rules and standards. 

For Turkey, a longtime Western ally and NATO member since 1952, the move to join BRICS is “in line with its broader geopolitical journey: positioning itself as an independent actor in a multi-polar world and even becoming a pole of power in its own right,” George Dyson, a senior analyst at Control Risks, told CNBC.
“This is not to say that Turkey is turning away from the West entirely,” Dyson added, “but Turkey wants to foster as many trading ties as possible and pursue opportunities unilaterally without being constrained by Western alignment. It is definitely symbolic in that Turkey is demonstrating exactly this — that it is not constrained by its good ties with the West.”

Diversifying alliances

Despite decades of being aligned with Europe and the U.S., Turkey has faced consistent rejection from joining the EU, which has long been a sore spot for Ankara.

Ambassador Matthew Bryza, a former White House and Senior State Department official currently based in Istanbul, said that Turkish President Recep Tayyip Erdogan and his government “seem to be motivated mostly by two factors: A strategic tradition of securing national interests… and a desire to spook the West a bit, both out of emotional spite and as a negotiating tactic to extract concessions.”
CNBC has contacted the Turkish presidency’s office for comment.
Turkey has in the last few years expanded its role in global diplomacy, brokering prisoner swap deals and leading other negotiations between Ukraine and Russia, for instance, while also mending previously strained relations with regional powers like Saudi Arabia, the United Arab Emirates and most recently, Egypt.

Russian President Vladimir Putin shakes hands with Turkish President Recep Tayyip Erdogan during their joint press conference on September 4, 2023, in Sochi, Russia.
Getty Images News | Getty Images

Ankara also refuses to partake in sanctions against Russia — a stance that irks its Western allies but helps it maintain an independent position as a so-called “middle power,” which it sees as beneficial to its relationships with China and the Global South.
To that end, “any new BRICS member is obviously eager to take advantage of stronger ‘togetherness’ of emerging economies in order to reduce dependency on developed economies, mainly the United States,” said Arda Tunca, an independent economist and consultant based in Turkey.

Standing up to the West?

Tunca noted, however, that Turkey’s unique position in the world is a “delicate discussion point” as the country has “serious political problems with the EU and the United States” despite its western alliances.
Turkey’s governing party, which has run the country for 22 years, is “ideologically closer to the East than the West,” Tunca said. “Turkey wanted to hop on the BRICS train before it was late. It is too early to mention that the BRICS can become an alternative to the West, but the intention is clearly to stand up against the West under the leadership of China.”
Importantly, being part of BRICS allows its members to trade in currencies other than dollars. This aims to reduce dependency on the U.S.-led system and usher in a more multi-polar world. The fact that it’s led by China makes some in the West wary, who see this as a potential win for Beijing. 

Turkish President Recep Tayyip Erdogan (not seen) is welcomed by Chinese President Xi Jinping as part of the 11th G20 Leaders’ Summit in Hangzhou, China, on September 3, 2016.
Mehmet Ali Ozcan | Anadolu Agency | Getty Images

“I don’t think there is any enforcement of their [BRICS’] decisions, it’s more of a geopolitical thing, sort of a symbolic counter to the G7,” Dyson said. He also noted: “It’s interesting that Iran and UAE are both in it. It’s a bit like the anti-West team.” 
Erdogan has spoken of his desire to join BRICS since at least 2018, but the issue was never formalized. In June, Turkish Foreign Minister Hakan Fidan visited both China and Russia, the latter for a BRICS+ summit, during which Russian President Vladimir Putin said he “welcomed” Turkey’s interest in joining the bloc.
At the time, the then-U.S. ambassador to Turkey, Jeff Flake, said in an interview that he hoped Turkey wouldn’t join the group, but added that he did not think it would negatively impact Turkey’s alignment with the West. More

The European Union requires radical reforms through a new industrial strategy to ensure its competitiveness, to boost social equality and to meet climate targets, according to a keenly awaited report from economist and politician Mario Draghi.
The proposals laid out in the report would require between 750 billion and 800 billion euros in additional investment each year, the European Commission estimates.
Other areas of concern include supply chain security and defense spending, the report states.

Italian Prime Minister Mario Draghi during the press conference at the Multifunctional Hall of the Prime Minister on July 12, 2022 in Rome, Italy.
Massimo Di Vita | Mondadori Portfolio | Getty Images

The European Union needs up to 800 billion euros ($884 billion) in additional investment per year to meet its key competitiveness and climate targets, according to a report from economist and politician Mario Draghi.
The bloc’s goals of bolstering its geopolitical relevance, social equality and decarbonization are being threatened by weak economic growth and productivity compared with the U.S. and China, the report states.

The wide-ranging study led by Draghi — who previously served as prime minister of Italy and president of the European Central Bank during the euro zone debt crisis — found EU priorities must include reducing energy prices, strengthening competitiveness, coordinating industrial policy and raising defense investment.
The EU must also adapt to a world where “dependencies are becoming vulnerabilities and it can no longer rely on others for its security,” the report found, citing the EU’s dependence on China for critical minerals, and China’s reliance on the EU for absorbing its industrial overcapacity.
The EU’s high level of trade openness will leave it exposed if trends toward supply chain autonomy accelerate, the report continues. Roughly 40% of Europe’s imports come from a small number of suppliers which are difficult to replace, and around half of this volume originates from countries with which the bloc is not “strategically aligned,” it says.
“The EU will need to develop a genuine “foreign economic policy” that coordinates preferential trade agreements and direct investment with resource-rich nations, the building up of stockpiles in selected critical areas, and the creation of industrial partnerships to secure the supply chain of key technologies,” the report states.

The EU will need to ensure dependencies do not increase and look to “harness the potential of domestic resources through mining, recycling and innovation in alternative materials.”

Other goals include full implementation of the single market, which includes 440 million consumers and 23 million companies, by reducing trade friction.
The bloc must also seek to ensure its competition policy does not become a “barrier to Europe’s goals,” particularly in the technology sector.
The European coalition must also facilitate “massive investment needs unseen for half a century in Europe,” through a mix of private finance and public support. The EU is meanwhile suffering an “innovation deficit” which must be tackled through reforms to research and development funding and policy, the report states.
Across many sectors, the report calls for greater harmonization of policy and focusing of funding. In clean technology development, for example, it found financial support was fractured among different programs, while manufacturers were struggling to compete globally, given Chinese subsidies and the huge domestic support provided by the U.S. Inflation Reduction Act.

On steps to mobilize private finance, the report recommends transitioning the European Securities and Markets Authority (ESMA) from a co-ordinator of national regulators into a single regulator for all EU securities markets able to focus on overarching goals, similar to the U.S. Securities and Exchange Commission (SEC).
To fast-track policymaking, the report proposes limiting the voting items that require support from an absolute majority of member states.

Funding question

Public and private investments are being hindered by the size of the EU budget, its lack of focus and its risk aversion, the Draghi report says. It adds that looming repayments of the huge debt-financed NextGenerationEU Covid-19 recovery program starting in 2028 mean that the EU’s effective spending power will be reduced without a decision on sourcing new resources.
Certain areas of spending proposals, including defense projects and cross-border grids, will require “common funding,” it continues, adding that the EU should move toward “regular issuance of common safe assets to enable joint investment projects among Member States and to help integrate capital markets.”
Germany, traditionally resistant to moves toward additional common borrowing, responded to the proposals on Monday.

“The communalization of risks and liability creates democratic and fiscal issues. Germany will not agree to that,” Finance Minister Christian Lindner said, according to a CNBC translation of a Reuters report.
The EU’s total investment-to-GDP rate will have to rise by around 5 percentage points of EU GDP per year to levels last seen in the 1960s and 70s to meet defense, digitalization and decarbonization targets, according to the study.
Overall, the objectives set out would require a minimum annual additional investment of 750 to 800 billion euros, according to European Commission estimates.
The report was commissioned last year by European Commission President Ursula von der Leyen, who was elected for a second five-year term in July and is set to appoint new Commissioners this week.
Some analysts were quick to pour cold water on the scale of the resulting reform.
The findings “will trigger a crucial debate for the future of the EU/Eurozone, but there is no need to hold your breath,” Lorenzo Codogno, founder of Lorenzo Codogno Macro Advisors, said in comments emailed ahead of the report’s release.
“Nothing will happen until the new Commission becomes fully operational, and even after that, the tricky, fragmented and fragile political situation across member states makes it challenging to obtain the political support necessary for action. Still, some surprises cannot be ruled out, and thus, the political debate that will follow needs to be monitored carefully,” he said.
David Roche, founder of Independent Strategy, said the report would not result in an immediate market impact.
“The gap between US and EU productivity could be bridged by [Draghi’s] proposals to integrate nationally based supply side sectors and markets and boosting public and private investment massively. But it won’t happen,” Roche said in a note Monday, describing Europe as “paralysed by populism and incompetence at the national level.”
– CNBC’s Sophie Kiderlin contributed reporting. More

Saudi Minister of Investment Khalid al-Falih pushed back against skepticism over the country’s economic diversification plan.
Al-Falih said that part of Riyadh’s offering to foreign investors is the Saudi-coined initiative of “green shoring,” which seeks to decarbonize supply chains in areas with renewable energy resources.
“Green shoring is basically saying you need to do more of the high energy processing [and] manufacturing value add in areas where the materials, as well as the energy, are [located],” al-Falih said.

Khalid Al-Falih, Saudi Arabia’s investment minister, during the Bloomberg New Economy Forum in Singapore, on Wednesday, Nov. 8, 2023. 
Bloomberg | Bloomberg | Getty Images

Saudi Minister of Investment Khalid al-Falih pushed back against skepticism over the country’s economic diversification plan, as Riyadh touts “green shoring” investment opportunities to woo foreign financing.
“There was many people who doubted the vision, the ambition, how broad and deep and comprehensive it is, and whether the development of a country like KSA who is so dependent for so many decades on a commodity business like oil would be able to do what we are aspiring to do with Vision 2030,” al-Falih told CNBC’s Steve Sedgwick on Saturday at the Ambrosetti Forum in Cernobbio, Italy.

One of the largest economies in the Middle East and a key U.S. ally in the region, Saudi Arabia has been shoring up investments in a bid to materialize Crown Prince Mohammed bin Salman’s Vision 2030 economic diversification program, which spans 14 giga-projects, including the Neom industrial complex.
Under this initiative, Riyadh seeks to pivot away from its historical dependence on oil revenues — which the International Monetary Fund now sees rising until 2026, before starting to descend — and hopes to draw financial flows in the domestic economy exceeding $3 trillion, as well as push foreign domestic investment to $100 billion a year by 2030.
The Saudi minister on Saturday said that, eight years into manifesting Vision 2030, the kingdom is now “more committed, more determined” to the program and has already implemented or is about to complete 87% of its targets. Critics of the plan have previously questioned whether Riyadh will successfully deliver on its goals by its stated deadline.
In recent years, the kingdom has been attempting to liberalize its market and improve its business environment with reforms to its investment and labor laws — but has also formulated less popular requirements for companies to set up their regional headquarters in Saudi Arabia to access government contracts.
The number of foreign investment licenses issued in Saudi Arabia nearly doubled in 2023, the IMF noted, with government data pointing to a 5.6% annual increase in net flows of foreign direct investment in the first quarter.

Concerns have nevertheless lingered over the potential uncertainty and unpredictability of the kingdom’s legal framework and its dispute resolution system for foreign investment. Al-Falih insisted that Saudi Arabia boasts predictability, as well as domestic political and economic stability.

‘Green shoring’

The Saudi investment minister said that part of Riyadh’s offering to foreign investors is the Saudi-coined initiative of “green shoring,” which seeks to decarbonize supply chains in areas with renewable energy resources.
“Green shoring is basically saying you need to do more of the high energy processing [and] manufacturing value add in areas where the materials, as well as the energy, are [located],” al-Falih said, adding that Saudi Arabia has the logistics, capital and infrastructure to achieve this.
Under Vision 2030, the world’s largest oil exporter aims to achieve net-zero emissions by 2060. Along with its neighbor, the United Arab Emirates — which hosted the 2023 gathering of the annual U.N. Conference of the Parties — Riyadh has been a high-profile presence at climate summits, but has still drawn questions over its commitment to decarbonization.
Riyadh — along with other members of the Organization of the Petroleum Exporting Countries oil alliance — has repeatedly called for the simultaneous use of hydrocarbons and green resources in order to avoid energy shortages throughout the global transition to net-zero emissions.
Some climate activists have also criticized Saudi Arabia’s promotion of solutions like carbon capture and storage (CCS) technologies as a smokescreen to push ahead with its lucrative oil business.
As part of “green shoring,” Saudi Arabia sets out to “address global supply chain resilience issues” and “build a new global economy that is certainly moving more electric, as we bring the copper, as we bring the lithium, the cobalt, the other critical materials, rare earth metals, as we address semiconductor shortages, green fertilizers, green chemicals,” al-Falih stressed. More

After surviving the “terrible prophecies,” Europe’s economy must face the challenges of the war in Ukraine and navigating trade ties with China, EU’s Paolo Gentiloni says.
The EU’s economy underwent “overall a weak growth, but nothing of the terrible prophecies that we heard in the last two or three years: recessions, blackouts, divergence, divisions in Europe in front of Russia’s invasion,” Gentiloni said in an interview with CNBC’s Steve Sedgwick at the Ambrosetti Forum.
The European Union must “support Ukraine, keep the doors of international trade open, which is not accepting China’s position, of course, we abandon our ingenuity in the trade relation with China,” he noted.

The European Union has successfully avoided the “terrible prophecies” that threatened its economy in recent years, but must still contend with Russia’s war in Ukraine and a tenuous trade relationship with China, outgoing European Commissioner for Economy Paolo Gentiloni said Saturday.
The bloc’s economy underwent “overall a weak growth, but nothing of the terrible prophecies that we heard in the last two or three years: recessions, blackouts, divergence, divisions in Europe in front of Russia’s invasion,” Gentiloni said in an interview with CNBC’s Steve Sedgwick at the Ambrosetti Forum at Cernobbio, on the shores of Italy’s Lake Como.

A former prime minister of Italy, Gentiloni has served as the European Commissioner for Economy under EC President Ursula von der Leyen since December 2019. The European Commission is responsible for the 20-nation euro zone’s economic strategy and legislation — such as tariffs — while the European Central Bank oversees the region’s monetary policy and interest rate decisions.
Gentiloni will not be returning for a second term as commissioner following Von der Leyen’s tumultuous re-election as president — but he has laid out the economic picture that awaits his imminent successor.
“The economy is growing, slowly, but growing. And the risks of differences among the European Union, that was very high when the pandemic happened, are very limited,” he noted. “The bad part of the story is that if we don’t raise out capacity in terms of competitiveness, if we don’t make enormous progress in what we call the capital markets union, and if we don’t address the challenge of defense … if we don’t do that, well, the new situation of the world will appear very difficult for Europeans.”
Resurging from the Covid-19 pandemic, Europe has been battling a cost-of-living crisis and high-inflation environment exacerbated by Russia’s February 2022 invasion of Ukraine and energy supply tightness following sanctions against Moscow. The euro zone’s economy has expanded in the first half of this year, with flash figures showing better-than-expected gross domestic product growth of 0.3% in the three months to the end of June, compared with the previous quarter.
In its spring forecasts, the European Commission projected the EU’s GDP will swell by 1% in 2024 and by 0.8% in the euro area, with respective growth of 1.6% and 1.4% in the two regions in 2024. At the time, the Commission flagged growth on the back of accelerated private consumption, declining inflation and a strong labor market, but also broader geopolitical risks amid ongoing conflicts in Ukraine and the Middle East.

Amid a drop in inflation, the ECB in June took the first step to ease monetary policy since 2019, trimming the central bank’s key rate to 3.75%, down from a record 4% where it has been since September 2023. As of Friday, markets had fully priced in another ECB rate cut in its forthcoming meeting of Sept. 12.  

The Chinese relationship

Looking ahead, Europe must now weather the dual storm of close-call elections in key trade partner the U.S. in November, and frictions in its trade relationship China. The EU has come into Beijing’s crosshairs following the bloc’s June decision to impose higher tariffs on Chinese electric vehicle imports that were found benefit “heavily from unfair subsidies” and pose a “threat of economic injury” to EV producers in Europe.
Gentiloni on Saturday stressed that trade diplomacy with China and the war in Ukraine must top the agenda of challenges facing a new Commission — and that they are more pressing concerns than the advent of a potential second U.S. administration under former President Donald Trump.
The European Union must “support Ukraine, keep the doors of international trade open” but also “abandon our ingenuity in the trade relation with China. But this does not mean that we can accept the idea that international trade and international trade rules [are] over,” Gentiloni noted.
He downplayed the economic impact of a Trump victory in November, adding, “I think that a change in the U.S. administration, meaning Trump winning the election, of course it will not be welcome in Brussels, but I don’t think that the change would be enormous in terms of economic relations.”

Winds of change

Gentiloni has yet to announce his next steps after departing from the Commission, at a time when Europe and its legislative body face a rising wave of far-right support.
“You should never organize your next role when you are having a role. But of course I will give my contribution to European affairs and maybe also to Italian politics and Italian affairs,” he said Saturday.
The leftist politician was unlikely to garner the support of Italian Prime Minister Giorgia Meloni, who has nominated Minister for European Affairs Raffaele Fitto from the ranks of her right-wing Brothers of Italy party to join the new EU executive.

Far-right factions gained substantive ground in the latest European election, leading the right-wing prime minister of Hungary — which currently holds the presidency of the EU Council — Viktor Orbán to question whether a van der Leyen Commission is appropriate, given the political sentiment.
“The core of the difficulty is the following: the previous Commission proved to be very much unsuccessful, in terms of competitiveness, of European economy, migration, stopping the war. So generally speaking, it was an unsuccessful Commission,” the Hungarian leader told CNBC’s Sedgwick on Friday, noting that a decision was taken to “create the same Commission, basically.”
He added: “So I have [a] great belief that [people] can change and be able to deliver better performances than they have done previously. But [is is] difficult to think so. So I try to support the Commission as much as we can, but being a rational man, I think we neglected the desire of the voters for change, and the same establishment [is] still in position in Brussels, and it’s not good.”

— CNBC’s Katrina Bishop contributed to this report. More