China's Export Surge Threatens European Economic Stability

European economies face significant challenges as China's renewed push for an export-led recovery threatens to destabilize their economic stability. Goldman Sachs reports indicate that the euro area is particularly vulnerable, with a projected GDP decrease of approximately 0.5% by the end of 2029 due to increased Chinese competition.

Germany is expected to experience the most substantial impact, with a 0.9% reduction in real GDP over the next four years, while Italy, France, and Spain may see declines of 0.6% and 0.4%, respectively.

The report highlights that eurozone exports have lost up to four percentage points of market share to Chinese exporters in the past five years, with a notable substitution effect where every dollar increase in Chinese exports corresponds to a 20 to 30 cent decline in European exports.

Despite the EU's initiatives like the Critical Raw Materials Act and the AI Continent Action Plan, Goldman Sachs expresses skepticism regarding their effectiveness, noting Europe's reliance on China for essential inputs.

The bank warns that Europe's options are limited, and an overly aggressive stance against China could disrupt crucial supply chains. Furthermore, while the bloc's defense initiatives like the Readiness 2030 program have seen considerable funding, Europe still depends heavily on Chinese supplies of critical raw materials.

Goldman Sachs emphasizes that without a stronger and more unified industrial strategy, Europe risks losing its competitive edge in various sectors. The urgent questions posed include whether Europe can achieve the industrial sovereignty it seeks and how long it can depend on fiscal support to counter global economic challenges.