- An ambition to put the EU back on track, without new ideas. The Commission’s new "Competitiveness Compass" focuses on boosting investments, simplifying regulatory burdens and addressing structural challenges, particularly the ongoing energy crisis. But financial details remain vague. One concrete target is a 25% cut in annual reporting costs (EUR37.5bn), a modest +0.5pp of additional margin for companies. Another is to mobilize up to EUR470bn in additional financing by finally completing the Capital Markets Union, though this falls short of the EUR800bn annual investment gap identified in the Draghi report. The plan also promises a new Clean Industrial Deal, supporting energy-intensive industries and strategic sectors such as AI, space and clean tech. While a new EUR500bn European Competitiveness Fund is expected by year-end, its impact will depend on strong public guarantees or Eurobonds to scale up funding. Turning plans into action will require overcoming deep political resistance and execution challenges, as seen with the NGEU funds, of which 60% remains to be disbursed.
- Eurozone: back to stagnation. Zero quarterly growth in Q4 brings annual growth in 2024 to +0.7%, slightly below expectations. Germany (-0.2% q/q) and France (-0.1%) contracted due to weak exports and base effects from the Olympics, respectively. Italy flat-lined while Spain (+0.8%) and Portugal (+1.5%) powered on. The still weak growth picture combined with lackluster survey data in early 2025 adds fears of a delayed recovery, and potentially a prolonged recession in Germany. However, consumer spending picked up, with disinflation supporting purchasing power. This should remain a driver of growth and investment will start to benefit from lower financing costs. Overall, we expect Eurozone GDP to rise by +1.2% in 2025 but downside risks are looming amid potential trade disputes with the US and lingering political uncertainty in France. According to national data available, Eurozone inflation (to be released on Monday) is expected to have inched down from 2.4% y/y to 2.3% in January.
- DeepSeek’s AI breakthrough: Sputnik moment or Potemkin village? DeepSeek’s low-cost and open-source R1 model sent huge shockwaves through global tech and stock markets this week, challenging US dominance in the field including trade choices, as well as AI firms’ business models and valuations. Its success paves the way for higher AI adoption as costs go down, which could push up productivity by an average of +16% for telecom, business services, publishing and financial services, 5x times higher than in a low-adoption scenario. Demand for chips and AI-related hardware and services should continue to grow but the sector could face a rebalancing in terms of product mix. As a result, investor scrutiny will increase, and equity investors should brace for more episodes of volatility.
What to watch
The EU Competitiveness Compass, Eurozone back to stagnation and DeepSeek’s AI breakthrough
What to watch - summary
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Authors
Ludovic Subran
Allianz SE
Allianz SE
Jasmin Gröschl
Allianz SE
Allianz SE
Guillaume Dejean
Allianz Trade
Allianz Trade
Ana Boata
Allianz Trade
Allianz Trade
Björn Griesbach
Allianz SE
Allianz SE
Maxime Darmet
Allianz Trade
Allianz Trade
Jordi Basco Carrera
Allianz SE
Allianz SE
Maddalena Martini
Allianz SE Branch Rome
Allianz SE Branch Rome
Ano Kuhanathan
Allianz Trade
Allianz Trade