Geoeconomics

Defense spending above the NATO target of 2 percent of gross domestic product would be necessary for Europe to be able to defend itself without the protective umbrella of the United States. This is the conclusion of the new EconPol Policy Brief. European countries would have to significantly increase their efforts to catch up with an adequate defense capability, as defense budgets and military investments have been too low for years. Europe must compensate for higher real military costs than, for example, in Russia or China.

How do German firms view the upcoming US election and a possible second Donald Trump presidency? As part of the ifo Business Survey in September 2024, more than 2,000 German manufacturing firms were asked about the US election. 44 percent of German manufacturing firms anticipate negative impacts on their business situation if Donald Trump wins the election, compared to a potential Kamala Harris presidency.

On November 5 of this year, American voters will have a choice between former Republican President Donald Trump and Vice President Kamala Harris, who was named the Democratic nominee after President Joe Biden’s decision not to run for the presidency again. A record number of countries are holding elections this year, but this US presidential election is likely to be one of the most important due to the country’s influence on the global stage. Although the world is currently suffering from wars, rising tensions between major powers, and other geopolitical risks, most of these have not radically affected the outlook for economies and markets in the short term. However, many fear that this could change if the US returns to an aggressive “America First” stance. On the other hand, Harris is seen as the candidate of political continuity who will maintain many of Biden’s economic and foreign policy measures.

This report highlights the effects of international sanctions on Russia's economic performance up to mid-2024. Despite monetary tightening, Russia's early 2024 economic growth remained strong due to a tight labor market and continued credit expansion. The fiscal outlook has improved with more positive short- and medium-term projections despite increased military and social spending. The trade surplus remained almost unchanged, masking declines in both exports and imports. 

Rising protectionism and geoeconomic tensions pose a major challenge, especially for the EU. In many cases, however, the key to strengthening economic security lies in deepening international trade relations, not in protecting domestic production. This policy brief presents four propositions on the future direction of the EU’s foreign economic policy.