Thanks to robust growth and its relative insulation from geopolitical crisis, the U.S. economy has left Europe behind
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Europe’s economy stagnated in the final three months of last year, expanding a divide between a booming U.S. economy and a European continent that is increasingly left behind.
The fresh economic data showed higher borrowing costs had compounded the earlier impact of higher energy prices in the wake of Russia’s invasion of Ukraine.
By contrast, the U.S. economy has been expanding robustly and enjoyed its strongest performance relative to the eurozone since 2013—with the exception of the Covid-19 pandemic.
One factor that is threatening to weigh further on the European economy is its proximity to geopolitical flashpoints. Russia’s war on Ukraine sent energy prices rocketing in 2022, hitting European manufacturers. The U.S., as an energy producer, was comparatively unaffected, and its natural-gas industry even benefited when it became Europe’s energy supplier of last resort after Russia throttled gas deliveries to the region.
Now the crisis in the Middle East, which has gummed up cargo traffic through the Red Sea, is adding costs to European importers and disrupting European supply chains. There too, the U.S. hasn’t suffered as much since it has alternative routes for goods coming from Asia.
Europe’s Stoxx 600 index rose 12.64% last year, a little over half the performance of the S&P 500, which rose 24.23% over the same period.
The European Union’s statistics agency Tuesday said gross domestic product in the eurozone was unchanged in the final three months of last year. That followed a decline in the three months through September. During 2023 as a whole, Eurostat recorded growth of just 0.5%, while the U.S. economy expanded by 2.5%.
Still, the divergence between the giant economic blocs is more a story of surprising U.S. strength than unanticipated weakness in the eurozone. The U.S. grew much faster than economists had expected it would at the start of 2023, while the eurozone was about as badly hit by high energy prices and rising interest rates as had been expected. Economists forecast the growth gap will narrow somewhat in the course of the year.
Europe’s policymakers don’t expect the stagnation in output to extend deep into 2024. Instead, they see a pickup in activity as wages rise faster than prices, reversing the declines in real incomes that followed the war in Ukraine and a rise in energy and food bills.
“We have the conditions for recovery that are coming into place,” said European Central Bank President Christine Lagarde Thursday. “I’m not suggesting that it’s going to pick up radically, but it’s coming into place from what we see.”
Helping Europe is the fact that energy prices are falling from post-invasion highs faster than policymakers had expected. That should help boost household spending on other goods and services and lower costs for Europe’s hard-pressed factories.
With inflation easing, the ECB is expected to lower its key interest rate later this year, which would also jolt growth by easing the pressure on household spending and business investment.
Yet the eurozone faces fresh threats too, mainly from the conflict that began with the attack on Israel by Hamas on Oct. 7. Disruptions to shipping in the Red Sea have pushed freight costs sharply higher and led to delays for European manufacturers that rely on Asian suppliers for parts. A further escalation of the conflict could reverse the decline in energy costs and stall the anticipated recovery.
The International Monetary Fund now expects the eurozone to grow by 0.9% this year, a downgrade from its previous 1.2% growth estimate, according to the Fund’s quarterly World Economic Outlook report published on Tuesday. By contrast, it sees the U.S. growing by 2.1% against its earlier 1.5% forecast.
Strong U.S. growth and an estimated 4.6% increase in China’s GDP according to the IMF should more than offset Europe’s disappointing performance and translate into a soft landing for the world economy this year. The IMF now sees the world economy growing at 3.1% this year, the same rate as last year and faster than the 2.9% growth projected in October.
“We find that the global economy continues to display remarkable resilience,” Pierre-Olivier Gourinchas, IMF Chief Economist, told reporters, pointing to the speed at which inflation had receded as a positive surprise.
He warned, however, that geopolitical distortions could reignite price increases. Core inflation—which excludes volatile energy and food prices—isn’t quite back to the prepandemic trend, particularly for services sector prices, he said.
IMF economists also cautioned that financial markets have been overly optimistic in anticipating early rate cuts by central banks. They project policy interest rates to remain at current levels for the U.S. Federal Reserve, the European Central Bank, and the Bank of England until the second half of 2024, before gradually declining as inflation moves closer to targets. Some investors and analysts expect a Federal Reserve rate cut in the first half of this year.
Back in Europe, Tuesday’s GDP data showed Germany was the weakest of Europe’s large economies at the end of last year, with output falling in the final quarter. However, revised figures showed it avoided a contraction in the three months through September.
“The economy remains stuck in the twilight zone between recession and stagnation,” said Carsten Brzeski, an economist at ING Bank.
While Italy’s economy expanded slightly, the French economy flatlined for the second straight quarter. Ireland, which had been a major source of growth for the eurozone over the previous decade, saw its GDP fall by 1.9% in 2023 as a pandemic-driven boom in its key pharmaceutical industry ended.
In a rare bright spot, Spain finished the year with another strong quarter and matched the U.S. growth rate over 2023 as a whole, thanks to a surge in international tourism as the last of the Covid-19 restrictions were lifted.
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AI doesn’t rebel—people design, deploy and profit from it. The real danger lies in allowing tech companies to escape accountability while shaping regulations that protect their dominance.
4 min
A wave of corporate warnings and technical disclosures has flooded the media, with headlines worrying over “swarms” of rogue artificial-intelligence agents launching “unprecedented” cyberattacks, outsmarting their makers, and inching toward a terrifying autonomy. The most revealing part of this narrative isn’t what the software did. It’s who is telling the story—and why. When corporate leaders publicly insist that the systems they financed, engineered and deployed are suddenly beyond their power to contain, skepticism isn’t only healthy; it is essential.
For years, Silicon Valley has drawn scrutiny from civil society and global regulators over tangible harms such as youth mental health deterioration and systematic privacy violations. Today, industry figures seem to be trying to change that public image. Loudly blowing the whistle on their own systems—just as two of the leading companies were preparing for massive initial public offerings—lets AI executives position themselves as a new generation of leaders who have come to terms with their societal responsibilities. They seem to want us to believe that they no longer want to “move fast and break things” but will instead stand as vigilant guardians between humanity and a technological apocalypse.
There is one glaring problem: Software doesn’t rebel. A mathematical model possesses neither intent, malice nor the will to defy its creators, let alone extinguish our species. AI is a human artifact, engineered for profit.
When an agentic model in an evaluation sandbox connects to an unauthorized server or executes an exploit, it hasn’t staged a coup. It has tried to meet the human-defined objectives set out before it through a path its designers failed to constrain. It’s the digital equivalent of the King Midas myth, in which the king’s ill-defined wish turns even his food and drink into gold.
That powerful experimental models were able to discover novel vulnerabilities and breach external systems isn’t a sign of a dangerous superintelligence but of human error or negligence. There is no sentient actor lurking in the weights to be reasoned with, feared or pacified. There are only human software engineers, product managers and corporate boards deciding which guardrails are worth the latency cost and which permissions can be skipped in the race to market.
Policymakers and voters need to resist AI exceptionalism. In any other discipline—from civil engineering to pharmaceuticals—courts and regulators treat a system failure as evidence of bad product design and inadequate safety testing. If an aircraft crashes, we focus on finding the engineering defect, correcting it, and enforcing established liability standards for the damage created.
By leaning on an anthropomorphic narrative, Silicon Valley attempts to repackage its specific human choices that led to experimental, powerful models behaving unexpectedly during tests as an existential peril. Elevating the issue to a cosmic scale leaves the public paralyzed and takes ordinary product accountability off the table.
In the cutthroat race for venture capital and market dominance, building guardrails slows down deployment. Grandstanding about uncontrollable power costs nothing and generates billions of dollars in free publicity, justifying stock prices, all while cultivating an aura of technological capability not only to build the frontier but also ultimately to rein it in.
Governments need to recognize regulatory capture when it stares them in the face. Tech leaders’ strategy looks transparent: Alarm Washington and Brussels into creating a regime in which only trillion-dollar incumbents with fully staffed compliance and safety departments can legally operate. By sitting at the policymakers’ tables before anyone else, these companies can help draft rules digging an impassable moat protecting them from open-source developers and upstart competitors, domestic or international. The real danger is in further concentrating the tech industry into the hands of only a few companies with deep pockets.
Beijing and Washington have brushed off those tech leaders’ calls, albeit for very different reasons. Chinese state media dismissed them as part of the “Cold War playbook” and intended to preserve U.S. dominance. Xi Jinping argued for exactly the opposite at the Brics Summit on Sept. 12, calling on Brics countries to “strengthen cooperation in the field of AI, encourage open source, openness, collaboration and sharing, and break new grounds and scale new heights.” President Trump, steeped in a doctrine of unfettered capitalism and technological supremacy, called fears that AI could destroy humanity a “hoax.” Vice President JD Vance warned that AI companies “begging the government to regulate them” looked like a “Trojan Horse.”
Striving to pursue its “European way” on AI and assert regulatory leadership, Europe, by contrast, welcomed the call. European Union President Ursula von der Leyen made this clear at the State of the EU speech last Wednesday and announced that the EU will invite “the main frontier labs for a discussion on how we can support ongoing industry efforts to pace the frontier.”
Europe has been here before. In an effort to lead global regulation and react to fears borne from ChatGPT, Europe rushed its landmark AI Act into law in 2024. Already the world’s most restrictive rulebook, the framework quickly proved too broad and complex to enforce. Stalled by implementation delays and concerns about European competitiveness, the EU postponed the law’s full rollout, leaving regulations uncertain.
AI should be regulated—risks exist and should be taken seriously. But governments need to act based on available evidence and verified facts, not corporate PR panic, the views of industry insiders, or the desire for quick political wins. The greatest danger facing society isn’t that software will awaken and overthrow its human masters. It is that we will allow the creators of the software to abdicate human responsibility for the systems they choose to build and help them pull up the ladder to market access behind them.
