Weekly Recap, Week 38

Europe’s Week in Review: A Wobbly Waltz of Growth, Sanctions, and Subtle Optimism

Europe is showing signs of life. The EU economy remains on a moderate growth path, with expansion in GDP, employment holding up, inflation relatively stable, and unemployment staying low. But sentiment is muddy—job vacancies are falling and confidence is weakening, which suggests that the good vibes might not last.

Spain, in particular, is doing a little shimmy upwards. Its government has bumped its 2025 GDP growth forecast from 2.6% to 2.7%, citing buoyant consumer spending and strong investment. The country is now seen as possibly the fastest-growing among advanced eurozone economies in 2025.

The Draghi wake-up call

A year after Mario Draghi’s report was commissioned to revive Europe’s competitiveness, the verdict is mixed. On one hand, Brussels can claim progress: many flagship initiatives have been launched, and more than half of the initiatives in the “competitiveness compass” are underway.

On the other hand, Draghi and others argue that implementation has been sluggish. Only a small fraction of his 383 recommendations has been fully delivered. Political squabbles, bureaucratic inertia, and competing priorities (think trade, environment, energy) are getting in the way. Europe’s growth remains far behind peers like the US and China—stagnation is a risk if reforms don’t pick up pace.

Trade deals, sanctions, and shifting partners

In one of the more proactive economic moves this week, the EU and Indonesia reached a long-awaited trade agreement, after about nine years of negotiation. The deal is meant to help the EU diversify its supply chains, especially for materials crucial for green technologies, and reduce dependency on big powers like China and the U.S. Part of the deal involves tariff reductions in both directions, though environmental and labor standards remain contentious.

Meanwhile, sanctions on Russia were stepped up in response to both ongoing military actions and economic vulnerabilities. The EU’s latest sanctions package targets further reduction of Russian natural gas imports, clamps down on shadow fleets, and expands restriction on high-tech military-adjacent exports.

Risk factors & side effects

Despite some positive data, there’s a long list of pratfalls. Inflation remains a concern—even if energy-price volatility helps ease it, the prices for services, labour, and other non-energy sectors are stickier. Growth forecasts are modest (outside of outliers like Spain), and many businesses are cautious. Weaker confidence could translate into investment postponements.

Also, Ford’s recent announcement of cutting another 1,000 jobs in Germany because of weak electric vehicle demand underscores how transitions (green tech, regulations, infrastructure) still face friction.

Oil prices inched up too, as geopolitical tensions (air strikes in Ukraine, airspace intrusions, uneasy alliances) added risk. But rising supply and tepid demand pulled back how far prices could climb.

Outside Europe, but worth watching

Climate Week in New York is unfolding with record participation from corporations and local actors, even as the U.S. federal policies move in a more fossil-fuel friendly direction.

On the environment front, global cooperation is being tested: trade deals increasingly tie into environmental and labour standards. Developing countries (Indonesia among them) are being asked to meet more rules in exchange for access to rich markets.

The takeaway

Europe is slowly trying to claw its way into healthier economic territory. But the pace is uneven, the risk of complacency high, and the cost of being late to structural reforms might be steeper than most realize. Trade diversification, green transition, and internal competitiveness are the hinges on which future strength swings.

If I were a betting economist, I’d say: we’ll see more incremental gains, a few shocks from abroad or geopolitics, and the urgent politics of reform will get louder—but whether anything transformative happens this year is still very much up in the air.