“If you don't move forward, you fall off the bike,” is the warning from the European Bank for Reconstruction and Development’s chief economist, Beata Javorcik.
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00:00Central banks have to tread carefully.
00:02It may be a now or never moment for Europe.
00:05If you don't move forward, you fall off the bike.
00:13Welcome to The Big Question, the series from Euronews,
00:17where we speak to some of the most influential people in the world of business.
00:22I'm Angela Barnes, and I am joined by Ljarta Javorcik,
00:27the chief economist for the European Bank of Reconstruction and Development.
00:33Thank you ever so much for joining us on The Big Question.
00:35It's a pleasure to have you with us on the show.
00:37Thank you for having me.
00:39So first of all, if we could just start off by talking about
00:42what are the economic risks in 2025 that you are most concerned about?
00:48First, conflict. The war in Ukraine is still raging.
00:52We have a ceasefire in the Middle East, but that's not the same as peace.
00:57And of course, the situation in Syria is far from stable.
01:00Second, fragmentation of the global economy.
01:03I mean, this process has been going for quite a while.
01:06In 2016, we had the Brexit referendum,
01:09which rolled back integration of services sectors between the UK and the EU.
01:16Then in 2018, the US-China trade war has started.
01:20In 2022, sanctions on Russia were imposed.
01:24And certainly, unwinding of globalization
01:28is going to have negative consequences for the global economy.
01:39For Europe's competitiveness, what do you foresee this year for Europe?
01:42How far away are they from catching up with the likes of China and the US?
01:47Well, if you read the Draghi report, the diagnosis is rather stark.
01:53Europe will not be able to maintain its standards of living
01:56if it continues on its current path.
01:59But paradoxically, shocks that Europe may experience in 2025
02:04may focus minds and lead to action.
02:08It may be a now or never moment for Europe.
02:11Donald Trump's tariffs for Europe could be hugely detrimental, for example.
02:16Well, it's difficult to predict.
02:19It matters whether every country will be subject to the same tariff and every industry.
02:24But we cannot control what's happening in terms of other countries' policies.
02:30So therefore, I think Europe should focus on what's within our control,
02:35namely finding sources of competitiveness within the single market.
02:39What about Russian sanctions?
02:41How have they impacted its economy in 2024?
02:44Do you think its fortunes will change course with Donald Trump in power?
02:49Western sanctions imposed on exports to Russia
02:52have led to a dramatic drop in European sales to Russia.
02:58Some of that trade has been replaced by exports from other countries,
03:02namely China and Turkey,
03:05though probably the technological content of those exports is different.
03:10And you see in the data that foreign affiliates located in those countries
03:15choose not to supply the Russian market.
03:18So sanctions have been taking a toll on Russian productivity
03:23by depriving Russia of sophisticated technologies embodied in capital goods.
03:29Moreover, there has been an exit of Western multinationals.
03:34No new FDI is flowing to Russia.
03:37And that means lower knowledge flows.
03:39So these are the effects that are not visible immediately.
03:44They work slowly, but they certainly are beginning to take a toll on the Russian economy.
03:50Now, inflation and monetary policy, let's talk about that.
03:53How do you see inflationary pressures evolving in 2025?
03:56And what measures should central banks take
04:00to keep inflation in check without stifling economic recovery?
04:04So let me talk about emerging markets where my institution, the EBRD, is active.
04:10We have seen quite a fast process of disinflation by historical standards,
04:16though inflation remains one percentage point above the pre-COVID level.
04:22Of course, performance of countries has been uneven.
04:25And some countries, such as, for instance, Turkey,
04:28are still facing a very high inflation.
04:32In Europe this year, if you believe futures markets,
04:36we are going to see an uptick in prices of natural gas.
04:40And that's certainly going to put inflationary pressures.
04:45So I think central banks have to tread carefully
04:48and react to the data as the data comes in.
04:52Are you keeping an eye on oil prices too?
04:54Is that something that is of particular concern?
04:58Well, oil prices are very important as an indicator for assessment of any economic activity.
05:05Though, of course, if you believe that the US is going to increase production of oil,
05:10that could actually lead to lower oil prices.
05:13So that would put a downward pressure on inflation.
05:17And let's talk about technology and digital transformation.
05:20How do you think technological advancements, particularly in AI and automation, of course,
05:26how do you think that will shape the workforce and labour markets in 2025?
05:30Well, technological progress translates into structural changes in the economy.
05:36If you think about Europe,
05:38Western European countries are much more exposed to AI eliminating some jobs.
05:46In Eastern Europe, it's more automation of manufacturing
05:49that will have an impact on the production process.
05:53What sectors in emerging markets do you expect to see the most growth in 2025?
05:58So I'm very optimistic about services in emerging Europe.
06:04Quite a few countries in emerging Europe have succeeded at importing ICT services.
06:11And the fact that many of them are in Schengen in the same time zone,
06:15that they have the same data protection regime as the Western European countries,
06:21bodes well for greater exports of services.
06:25Moreover, as companies are considering their carbon footprint,
06:29they are discovering that carbon emissions embodied in services they buy
06:36constitute a big chunk of that carbon footprint.
06:38So proximity of Eastern European countries
06:42makes them more attractive as suppliers of ICT services.
06:47And I just want to talk to you as well, lastly, about EU integration.
06:50What is your outlook for the economic integration of countries
06:54in the Balkans and Eastern Europe for 2025?
06:57Well, it is in the interest of the European Union
07:00to have stable and prosperous neighbours.
07:04It is in the interest of accession countries
07:07to use the accession process as an anchor for reforms.
07:11And we've seen how well that has worked
07:14in the first wave of accession that finished in 2004.
07:19So the EU needs to show a credible path
07:23for these countries to join the community,
07:27while these countries have to exert effort
07:31to match the standards that are expected.
07:34It's a bit like with riding a bicycle.
07:36You need to make progress,
07:38because if you don't move forward, you fall off the bike.
07:40Well, thank you ever so much for your insights.
07:43It's been fantastic to have you on the show.
07:45And thank you very much all for watching this episode of The Big Question.
07:49And don't forget, you can catch all our shows
07:51on the Euronews YouTube channel
07:52and on our website, euronews.com.
07:54Head over to the business page.