Executive summary
This week, we analyzed three major issues: :
- European farmers unite: the grounds of wrath. Since the beginning of the year, farmers across Europe have been taking to the streets to protest against squeezed incomes, excessive regulation and unfair competition from imports. The income squeeze is clearly visible: Farmers have not benefited from Europe’s record-high food inflation as much as manufacturers or retailers, with real incomes dropping by -12% in the EU and as much as -22% in France between 2022 and 2023. The effects of regulation are harder to measure, but agricultural productivity has been declining rapidly in many European countries over the past five years. In contrast, free-trade has not opened the floodgate to cheap imports from outside the EU as the sector remains heavily subsidized. The ongoing unrest could have political implications for the upcoming European elections, and should nudge policymakers to act at both the domestic and European levels, hopefully without endangering sustainability commitments for the sector.
- Brazil's new industrial policy: déjà vu? After the US, the Eurozone and other major economies, Brazil is the latest to announce a hefty spending plan to (re)ndustrialize its economy. The “New Industry Brazil” plan is designed to provide R$300bn (about 2.7% of GDP) in specific credit lines to build up sustainable and digital infrastructure in priority sectors such as agribusiness, health and defense. But this new industrial policy is not so new after all: industrial policy is something of a tradition under Lula's governments, and one with disputed results. A more cost-effective option would be to continue with the reform agenda, implementing the tax reform approved last year and reducing barriers to entry to boost competition. The new industrial plan raises risks on the already fragile fiscal side: we estimate a deficit of -0.75% in 2024 and of -0.5% in 2025, which would bring the debt-to-GDP ratio to an upward trajectory again.
- Western Africa: Another setback for regional integration. Burkina Faso, Mali and Niger have decided to leave the Economic Community of West African States (ECOWAS). This decision poses significant economic risks, including a potential EUR3.2bn in trade losses and increased challenges for landlocked economies. The exit could also be interpreted as the beginning of a series of centrifugal moves and test confidence in the CFA Franc, which could in turn put debt sustainability across the region at stake. Note that Senegal, Cameroon and other members of the currency union are currently facing elevated external financing requirements.