Europe is swimming rudderless in the fight against the crisis in France and Germany

Europe could enter recession as its largest economies, Germany and France, struggle with political and economic problems at home.

Data on Monday showed that business activity in manufacturing and services sectors in both countries – Europe's largest and second-largest economies respectively – continued to decline in September.

In Germany, the Purchasing Managers' Index (PMI), which measures business activity in both sectors, was at XXXX, down from XXX in August. In France, the PMI fell to an eight-month low of 47.4 in September (it was 53.1 in August).

For the Eurozone as a whole, PMI data showed a decline from XXX last month to XXX in September.

The PMI data, a closely watched indicator of economic activity in the region, is the latest to confirm the ongoing decline in Europe's traditional growth engines, with both Germany and France grappling with political unrest and economic uncertainty at home.

In Germany, Chancellor Olaf Scholz's centre-left Social Democratic Party (SPD) narrowly held on to power in this weekend's state elections in his home region of Brandenburg, narrowly keeping the far-right Alternative for Germany (AfD) at bay.

A defeat to the AfD could have had a significant impact on the German leadership, as the far-right party's popularity has soared among parts of the German electorate. Earlier this month, the AfD won its first state election in Thuringia and came a close second in a single vote in Saxony.

The rise of the AfD has coincided with heated debates about immigration and integration, as well as concerns about a once booming economy that has been on the brink of recession for over a year.

According to the Bundesbank, Germany is only expected to grow by 0.3 percent in 2024, while the European Commission's spring forecast is even more pessimistic, predicting growth of just 0.1 percent. Once Europe's model for growth, Germany is now referred to by economists as the “sick man” of Europe.

“The German economy continues to struggle for momentum, raising concerns that the headwinds are structural rather than purely cyclical,” Greg Fuzesi, eurozone economist at JP Morgan, wrote on Friday in a commentary titled “The German patient in focus.”

“It is certainly easy to list many challenges: Chinese growth and competition, higher energy prices, the green transition, changes in the automotive industry, an ageing population and a backlog in public investment in infrastructure,” he said, noting that there is also a perceived inability of the three-party coalition government to meet these challenges, “which is weighing on confidence.”

In France

Ian Bremmer, founder and president of the consulting firm Eurasia Group, noted earlier this month that the center is “imploding in the European Union's two largest economies” and that both countries are plagued by similar problems.

“In France, the far left and the far right did better in the snap parliamentary elections called by President Emmanuel Macron … but they are now excluded from the unstable minority government led by center-right politician Michel Barnier, meaning their electorate is angrier while its leaders take no responsibility for governing their way out of trouble. The arrangement keeps Macron in power for now but only makes the extremists more powerful in the coming elections,” he noted in an emailed comment.

According to Bremmer, the AdD has also had political successes in Germany. The issues that have driven its rise are a strong anti-migrant sentiment, economic populism and the rejection of support for Ukraine. Bremmer predicts that the party will continue to gain popularity in the future.

“The political buffer remains a strong European Union with largely continuous leadership – and so there are no longer growing efforts to leave … but domestic politics are directed against the establishment, [and are] Part of a broader fragmented globalization trend,” Bremmer said, adding that there was “a lot to observe” here.