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It's time now for business. We say hello to Yuka Hayashi. And uh you're here with some good news and some bad news from the IMF. Well, the IMF's latest World Economic Outlook slightly upgraded its global growth projection for this year from the July forecast, but with a warning that the AI boom driving this growth is not affecting everyone evenly. On the flip side, higher energy prices caused by war are a big drag on many economies. And the lender flagged major risks, AI for one, and government debt for another. For France, GDP is expected to grow just 0.4% this year, mainly due to the impact
of weather-related crises. It's among the weakest in the Eurozone, which is on the whole expected to grow 1.1%. As inflation continues to rise, the IMF chief warned that governments need to get their fiscal house in order. Macroeconomic and financial stability is your first line of defense. When your fiscal position wobbles, when you allow inflation to run out of control, then whatever you do in other ways on security may not help you. Yeah, France with a minority government is just starting deliberations on its budget, but there's an election ahead, so is it the sick man of Europe?
It may it's becoming one apparently. That unenviable nickname was of course given to Germany during the 1990s due to sluggish growth and high unemployment post-reunification. Now investors are looking at France's enormous public spending, which has for decades been financed through debt, and see it as a growing risk as interest payments have become one of the most costly items in the national budget next to education and defense. France has not had a balanced budget since 1974, and debt and deficit have grown since the COVID crisis. And its borrowing costs are rising further as French government bonds have been sold off in recent weeks in what some describe as
the frogs trade. It stands for French oversized government and social security, reminiscent of the pigs acronym coined during the European debt crisis for Portugal, Italy, Ireland, Greece and Spain. But as France is the second biggest economy in the Eurozone, the potential impact of a financial crisis here is much more worrying. The frogs trade, that comes from the city of London, I wonder. Let me ask you about the Chinese car makers at the Paris Motor Show. Yeah, well, the head of Volkswagen today said on the sidelines of the trade show that Europe's mass market car sector was under enormous pressure. The company is going through the biggest restructuring in history with 100,000 jobs being slashed. The
European Union is working on new made in Europe component rules to curb imports from China, but Chinese companies are getting ahead of the measures. They're boosting partnerships, making batteries and parts locally. Some say China is not just exporting cars anymore, but entire industrial ecosystems. Well, for more we can speak with Dr. Philipps Zeidl, principal of automotive and manufacturing goods at Arthur D. Little. Thank you for joining us, Philip. Now, are we seeing a fundamental shift then in the EU auto industry and how exactly are Chinese companies integrating themselves into the EU supply chain?
Yeah, exactly. Um so, when we talk about the Chinese car industry and their role in Europe, we see that um the Chinese are developing uh to a new stage, yeah? Instead of only importing vehicles to Europe, they are now more and more integrating into the supply chain and that means they are either building up their own capacity utilizing European production and assembly capacity capacities. They are entering joint ventures and partnerships with European suppliers and car manufacturers or they are acquiring stakes, majority or minority stakes in key European players both on the OEM and on the supplier side.
Yeah, speaking of these partnerships Volkswagen recently sold 49% of its big battery plant a plant in Spain to a Chinese firm. Could China then end up kind of owning or controlling the European car industry or can EU automakers in turn can turn the threat into opportunities instead? Yeah, of course. So there are positive sides and there are risks um with that development. On the plus side, on the positive side, I think the partnerships with especially Chinese technology companies make sense to support the technology diffusion to Europe especially in those critical high-tech areas like batteries, battery materials, but also software and autonomous driving systems. On the other hand, this increasing influence needs [snorts] to be
managed and balanced somehow and the European industry must avoid becoming too dependent on yeah, Chinese companies, stakeholders or suppliers. Yeah, if you see this as a risk, the EU has already imposed higher tariffs on Chinese EVs back in 2024 and is now debating more measures like the made in Europe measures. Do these things actually work? Yeah, so the tariffs have worked um in a narrow sense. They have done exactly what they were intended to do. Um [snorts] leveling the playing field for in the short term between somehow subsidized um Chinese manufacturers or manufacturers
benefiting from a weak Chinese currency. So tariffs, as the quotas on hybrids etc., they can buy some time for the European industry. What they on the other hand will not do is uh increase the inherent competitiveness, and that's [snorts] what needs to be uh done and sorted out. Um and made in Europe rules can be um yeah, a good measure to support that, to support the competitiveness of the local European industry. And um uh yeah, also to um to uh keep the value creation uh locally in Europe.
Yeah, speaking of competitiveness, Chinese car a car manufacturers have now gone into the luxury sector as well. Are Chinese cars actually, especially for EVs, are they better than European cars that are available on the market? Um that's a bit difficult to answer on this general level. I think the Chinese manufacturers have uh competitive advantages uh currently in certain areas. They um are known to be able to develop cars faster [snorts] in shorter time. Um they are known um also to be able to produce them um on a lower cost base.
Um so in short, they are quicker. Um and um yeah, have a lower base. So, this is creating their competitive advantage right now. Oh. Um, yeah. Yeah, well, Philip Seidl from Arthur D. Little, thank you so much for your insights. Thank you.
