📝See Downside Risks to EU Growth On Greenland Takeover: ABN Amro

The direct implications of a US military takeover of Greenland are limited, though there could be more significant indirect implications. We see two main channels of impact both in the short- and medium/long-term. First, it could raise geopolitical policy uncertainty hitting household and business confidence, depending on how prolonged any tension between the US and Europe lasts. Such a hit to confidence would have some parallel with the Russian invasion of Ukraine. This would come at a crucial time, as European households are just beginning to shake off the trauma of the energy crisis and general high trade-related uncertainty, and the prospects were pointing to a long-expected decline in consumer caution and the elevated savings rates that have accompanied that. Indeed, coming alongside pass-through of prior rate cuts, this is one of the main reasons we expect European household consumption to pick up over the coming year. Business confidence has also been very weak since the energy crisis, with for instance survey-based investment intentions at levels normally consistent with recession. Alongside consumption, our base case sees a pickup in business investment. Renewed higher uncertainty could throw the revival of ‘animal spirits’ off course, creating downside risks to our near-term growth forecasts. At the same time, we’ve

estimated the impact of geopolitical risk on the economy to be mild.

In terms of ‘value at risk’, we note that EU exports to the US amount to 4.5% of EU GDP, while US exports to the EU amount to 2.3% of US GDP. These effects would be accentuated by tightening financial conditions as the escalation and rising uncertainty would also hit risk appetite. - ABN Amro