Europe's economic outlook is clouded by three key issues – Capital Economics

According to strategists at Capital Economics, the improvement in investor sentiment regarding Europe's economic prospects may be overshadowed by a number of unresolved problems. The company's experts have identified three key issues the region is facing.

The first one is whether other countries in the bloc will be able to follow the footsteps of Germany, which has shifted to a softer fiscal policy. Capital Economics is skeptical about the possibility of this. According to experts, an attempt to do so could lead to a national fiscal crisis, especially in France and Italy, which are already struggling with debt.

The second point is Europe's ability to undertake structural reforms. Without reforms in the area of artificial intelligence and other emerging technologies, the region risks being left behind other major economies, especially against the backdrop of growing competition from Chinese companies.

The third key issue is related to geopolitics. Europe seeks to act as the “third pole” amid growing tensions between the US and China. However, the firm argues that internal divisions are still limiting its global influence.

Capital Economics plans to further explore these issues in future reports.