Spring 2019 Economic Forecast: Growth continues at a more moderate pace

Moscovicu 2019 growth

Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs, will give a press conference on the publication of the Spring 2019 Economic Forecast. (European Union, 2019)

This article is brought to you in association with the European Commission.


The European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU Member States. As global uncertainties continue to weigh, domestic dynamics are set to support the European economy. Growth is expected to gather pace again next year.

The recent slowdown in global growth and world trade, together with high uncertainty about trade policies, is weighing on prospects for Gross Domestic Product (GDP) growth in 2019 and 2020. The continued weakness of the manufacturing sector also plays a role, especially in those countries encountering specific problems in the automobile industry.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “The European economy is showing resilience in the face of a less favourable external environment, including trade tensions. Growth is set to continue in all EU Member States and pick up next year, supported by robust domestic demand, steady employment gains and low financing costs. Yet risks to the outlook remain pronounced. On the external side, these include further escalation of trade conflicts and weakness in emerging markets, in particular China. In Europe, we should stay alert to a possible ‘no-deal Brexit’, political uncertainty and a possible return of the sovereign-bank loop.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:“The European economy will continue to grow in 2019 and 2020. Growth remains positive in all our Member States and we continue to see good news on the jobs front, including rising wages. This means that the European economy is holding up in the face of less favourable global circumstances and persistent uncertainty. Nonetheless, we should stand ready to provide more support to the economy if needed, together with further growth-enhancing reforms. Above all, we must avoid a lapse into protectionism, which would only exacerbate the existing social and economic tensions in our societies.”

GDP slowdown to bottom out in 2019

As global trade and growth are expected to remain weaker this year and next compared to the brisk pace seen in 2017, economic growth in Europe will rely entirely on domestic activity. More Europeans are now in work than ever and employment growth is expected to continue, albeit at a slower pace. This, together with rising wages, muted inflation, favourable financing conditions and supportive fiscal measures in some Member States, is expected to buoy domestic demand. All in all, GDP is forecast to grow by 1.4% in the EU this year and 1.2% in the euro area.

In 2020, adverse domestic factors are expected to fade and economic activity outside the EU to rebound, supported by easing global financial conditions and policy stimulus in some emerging economies. GDP growth next year is forecast to strengthen slightly to 1.6% in the EU and 1.5% in the euro area. The figures for 2020 also benefit from a higher number of working days that year.

Unemployment continues to fall

Labour market conditions continued to improve despite the slowdown in growth towards the end of 2018. While still too high in certain Member States, unemployment in the EU – at 6.4% in March 2019 – has fallen to the lowest rate recorded since the start of the monthly data series in January 2000. Unemployment in the euro area is currently at the lowest rate since 2008.

Over the next two years, the rate of employment growth is expected to slow as the impact of more moderate growth takes its toll and temporary fiscal measures in some Member States fade. The unemployment rate is expected to continue to fall in the EU in 2019 and is set to reach 6.2% in 2020. The unemployment rate in the euro area is forecast to fall to 7.7% in 2019 and to 7.3% in 2020, lower than it was before the crisis began in 2007.

Inflation to remain subdued

Inflation in the EU is expected to fall to 1.6% this year before rising to 1.7% in 2020. Euro area headline inflation dropped from 1.9% in the last quarter of 2018 to 1.4% in the first quarter of this year due to lower increases of energy prices. With energy price inflation expected to moderate further in the coming quarters and little sign that higher wage growth has been fuelling underlying price pressures, euro area inflation (Harmonised Index of Consumer Prices) is forecast to reach 1.4% in both 2019 and 2020.

Public debt to continue falling despite lower growth

Debt-to-GDP ratios are forecast to fall in most Member States in 2019 and 2020 as deficits remain low and nominal GDP growth should remain higher than the average interest rate on outstanding debt. Assuming no policy change, the debt-to-GDP ratio of the EU is forecast to fall from 81.5% in 2018 to 80.2% in 2019 and 78.8% in 2020. The euro area’s aggregate debt-to-GDP ratio should fall from 87.1% in 2018 to 85.8% in 2019 and 84.3% in 2020.

The aggregate government deficit of the EU is expected to rise from 0.6% of GDP in 2018 to 1% in both 2019 and 2020. It is also expected to rise in the euro area, from 0.5% of GDP in 2018 to 0.9% in 2019 and to remain unchanged in 2020, assuming no policy change. The increase this year is mainly due to slower GDP growth and expansionary fiscal policies in some Member States.

Risks to the outlook remain prominent

Downside risks to the outlook remain prominent. The risk of protectionist measures worldwide and the current slowdown in world GDP growth and trade could turn out to be more persistent than expected, particularly if growth in China disappoints. In Europe, risks include that of a ‘no-deal’ Brexit and the possibility that temporary disruptions currently weighing on manufacturing could prove more enduring. There is also the risk that a rise in political uncertainty and less growth-friendly policies could result in a pull-back in private investment.

On the positive side, private consumption and investment in the EU could prove more resilient than expected, particularly if confidence among business and consumers was less sensitive to uncertainty and domestic headwinds, and if it were accompanied by stronger-than-assumed fiscal policy measures in countries with fiscal space and growth-enhancing reforms.

For the UK, a purely technical assumption for 2019

In the light of the process of the withdrawal of the UK from the EU, projections for 2019 and 2020 are based on a purely technical assumption of status quo in terms of trading patterns between the EU27 and the UK. This is for forecasting purposes only and has no bearing on the process underway in the context of Article 50.

Background

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 24 April 2019. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 23 April.

Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.

The European Commission’s next forecast will be an update of GDP and inflation projections in the Summer 2019 Economic Forecast.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

The EU seals CETA but plans to re-baptise TTIP after missing the 2016 deadline

Residents and visitors to this Dutch neighborhood could share a pool of cars and bikes

Chart of the day: These countries have the largest carbon footprints

European Commission calls on national political parties to join efforts to ensure free and fair elections in Europe

UN chief welcomes formation of unity government in Madagascar

Cutting money transfer fees could unlock $15bn for developing countries. Here’s how

World Health Organization calls crisis meeting over deadly Ebola outbreak in DR Congo

Interview with ourselves: the mental health of health professionals

Smoking VS Vaping: is it a battle?

Universal Health Care: can it exist only in utopic society?

Further reforms in France can drive growth, improve public finances and boost social cohesion

Ukraine: €8 million in humanitarian aid to withstand winter

Siege of Syria’s eastern Ghouta ‘barbaric and medieval’, says UN Commission of Inquiry

Chronic illnesses: UN stands up to stop 41 million avoidable deaths per year

Could the EU’s ban on palm oil in biofuels do more harm than good?

4 reasons why women should lead the G7 agenda in 2018

EU-US trade war: Will Trump take advantage of WTO’s decision leading to ominous economic growth?

Understanding the gender gap in the Global South

1.4 million refugees set to need urgent resettlement in 2020: UNHCR

Why climate change matters for future health professionals

Parliament asks for the termination of EU-US bank data deal

Why poorer people suffer more from climate change

Agreement on linking the emissions trading systems of the EU and Switzerland

Gender parity can boost economic growth. Here’s how

China rare earth prices soar on their potential role in trade war

China has made a shocking food production discovery – electro culture

Malaysia can show the way towards a holistic model for human rights

One migrant child reported dead or missing every day, UN calls for more protection

EU-US Privacy Shield data exchange deal: US must comply by 1 September, say MEPs

COP21 Breaking News: “There is an ecological debt that the world needs to pay back to Africa”, French President Francois Hollande promises 2 Billion euros by 2020 from Paris

A new dawn for Europe: Joint op-ed by President von der Leyen, President Michel and President Sassoli

Mali: Two peacekeepers dead after dawn attack, several injured – UN Mission

Security Council imposes arms embargo on South Sudan

Antitrust: Commission opens investigation into Broadcom and sends Statement of Objections seeking to impose interim measures in TV and modem chipsets markets

Changing for the change: Medicine in Industry 4.0

Capital transaction tax on Ecofin table

Banks promise easing of credit conditions in support of the real economy

European tourism remains a strong growth factor

State aid: Commission concludes that recapitalisation of German NordLB is market conform

Khashoggi trial in Saudi Arabia falls short of independent, international probe needed: UN rights chief

The Commission calls for a climate neutral Europe by 2050*

Why do medical students need to emigrate to become doctors in 2017?

More than four in 10 women, live in fear of refusing partner’s sexual demands, new UN global study finds

Music is a vital urban resource. How do we plan for it?

‘We need to stand up now’ for the elderly: urges UN rights expert on World Day

FROM THE FIELD: ‘Hope’ on the horizon as UN Peacekeepers push deep into Mali

5 steps that could end the plastic pollution crisis – and save our ocean

Promoting rule of law and fundamental rights in the EU

More women in Latin America are working, but gender gap persists, new UN figures show

Humans aren’t made for repetition – it’s time AI took over manufacturing

First-ever World Braille Day underscores importance of written language for human rights

Trump after marginalizing G20 attacks Europe and China where it hurts, brandishes currency war

DR Congo: Electoral process advancing despite threat of armed groups, UN envoy tells Security Council

Technology can hinder good mental health at work. Here’s how it can help

Women still struggle to find a job, let alone reach the top: new UN report calls for ‘quantum leap’

UN receives ‘Humanium’ wristwatch gift, symbolizing peaceful transformation

Iraq protests: UN calls for national talks to break ‘vicious cycle’ of violence

How regenerative agroforestry could solve the climate crisis

Paris agreed with Berlin over a loose and ineffective banking union

European Parliament approves more transparency and efficiency in its internal rules

More Stings?

Comments

  1. Any kind of growth is an exponential function and unsustainable at the end.

    Any system which is solely built on unsustainable growth is condemned to fail. Any natural system that grows unsustainably is eventually collapsing in free fall.

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s