Growth continues at a moderate pace

Spring 2019 Economic Forecast bets on stability, sustainability

Photo: EPA Pierre Moscovici

The European economy is to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all Member States, according to the EC Spring 2019 economic forecast presented last Tuesday. Although global uncertainties continue, domestic dynamics are set to support the European economy, with growth expected to gather pace again next year.

“The European economy will continue to grow in 2019 and 2020, with growth remaining positive in all Member States. 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,” Economy Commissioner Pierre Moscovici said.

The recent slowdown in global growth and world trade, together with high uncertainty about trade policies, is weighing on prospects for GDP growth in 2019 and 2020. The continued weakness of the manufacturing sector also plays a role. “The European economy is showing resilience in the face of a less favourable external environment, including trade tensions. Growth is set to pick up next year, supported by robust domestic demand, steady employment gains and low financing costs. Yet risks to the outlook remain,” VP Valdis Dombrovskis pointed out.

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 Eurozone.

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 Eurozone.

According to the forecast, 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 aggregate government deficit of the EU is expected to rise from 0.6% of GDP in 2018 to 1% in both 2019 and 2020. But downside risks caused by protectionist measures worldwide and the current slowdown in world GDP growth and trade still remain prominent.

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