The European economy is expected to grow for the seventh year in a row in 2019, with expansion forecast in every EU country, the European Commission said on February 7 in its winter economic forecast.
“The pace of growth overall is projected to (be) moderate compared to the high rates of recent years and the outlook is subject to large uncertainty,” the Commission said.
Economic activity moderated in the second half of last year as global trade growth slowed, uncertainty sapped confidence and output in some EU countries was adversely affected by temporary domestic factors, such as disruptions in car production, social tensions and fiscal policy uncertainty.
As a result, gross domestic product (GDP) growth in both the euro area and the EU likely slipped to 1.9 per cent in 2018, down from 2.4 per cent in 2017 (Autumn Forecast: 2.1 per cent for EU28 and euro area), the Commission said.
Economic momentum at the start of 2019 was subdued, but the fundamentals remain sound, it said.
“Economic growth will continue, albeit more moderately,” the Commission said.
“The European economy is set to continue to benefit from improving labour market conditions, favourable financing conditions and a slightly expansionary fiscal stance.”
Euro zone GDP is now forecast to grow by 1.3 per cent in 2019 and 1.6 per cent in 2020 (Autumn Forecast: 1.9 per cent in 2019; 1.7 per cent in 2020). The EU GDP growth forecast has also been revised down to 1.5 per cent in 2019 and 1.7 per cent in 2020.
Among the larger EU countries, downward revisions for growth in 2019 were sizeable for Germany, Italy, and the Netherlands. Many member states continue to benefit from robust domestic demand, also supported by EU funds, the Commission said.
Consumer price inflation in the euro zone fell towards the end of 2018 due to a sharp drop in energy prices and lower food price inflation.
Core inflation, which excludes energy and unprocessed food prices, was muted throughout the year, despite faster wage growth.
Overall inflation (HICP) averaged 1.7 per cent in 2018, up from 1.5 per cent in 2017. With oil price assumptions for this year and next year now lower than in autumn, euro area inflation is forecast to moderate to 1.4 per cent in 2019 before picking up mildly to 1.5 per cent in 2020. For the EU, inflation is forecast to average 1.6 per cent this year and then pick up to 1.8 per cent in 2020.
“A high level of uncertainty surrounds the economic outlook and the projections are subject to downside risks,” the Commission said.
“Trade tensions, which have been weighing on sentiment for some time, have alleviated somewhat but remain a concern.”
The Commission said that China’s economy may be slowing more sharply than anticipated and global financial markets and many emerging markets are vulnerable to abrupt changes in risk sentiment and growth expectations.
“For the EU, the ‘Brexit’ process remains a source of uncertainty,” the Commission said.
Regarding the UK and Brexit, the Commission said that “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,” the Commission said.