Economic growth in the European Union is projected to expand by 1.5 per cent in 2019 and 1.8 per cent in 2020, the UN Department of Economic and Social Affairs (DESA) said in its mid-year World Economic Situation and Prospects (WESP) report, released on May 21.
This constitutes a downward revision compared to the previous forecast, as the trade-related downside risks attached to the last baseline forecast have started to materialise.
By contrast, private consumption remains relatively robust. Solid labour market conditions underpin upward wage pressure, which together with subdued inflation rates supports household purchasing power and private consumption spending.
In addition, the ECB has postponed any withdrawal of its accommodative policy stance, which has supported investment and the construction sector in various countries, the report said.
“The risks to the baseline outlook remain unchanged in nature, although their magnitude has shifted. The trade picture is already having a tangible negative impact on economic performance, with risks of a further deterioration in global trade conditions.”
The ECB’s challenge of how to eventually exit its accommodative policy stance has become even more pronounced, while the euro area continues to face the unresolved problem of how to achieve and maintain a common fiscal policy stance in the absence of a more institutionalized policy framework.
Finally, the postponement of the United Kingdom’s exit from the EU – Brexit – without clarification as to the way forward has increased the risk of a disorderly separation, the report said.
“This could have severe negative consequences in the form of a disruption or even breakdown in trade flows to and from the United Kingdom.”
Those members of the EU that have joined since 2004 (EU-13) are expected to sustain growth rates above the EU average.
“However, the rate of expansion is expected to moderate in 2019, reflecting labour shortages, rising inflation and tighter monetary conditions in some countries.”
The excessive concentration of the industrial sector in Central Europe on the automotive industry poses significant risks, while the space for countercyclical policy measures remains limited.
The report finds that all major developed economies, and most developing regions, have weakened prospects for growth.
(Photo: Piotr Lewandowski/sxc.hu)