Wednesday, April 24, 2019
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Editorial

​Uncertainty about the economic outlook in 2019

Many economic specialists talk about a possible economic crisis that could start this year: the concern is evident in the global economic sector. In Europe the concern is considerable, and perhaps because of this the European Commission pronounced this past February on how it saw the outlook in the old continent and displayed uncertainty in face of the world situation.


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The European economy is expected to grow for the seventh consecutive year in 2019, with forecasts of growth in all Member States. The pace of global growth will moderate compared to the high rates in recent years and the outlook is subject to great uncertainty.


Valdis Dombrovskis, Vice President responsible for the Euro and Social Dialogue, as well as Financial Stability, Financial Services and Union of Capital Markets, said: "We expect that all EU countries will continue to grow in 2019, which means more employment and prosperity. Nevertheless, our forecasts have been revised downward, particularly in the case of the largest economies in the Euro area, reflecting external factors such as trade tensions and the slowdown in emerging markets, particularly in China. In some Eurozone countries, concern is mounting over the link between banks and sovereign issuers and the sustainability of the debt. The prospect of a disruptive Brexit generates even more uncertainty, and simply being aware of these increasing risks is already a large part of the solution. The other part is to choose the right combination of strategies, such as facilitating investment, redoubling the effort to carry out structural reforms and implementing prudent budgetary policies."


Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "After having reached its peak in 2017, we expect that the EU economy will continue to slow down in 2019 and that its growth will be 1.5%. This slowdown will be more pronounced than expected last autumn, particularly in the Euro area, due to the uncertainty surrounding international trade and domestic factors in our largest economies. The fundamentals of the European economy remain strong and good news remains, particularly in terms of employment, growth should pick up gradually in the second half of this year and in 2010."


ECONOMIC GROWTH


Economic activity moderated in the second half of last year, due to the slowdown in world trade, the decrease in confidence due to uncertainty and the fact that production in some Member States was affected by temporary national factors, such as such as social tensions and uncertainty regarding budgetary policy. As a result, the growth of the Gross Domestic Product (GDP) in both the Euro area and the EU fell from 2.4% in 2017 to 1.9% in 2018 (autumn forecast: 2.1% for the EU of 28 Member States and the Euro area).


The economic momentum earlier this year continued to show signs of slackness, although fundamental indicators remain strong.


Economic growth will continue, albeit more moderately. The European economy continues to benefit from improved labour market conditions, favourable financing conditions and a slightly expansionary fiscal policy. The GDP of the Euro area is expected to grow by 1.3% in 2019 and 1.6% by 2020 (autumn forecasts: 1.9% in 2019, 1.7% in 2020).


The forecast for EU GDP growth has also been revised downward, to 1.5% in 2019 and to 1.7% in 2020 (autumn forecasts: 1.9% in 2019, 1.8% in 2020).


Among the largest Member States, the downward revisions to growth in 2019 were considerable in the case of Germany, Italy and the Netherlands. Many Member States continue to benefit from strong domestic demand, also thanks to the support of EU funds.


Consumer price inflation in the Euro area declined towards the end of 2018 due to a sharp drop in energy prices and lower inflation in food prices.


Underlying inflation, which excludes the prices of energy and food, was moderate throughout the year, despite faster growth in wages. The average total inflation (HICP) was 1.7% in 2018, compared to 1.5% in 2017. With assumptions about oil prices for this year and next year lower than those of autumn, inflation in the euro area will moderate to 1.4% in 2019, before. Next lower than in autumn, inflation in the Euro area will moderate to 1.4% in 2019, before slightly rising up to 1.5% in 2020. In the case of the EU as a whole, average inflation is expected to be 1.6% this year and then rise to 1.8% in 2020.


UNCERTAINTIES


There is a high degree of uncertainty regarding the economic outlook and the forecasts are subject to considerable downside risks. Commercial tensions, which have been hanging over the economic climate for some time, have been reduced to some extent, but remain a cause for concern. The Chinese economy may be slowing down more than expected and global financial markets and many emerging markets are vulnerable to abrupt changes in the risk climate and growth expectations. In the case of the EU, the Brexit process remains a source of uncertainty.


MERELY TECHNICAL HYPOTHESIS FOR 2019 AS REGARDS THE UNITED KINGDOM


Given the United Kingdom's withdrawal process from the EU, the forecasts for 2019 and 2020 are based on a purely technical hypothesis of maintaining commercial relations between the United Kingdom and a 27 Member State EU. This assumption is adopted only for the purposes of the forecasts and is not related to the ongoing discussions under Article 50.


CONTEXT


These forecasts are based on a series of technical hypotheses on exchange rates, interest rates and prices of basic products up to the deadline of January 25, 2019. For all other data, the forecast takes into account the information available up to January 31.


The European Commission publishes two full forecasts each year (spring and autumn) and two intermediate forecasts (winter and summer). Interim forecasts include annual and quarterly GDP and inflation for the current year and the following years for all Member States and the Euro area, as well as aggregated EU data. The next global forecasts of the European Commission will be the economic forecasts of the spring of 2019, in May 2019.

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