Although the European economy has been steadily increasing for the seventh year in 2019, external factors – including global trade tensions and significant political uncertainty – are hampering growth, the European Commission said in its Wednesday interim economic forecast.
The 2019 forecast for euro area GDP growth remained unchanged at 1.2 per cent, while the forecast for 2020 fell from 1.5 per cent in spring to 1.4 per cent. The EU as a whole has a growth forecast of 1.4 percent this year, and GDP growth of 1.6 percent in 2020.
At the presentation of this report, Pierre Moscovici, Commissioner for Economic and Financial Affairs and Taxation and Customs, said that the external factors causing the weakening of the EU economy weaken business confidence in the manufacturing industry most exposed to international trade, and are projected to worsen further in the rest of the year. growth prospects.
In the first quarter of the year, growth in the euro area was faster than expected due to mild winter weather and the pick-up in car sales.
While growth was supported by a number of transitional factors in the first half of this year, the outlook for the rest of the year seems weaker, as the likelihood of a rapid recovery in global manufacturing and commerce has decreased. One of the reasons for the higher GDP growth in 2020 is that there will be more working days next year. Economic growth continues to be driven by domestic demand and, in particular, household consumption in Europe, supported by the still lively labor market.
It is projected that the GDP of all EU Member States will grow this year and in 2020, but in some areas, such as Central and Eastern Europe, Malta and Ireland, growth will be significantly higher than in Italy or Germany.
According to its information, the European Commission has both lowered the euro area and EU inflation forecasts by 0.1 percentage points to 2019 and 2020, mainly due to lower oil prices and somewhat weaker economic outlook. The average Harmonized Index of Consumer Prices (HICP) will be 1.3 per cent in the euro area in 2019 and 2020, although the spring forecast projected 1.4 per cent for both years. In the EU as a whole, inflation is expected to be 1.5 percent in 2019 and 1.6 percent in 2020.
The EU Commissioner said the risks surrounding the global economic outlook remain highly intertwined and will mostly have a negative impact. The protracted economic confrontation between the US and China, as well as the high degree of uncertainty surrounding US trade policy, may prolong the current decline in world trade and manufacturing, and may affect other regions and sectors. This can have a negative impact on the global economy, including financial market turmoil. In addition, tensions in the Middle East increase the possibility of a significant rise in oil prices, he said.
He emphasized that the source of uncertainty in Britain’s membership of the EU (Brexit) remains a major source of uncertainty. Furthermore, the persistent weakness of the manufacturing industry and the decline in business confidence may spill over to other sectors and worsen labor market conditions, private consumption, and ultimately growth, added Pierre Moscovici.