According to the European Commission press release, the European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU Member States. As global uncertainties continue to weigh, domestic dynamics are set to support the European economy. Growth is expected to gather pace again next year.
The recent slowdown in global growth and world trade, together with high uncertainty about trade policies, is weighing on prospects for Gross Domestic Product (GDP) growth in 2019 and 2020. The continued weakness of the manufacturing sector also plays a role, especially in those countries encountering specific problems in the automobile industry.
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 euro area.
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 euro area. The figures for 2020 also benefit from a higher number of working days that year.
According to the same source, labour market conditions continued to improve despite the slowdown in growth towards the end of 2018. While still too high in certain Member States, unemployment in the EU – at 6.4% in March 2019 – has fallen to the lowest rate recorded since the start of the monthly data series in January 2000. Unemployment in the euro area is currently at the lowest rate since 2008.
In terms of inflation, in the EU the inflation is expected to fall to 1.6% this year before rising to 1.7% in 2020. Euro area headline inflation dropped from 1.9% in the last quarter of 2018 to 1.4% in the first quarter of this year due to lower increases of energy prices. With energy price inflation expected to moderate further in the coming quarters and little sign that higher wage growth has been fuelling underlying price pressures, euro area inflation (Harmonised Index of Consumer Prices) is forecast to reach 1.4% in both 2019 and 2020.
Note: The forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 24 April 2019. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 23 April.
For further information: Spring 2019 Economic Forecast