Editor's note
International Internet Magazine. Baltic States news & analytics
Saturday, 05.07.2025, 19:01
Growth in Europe and the Baltic States

Business federations in Europe are increasingly concerned
about a shortage of relevant skills, which acts as a constraint on their growths.
Risks to the outlook remain in particular in the form of a high level of policy
uncertainty, with the danger of increasing protectionism. As outlined in
studies from major international business institutions, a potential significant
damage to European/global growth in the event of a full trade war is expected.
BusinessEurope expects
a GDP growth in 2018 at 2.4% in the EU-27 and 2.3% in the Euro-19-states’ area;
for 2019, it expects a slow-down in growth to 2.1% for both the EU and the
Euro-area. Source: https://www.businesseurope.eu/sites/buseur/files/media/reports_and_studies/businesseurope_economic_outlook_spring_2018_-_final.pdf
Table1: Growth in the EU and the Baltics
Real
GDP growth, % Inflation, % Unemployment,
%
|
||||||
|
2018 |
2019 |
2018 |
2019 |
2018
Expected |
2019 |
EU28 |
2.4 |
2.1 |
1.7 |
1.9 |
7.0 |
6.6 |
Euro-area |
2.3 |
2.1 |
1.5 |
1.7 |
8.3 |
7.8 |
Estonia |
4.0 |
3.2 |
2.9 |
2.3 |
5.8 |
6.2 |
Latvia |
4.0 |
3.4 |
2.8 |
2.4 |
8.0 |
7.7 |
Lithuania |
3.2 |
2.7 |
2.9 |
2.6 |
6.5 |
6.2 |
BusinessEurope’s recommendations
The
European business federation sees the main risks in the form of a “high level” policy
uncertainty, with the danger of increasing protectionism. For example, other
international bodies, like IMF’s analysis suggests that a broader application
of tariffs across countries could lower global output by about 1¾% after 5
years and by close to 2% in the long-term. The OECD is warning that “the threat
of trade restrictions has begun to adversely affect confidence, and, if such
measures were implemented, they would negatively influence investment and
jobs.”
In
order to boost long-term growth and competitiveness, policymakers must
implement labour, product market and institutional reforms that would make EU states’
economies more productive and resilient. Policymakers should ensure that legal
instruments are well designed and properly enforced, with a minimum of
administrative burdens.
To
address labour market mismatches, work-orientated learning for all age groups
must be improved, including promoting digital skills, and reforms which help
encourage people to stay longer in the workforce and ensure to properly
integrate legal migrants into the workforce.
Table2. BusinessEurope’s main forecast
EU-28 Euro area
Main variables 2018
2019 2018 2019
Real GDP (annual % growth) 2.4 (+0.3) 2.1 2.3 (+0.3) 2.1
Inflation (%) 1.7
1.9 1.5 1.7
Unemployment
(%) 7.0 6.6 8.3 7.8
Government
net lending (% of GDP) -0.8
-0.8 -0.7 -0.6
Gross
public debt (% of GDP) 81.2 79.7 87.3 85.2
EU-28
Euro area
GDP components 2018 2019 2018 2019
Private
consumption (%) 2.1 1.9 1.9 1.8
Public
consumption (%) 1.4 1.3 1.2 1.3
Gross
fixed capital formation (%) 4.6 4.0 5.1 4.2
Exports
(%) 4.5 4.2 4.8 4.1
Imports
(%) 4.7
4.3 4.9 4.4
Source:
BusinessEurope’s forecast based on survey of member states’ federations
https://www.businesseurope.eu/sites/buseur/files/
Key drivers for
growth
A
slight slowdown in consumer spending is regarded as a main single reason for a more
moderate GDP growth during 2018; consumer spending is still expected to grow at
a robust 2% during the whole year.
Looking
at the drivers of growth, consumer spending, the largest component of demand (according
to Eurostat), has contributed slightly less to growth in 2017 than in previous
years, e.g. by 0.2-0,3 percentage points in 2015.
BusinessEurope’s forecast
has shown the following predictions:
=
EU investment growth saw a strong pick-up in 2017. While investment growth is
expected to see some further improvement in the coming months, it remains
insufficient to swiftly close the pre-crisis investment gap. However, recent
analysis by the IMF, says that key investment barriers, which threaten to hold
back investment in the medium-term, remain, with the most pressing ones
relating to the availability of skilled staff, future uncertainty and stringent
business and labour market regulations. Of particular concern remains weak net
investment, which takes into account capital depreciation. Net investment in
the EU was estimated at only 3.4% of GDP in 2017; however, well below the pre-crisis
period 1995-2008 average of 6.1%.
=
Companies’ investment plans are supported by improved cost and access to
finance Companies’ investment plans are also subject to the availability and
cost of finance which have both improved over the recent years and are expected
to remain supportive in the near future.
=
Strong export growth to countries outside the EU in 2017, after a drop in
extra-EU exports in 2016. Higher EU exports come along with a strong increase
in global trade growth. Improved performance of extra-EU exports came along
with a brightening of the global trading environment. After a period of
relatively low global trade growth (at about 1.5% in 2016), global trade picked
up strongly to about 5% during 2017.
Unemployment,
inflation & public finances
While
the recovery still remains incomplete, we already see the emergence of
structural mismatches in labour markets. The strengthening of economic growth
has led to a further improvement in labour markets.
EU’s
unemployment amounted to 7.1% in mid-2018, the lowest rate since September
2008, marginally above the pre-crisis low of 6.8% in spring 2008. Unemployment
in the Euro area needs still to come down a lot more to reach its pre-crisis
level (8.5% in April 2018; 1.2 pp above rates ten years ago).
While
there are improvements, unemployment rates still remain uneven across EU
countries, with three member states still facing rates well above 10%.
Countries’
differences
While
the recovery became more broad-based, important differences remain in
countries’ growth prospects. There are with Malta, Ireland, Slovenia, Romania
and Luxembourg five countries which are expected to grow at rates above 4%,
while there are two countries (Italy and the UK), which are expected to see
growth at rates of 1.5% or less.
In
2019, growth is expected to slow or stagnate at 2018 rates in all economies but
Greece (+0.3 pp from 2018) and the Slovak Republic (+0.2). Similarly, when it
comes to unemployment strong country differences remain. While in Greece, Spain
and Italy unemployment rates are expected to remain above 10% at the end of the
forecast horizon in 2019, rates are forecast to be below 4% in such states as Hungary,
the Netherlands, Germany and the Czech Republic.
Finally, inflation is expected to exceed 2% in 12 EU countries in 2019, with the remaining 16 EU member states expected to see price increases in the range of 1.0% and 1.9%.
All
these predictions shall serve as a guiding signal in the member states
political economy decision-making.